Discovering what life is about

The smartest advice I ever got - 40 great minds share the best money lessons they ever learned


Stocks build wealth - with no work - Bill Miller

Manager, Legg Mason Value Trust

I was nine years old, and I saw my father reading the financial pages. They didn't look like the sports pages or the comics, so I asked him what they were. He said, "Well, these are stocks." I said, "What's a stock?" And he said, "See this thing? This represents a company. And see this 'plus .25'? That means that if you own one share of this company today, you have 25¢ more than you had yesterday."

And I said, "I can have this thing yesterday, I can go to sleep, wake up and have 25¢ more and not do any work?" And he said, "Yes." I had come in from mowing the grass for three hours to earn 25¢. So the lesson I took was that in the stock market you can make money without doing any work. And since I have always had an almost infinite capacity for indolence, I thought, "This is great."

Of course, I realized only many years later that you could earn the market rate of return by doing no work, but to earn an excess rate of return certainly does require some work!


Don't follow the herd - Robert Shiller
Professor of economics, Yale University

My teacher in graduate school at MIT in 1970, Charles Poor Kindleberger, who later wrote "Manias, Panics, and Crashes," first convinced me of the social process that drives much of what goes on in speculative markets. One needs to think antisocially to excel in investing, to resist the patterns of thinking that seem mysteriously to arrive simultaneously in the minds of millions of people around the world.

People do not trust their own judgment but go along with the crowd, even when they can see truth. In a world populated with such people, there are investing opportunities for people who make the effort and do the work see clearly for themselves.


Do what you love - Dean Kamen
Segway inventor

My father was an artist who loved what he did. He'd sit at his board 12 hours a day. I once said to him, "Gee, Dad, all the other fathers have time after they come home to play ball or sit around. At the end of the day, you're working."

He put his brush down and said, "Those fathers are doctors, lawyers and bankers. When they come home, all they want to do is their hobby. My work and my hobby are the same. Find work in something you love and it won't feel like work." I listened to him. And I have been fortunate enough to work at something that I love.


Know where your money goes - Derek Jeter
Shortstop, New York Yankees

The best financial advice I've received is that you should always know where your money is. Even if you have someone who handles your finances for you, you should always be involved in the process. I learned this from my parents.


What I learned from Andrew Carnegie - Mellody Hobson
President, Ariel Investments

When I was 22, a friend who is very successful explained to me that no one ever got rich through earned income. "Look at all the great wealthy families," he said. "From Carnegie to Rockefeller, it was never how much they made at work that made them wealthy - it was their investments."

And that made me shift from thinking about a paycheck to thinking about building equity and long-term wealth. And it has helped me a lot. Instead of a raise, I ask for more stock.


Study Warren Buffett - Whitney Tilson
Founder and managing partner of T2 Partners and the Tilson Mutual Funds

About 12 years ago I was trying to learn more about personal investing. My good friend Bill Ackman, currently a hedge fund manager for Pershing Square Capital Management, told me, "Read all of Warren Buffet's Berkshire-Hathaway shareholder letters. That's all you need to know."

I've been reading them voraciously ever since. They teach the principles of sound investing: Buy a stock only when you can purchase it at a large discount from what any rational cash-paying buyer would pay per share to own the whole business.


Leave your money alone - Susan Byrne
Founder, chairman and chief investment officer, Westwood Management

Randy Root, who runs our trust arm, told me about 20 years ago to rebalance my 401(k) only once a year. It's simple, but it's saved me lots of heartache. I was a portfolio manager for other people, but I hadn't done any kind of remotely professional job with my own money.

Randy said, "Why don't you treat yourself as well as you treat your clients?" Now we make an annual appointment, rebalance, and then I don't look at my 401(k). I don't worry about it when it struggles, and leaving it alone and keeping it diversified has helped it grow nicely, even though we've had some pretty awful periods.


Be frugal but not stingy - Meir Statman
Professor of finance, Leavey School of Business, Santa Clara University

My parents told me, "Use money well, but do not waste it." I remember receiving a bicycle when I was a kid. When I asked my dad how much it cost, he wouldn't tell me. So I grew up with the sense that money is there to do good things, to support your family and others.

I like to think I'm frugal. "The Millionaire Next Door" describes millionaires who never buy a new car because its value goes down substantially after two years and so on. I buy new cars. I check with other dealerships to get the best price. But the idea that I have to live like a pauper even if I have the means to live better doesn't make any sense to me.


Use small bills - Roy Blount Jr.
Author and humorist

A bartender once told me, "Don't ever carry a bill bigger than a 20, because you'll think it's a 20, like you just did, and everybody won't be as honest as me."


Swear off debt - Elizabeth Gilbert
Author, "Eat, Pray, Love"

My father is the most frugal human being I've ever met. His most adamant instruction was that I should never under any circumstances go into debt. To this end, he passed along the message his own grandfather had taught him: "Borrowing money is like wetting your bed in the middle of the night. At first all you feel is warmth and release. But very, very quickly comes the awful, cold discomfort of reality."

That vivid image has stuck with me forever. Even when I was a diner waitress, I wouldn't let a month go by without paying off my credit card. And this adamancy has kept me warm and dry and free my whole life.


To excel at something, immerse yourself - Ed Slott
C.P.A., IRA expert and author of "The Retirement Savings Timebomb...and How to Diffuse It"

My father Bob, who was also a C.P.A., used to say, "If you really want to be good at something, you have to bathe yourself in it." He taught me that the best investment you can ever make is in your professional education, and that has been the foundation of my career.

I thought about that recently when I was giving a presentation about IR As and someone remarked, "Hey, Ed, you marinate in this stuff."


Create your own opportunities - Bobbi Brown
Founder and CEO, Bobbi Brown Cosmetics

I started working as a freelance makeup artist in 1980, and I worried that I didn't have enough money. My father told me I'd just have to figure out a way to make more money. So I started looking through the Yellow Pages and calling agencies, magazines, photographers - anyone I could offer my services to. I'd work for free until I proved myself.

Soon enough, I was getting regular calls to do their makeup. My father's advice made me feel that I was in control of my future. I realized that it was my job to find more opportunities.


Ignore the noise - Abby Joseph Cohen
Senior investment strategist, Goldman Sachs

The best advice I was given was to "ignore the noise." Financial markets are, by nature, volatile and messy. Successful long-term investing emphasizes the fundamental underpinnings of the economy and companies. These building blocks rarely shift quickly, although market prices can change frequently and dramatically even during the course of a single trading session.

Wise investors make their decisions based on a few essential elements and are not easily deterred by market gyrations. But wise investors are also willing to adjust their views when the critical variables shift or do not play out as expected. The source of this advice was my father, Raymond Joseph.


What I learned from Commodore Vanderbil - John Steele Gordon
Author, "An Empire of Wealth: The Epic History of American Economic Power"

If you take a look at my net worth, obviously I haven't received any good advice. But I've always admired Commodore Vanderbilt's advice to a young, earnest reporter: "Don't buy anything you don't want or sell anything you ain't got."

Vanderbilt was warning against speculation; he followed his own advice and died the richest self-made man in the world. I've never been an active trader - I don't have the personality for it - but Vanderbilt's advice is wonderful.


Money doesn't make you happy - Craig Newmark
Founder, Craigslist

Material stuff won't make you happy. I'm pretty sure I got the message at the Hebrew school attached to the temple in Morristown, N.J., where I grew up. Maybe I was around eight at the time.

It's very true; I'm pretty happy with a tiny fraction of the wealth I could have. I know a bunch of really rich guys, and they're no happier than anyone else.


What I learned from Rodney Dangerfield - Christopher J. Ailman
Chief investment officer, California State Teachers' Retirement System

Al Czervik from the movie "Caddyshack," played by Rodney Dangerfield, gets a call on the golf course: "Hello. It's my broker. What? Then buy, buy, buy! Oh, everyone's buying? Then sell, sell, sell!"

What I learned from Al is don't follow the herd, they are generally wrong and late. If everyone wants to buy, look around, it's probably the top. Definitely if everyone is heading for the exit, it's the bottom.


What I learned from Horace - John Bogle
Founder, Vanguard

"Whoever cultivates the Golden Mean avoids both the poverty of a hovel and the envy of a palace." I'm not sure when I first read that quotation from the Roman poet Horace, but I used it to introduce my chapter on balanced funds in "Bogle on Mutual Funds." These funds allocate investors' assets between stocks (usually about 65%) and bonds (the remaining 35%).

Today, sadly, balanced funds seem out of fashion, but the idea of the Golden Mean remains great investment advice. Asset allocation is the most important decision investors must make. It helps keep our counterproductive emotions out of the picture, assuring us of some profits when stocks rise and some protection when they fall. It also enables you to "stay the course" through thick and thin. Come to think of it, that's also a pretty good piece of advice.


Don't get too good at the wrong stuff - Timothy Ferriss
Author, "The Four-Hour Workweek"

Professor Ed Zschau at Princeton University gave me a short but powerful piece of advice. I had volunteered for the second time to clean erasers and place name placards on desks before class to get to know him.

He said with a smile, "Don't get too good at the little things" and explained that if you excel at the menial tasks, those are the responsibilities people will associate you with and give you. Get noticed for doing things that help the big picture, not for fetching coffee, and your financial picture will grow just as fast as your reputation.


Live within your means - Olivia S. Mitchell
Director, Boettner Center for Pensions and Retirement Research, The Wharton School

From an early age, my parents told me, "Save your money first and get used to living on what's left over." That message proved useful. When I first started teaching, we would get paid only during the nine months of classes. I remember saying to myself, "My goodness, I'd better budget my salary to survive the summer."

I have also tried to inculcate in my daughters the idea of putting money away before they spend it. I forced both of them to set up an IR A with their summer earnings, and I told them they would call and thank me when they turned 80. I plan on staying alive until then just so I can get that call.


You can't reliably beat the market - William Bernstein
Author, "The Four Pillars of Investing"

"Over 90% of performance is due to noise," uttered over Chinese food by Clifford Asness. This one sentence encapsulated for me the fact that superior manager returns are almost always the result of chance, not skill, and that trying to find the next Great Man is a chump's game.


Take risks when you can - Chris Larsen
Founder, E-Loan.com and Prosper.com

"Cut the lifeboats." I heard this from Jim Collins, who wrote "Built to Last" and was the best M.B.A. professor I had at Stanford. He pleaded with the class, saying, "You're young. You can fail two or three times, even lose all your money two or three times, and you'll be just fine. Taking that risk puts you in the path of wealth."

If he hadn't said that, I probably would have taken a job, like a typical M.B.A., instead of founding a company. Starting my own business seemed so risky, but maxing out credit cards or even going bankrupt isn't so risky if you do it at a young age. You'll never regret taking those risks, but you might regret it if you don't.


Tap the power of compounding - Robert Frank
Professor of management and economics, Cornell University; author, "The Economic Naturalist"

Back in some early grade at the Riverside Elementary School in Miami, the teacher asked the class to imagine that we put one paramecium on one square of a checkerboard and then it had two daughters that occupied the second square, and the two daughters each had two daughters who occupied the third square and so on. How many would you have by the time you got to the 64th square?

A lot. If you lined up all the paramecia end to end, they would reach the sun and back 6,000 times over. That lesson easily translated into money: If someone had put aside $1,000 the day I was born, with a 9.5% annual return it would be worth almost $210,000 today.


You can't fight the market, so join it - Laurence B. Siegel
Director of research, the Ford Foundation

In the 1970s I got my M.B.A. from the University of Chicago. Back then everyone was teaching the efficient-market hypothesis: the theory that it's impossible to outperform the market regularly because existing prices reflect all the information that's presently known about an asset. If you outperform, it's generally because of luck.

My school experiences taught me to buy index funds. As far as I'm concerned, they're the only starting point for an individual investor. You can't control market risks, but you can control costs.


Don't save too much - Steven Levitt
Author, "Freakonomics"

When I was a first-year assistant professor at the University of Chicago, my friend and department chair Jose Scheinkman relayed the advice Milton Friedman had given him 20 years earlier: "Don't save too much."

The logic was simple: An academic's salary rises steadily over time, as do outside opportunities (like writing popular books!). The right reason to save is so you can even out your consumption. When times are good, you should save, and when times are bad, borrow. Most likely I would never be that poor again, which meant I should be borrowing, not saving. I didn't follow the advice as fully as I should have, partly because my wife insisted we save - she is not quite as good an economist as Milton Friedman.


Buy low, sell high - David Herro
Manager, Oakmark International

I caddied for a stockbroker 30 years ago, from age 12 to 16. He told me never to forget the cardinal rule of investing: Buy low and sell high. Today I rely on a spin-off of that rule: Buy good-quality businesses at low prices, even if it's counter to the crowd, and sell high, even if what you're selling is in vogue.

People these days are buying what's in vogue - energy and emerging markets - but this means those stocks are getting more expensive. Pharmaceuticals, consumer products and financials are the opposite, and the huge valuation differences provide an opportunity for long-term investors.


It's hard to exploit a trend - Gus Sauter
Managing director and chief investment officer, Vanguard

I got my number-one piece of financial advice in an investments course at the University of Chicago business school in 1979. It may sound a little self-serving: Index investing is a great way to gain exposure to the marketplace.

The second-best advice I ever received came from a friend of my parents. He said, if you think investments are going to do something within a certain time frame, double that time frame. It could be anything from growth stocks outperforming value stocks to the dollar strengthening. That kind of advice gives you a dose of humility: It acknowledges that trying to exploit a trend is very difficult, even if you're right about it, because your timing may be all off.


Know what risk you are taking - Dan Fuss
Manager, Loomis Sayles Bond fund

I worked at the bank in Wauwatosa, Wisconsin, where I grew up, shortly after I got out of the Navy in 1958. The president of the bank, Art Kohaske, used to say, "Know your borrower." Mr. Kohaske drilled that into me: You had to know the people, know the business. And I admired him greatly.

I translated that lesson into "Know your issuer." In other words - to put it in CFA talk - know the specific risk that you're taking with a particular investment. You can apply that advice to government agencies, munis, corporate bonds, stocks - it applies big-time to stocks. That is really very, very good advice. If you really know your companies, really know them, you have a phenomenal advantage, particularly in markets like this where you get rapid movements up and down that aren't related to individual companies.


Performance is random - Nassim Nicholas Taleb
Author, "The Black Swan: The Impact of the Highly Improbable"

When I was 24, I was just learning to be a trader at Calyon Indosuez. An old French trader told me that the markets have princes but they never have kings. That could mean a lot of things, but what he meant is that nobody's thoughtful enough to make it for long without falling on his face; things change all the time.

I was already a little skeptical by nature, but he convinced me that a lot of the successes you see are just the product of luck. I pushed that to its natural conclusion, which is that most market performance is random.


Stick with what you know - Richard Weiss
Managing director and senior portfolio manager, Wells Capital Management

I think the best advice I ever got was something I gave myself: It's not always greener on the other side. When I was a young analyst, in the late 70s, I followed some really good groups - technology, media and a lot of emerging companies, small cap mostly.

The way it worked back then, and probably works today, is that you would get calls on some little company with some special thing, and they always said that although it isn't making money now, it will. Most people I knew at the time invested their clients' money in good, solid, reputable companies, while they put their own in these obscure, unknown ones.

I had an epiphany: I am following good companies already, so why should I follow these "story" companies? With the companies you understand well, you know the good parts and the bad parts. In the "story" companies, you don't see the bad. Just because you own something and are familiar with it - and maybe even bored with it - doesn't mean you should ignore it because you get whispers in your ear about something new.


You don't know more than the market knows - David Laibson
Professor of economics, Harvard University

Back in the early 1980s, at the beginning of the bull market, I had a high school teacher who was a stock picker, and he was very bullish on a housing stock, Kaufman & Broad. I was an impressionable teenager, and I invested my very limited wealth in this stock. It went through the roof. I concluded as a consequence of this experience - during a bull market, of course - that I was a brilliant investor. I start buying and selling stocks, going long, going short, going nuts.

This went on until I was in college. I made some money, and then I lost a lot of it. The real cure was the 1987 crash. It's easy to trick yourself into thinking you can outplay the market. In watching my confident investments go sour, I learned that I don't know more than the market and, thankfully, I learned that with only a few thousand dollars. Now I buy diversified portfolios through mutual funds and ETF s.


The less you pay, the more you keep - Burton Malkiel
Author, "A Random Walk Down Wall Street"

It's hard to be certain of anything in our uncertain financial markets. But I feel very confident about one piece of advice: Minimize your investment expenses. The less you pay in mutual fund fees, brokerage costs, sales fees and taxes, the greater your net return.


What I learned from Ben Graham - Jean-Marie Eveillard
Manager, First Eagle Funds

It was 1968, and I was in Central Park with two French students who told me about Benjamin Graham's book, "The Intelligent Investor," which turned out to be about common sense. It has three lessons. The first is humility, that the future is uncertain. There are people on Wall Street who will predict the Dow will be at a certain level, but that is nonsense. The second thing is that because the future is uncertain, there's a need for caution.

The third thing was especially important. Graham values the idea that securities can be more than just paper. You should try to figure out the intrinsic value of a business. In the short term, the market is a voting machine where people vote with their dollars, but in the long term, it's a weighing machine that measures the realities of business.


Always get it in writing - Dave Barry
Humor columnist

I got my best financial advice when I was 16. I met this kid who was only eight, but he seemed smart, and he said, "If you give me $5, I'll invest it in a company I plan to start someday. In return I'll pay you 10% of the profits."

That young man was Bill Gates. I'm sure he'll remember this, now that it has been revealed in a reputable magazine.


Be humble about what you don't know - Richard Branson
Chairman, Virgin Group

Until the late 1980s, I have to confess, I was still confusing gross profit with net. Every now and then I would fake it, but not too well. One of my board members finally pulled me aside to give me a mnemonic, or memory aid, which often comes in handy for dyslexics.

He said, "Pretend you're fishing. Net is all the fish in your net at the end of the year. Gross is that plus everything that got away." It has proved invaluable ever since and remains the best financial advice I ever got.


Develop a healthy skepticism - Ed Zore
President and CEO, Northwestern Mutual

I started out as a stock trader in Northwestern Mutual's investment area. I was very young and eager to learn everything I could. I remember looking through a list of stocks in the company's portfolio and wondering why we didn't buy more of the highest-yielding stocks.

When I asked the portfolio manager, he informed me that when a stock offers a dividend that's high for its category, it can mean that the dividend is in jeopardy. That's when I learned that if a stock looks like it's offering you a free lunch, you should find a different restaurant.


Ignore short-term market swings - Christopher Browne
Chairman, Tweedy Browne

I was leaving the office at the end of Black Monday, the day of the '87 crash, and Joe Reilly, one of the founders of my firm, then probably 85 years old, was punching out some quotes. I said, "Quite a day, wasn't it, Joe?" "Yep." "Does it remind you of 1929?" "No," he said, perfectly cheerful. "Very different. There was no money in '29. Today there's still lots of it, a lot of bottom fishers. They have a way of putting nets under these stocks."

And of course, he was right. I realized that if this 85-year-old was not perturbed by the worst day in stock market history, there was no need for me to be. If you're comfortable with the stocks you own, if they're solid businesses and you haven't borrowed a lot to buy them, let the market do its worst. You don't have to do something dramatic just because the market had a bad day.


Sell for the right reason - Don Phillips
Managing director, Morningstar

Tom Mathers, founder of the Mathers Fund, shared these words of wisdom at an early Morningstar Conference: "If you find a great growth company, don't sell it just because it gets a little pricey - you may never get back in again." He told a charming story about how he and his wife were redecorating their home in the 1960s and wanted to buy a piano.

Tom held some shares in Disney, and while he liked the company, he thought its stock price was a bit rich at the time, so he sold the Disney stock to fund the purchase of the piano. Tom never got back into Disney and instead watched it rise and rise. Years later Tom would walk through his living room, see the piano and mutter to himself, "That's the most expensive damn piano on the face of the planet!"


Careful of people you trust - Scott Adams
Creator of "Dilbert"

When I worked in a bank, I learned that the only people who screw you are the people you trust. The people you don't trust never get the chance. So keep an eye on the people you trust.


What I learned from J.P. Morgan - Bill Gross
Managing director, Pimco

On my office walls are pictures of three people: J.P. Morgan, who taught me that it is character, not assets, that counts most; Jesse Livermore, who taught me that it is important to "know thyself"; and Bernard Baruch, who taught me that "two and two always equal four" and that no one has ever invented a way to get something for nothing.


What I learned from Johnny Carson - Bill Nygren
Manager, Oakmark Select Fund

Back when I was in college, I remember watching Johnny Carson interview Andrew Tobias, who was giving personal financial advice. Johnny asked: "What's the best investment for someone who has only $1,000?" Mr. Tobias said, "Nonperishable consumer staples."

Of course, the audience roared. But Mr. Tobias was being serious and said that if you purchase nonperishables when they are on sale, the return on investment is enormous. That answer focused me on the idea that investing wasn't only about stocks and bonds but rather was a mind-set for making sense of all of the transactions a consumer engaged in.


Ref : http://money.cnn.com/galleries/2008/pf/0807/gallery.smartest_advice.moneymag/index.html?section=money_pf

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Categories : Finance    Themes : Wisdom
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