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7 Investment Lessons From Mom
Submitted by Lance Roberts via RealInvestmentAdvice.com,
When I was growing up my mother had a saying, or an answer, for just about everything…as do most mothers. Every answer to the question “Why?” was immediately met with the most intellectual of answers; “…because I said so”.
Seriously, my mother was a resource of knowledge that has served me well over the years and it wasn’t until late in life that I realized that she had taught me the basic principles to staying safe in the world of financial investments.
So, by imparting her secrets to you I may be violating some sacred circle of motherhood knowledge, but I felt it was worth the risk to share the knowledge which has stood well the test of time.
1) Don’t Run With Sharp Objects!
It wasn’t hard to understand why she didn’t want me to run with scissors through the house – I just think I did it early on just to watch her panic. However, later in life when I got my first apartment I ran through the entire place with a pair of scissors, left the front door open with the air conditioning on, and turned every light on in the house. That rebellion immediately stopped when I received my first electric bill.
Sometime in the early 90’s, the financial markets became a casino as the internet age ignited a whole generation of stock market gamblers who thought they were investors. There is a huge difference between investing and speculating, and knowing the difference is critical to overall success.
Investing is backed by a solid investment strategy with defined goals, an accumulation schedule, allocation analysis and, most importantly, a defined sell strategy and risk management plan.
Speculation is nothing more than gambling. If you are buying the latest hot stock, chasing stocks that have already moved 100% or more, or just putting money in the market because you think that you “have to”, you are gambling.
The most important thing to understand about gambling is success is a function of the probabilities and possibilities of winning or losing on each bet made.
In the stock market, investors continue to play the possibilities instead of the probabilities. The trap comes with early success in speculative trading. Success breeds confidence, and confidence breeds ignorance.
Most speculative traders tend to “blow themselves up” because of early success in their speculative investing habits. The speculative trader generally fails to hedge against the random events that occur in the financial markets. This is turn results in the trader losing more money than they ever imagined possible.
When investing, remember that the odds of making a losing trade increase with the frequency of transactions being made. Just as running with a pair of scissors; do it often enough and eventually you could end up really hurting yourself. What separates a winning investor from a speculative gambler is the ability to admit and correct mistakes when they occur.
2) Look Both Ways Before You Cross The Street.
I grew up in a small town so crossing the street wasn’t as dangerous as it is in the city. Nonetheless, I was yanked by the collar more than once as I started to bolt across the street seemingly as anxious to get to the other side as the chicken that we have all heard so much about. It is important to understand that traffic does flow in two directions and if you only look in one direction – sooner or later you are going to get hit.
A lot of people want to classify themselves as a “Bull” or a “Bear”. The smart investor doesn’t pick a side; he analyzes both sides to determine what the best course of action in the current market environment is most likely to be.
The problem with the proclamation of being a “bull” or a “bear” means that you are not analyzing the other side of the argument and that you become so confident in your position that you tend to forget that “the light at the end of the tunnel…just might be an oncoming train.”
It is an important part of your analysis, before you invest in the financial markets, to determine not only “where” but also “when” to invest your assets.
3) Always Wear Clean Underwear In Case You’re In An Accident
This was one of my favorite sayings from my mother because I always wondered about the rationality of it. I always figured that even if you were wearing clean underwear prior to an accident; you’re still likely left without clean underwear following it.
The first rule of investing is: “You are only wrong – if you stay wrong”
However, being a smart investor means always being prepared in case of an accident. That means quite simply have a mechanism in place to protect you when you are wrong with an investment decision.
First of all, you will notice that I said “when you are wrong” in the previous paragraph. You will make wrong decisions, in fact, the majority of the decisions you will make in investing will most likely turn out wrong. However, it is cutting those wrong decisions short, and letting your right decisions continue to work, that will make you profitable over time.
Any person that tells you about all the winning trades he has made in the market – is either lying or he hasn’t blown up yet. One of the two will be true – 100% of the time.
Understanding the “risk versus reward” trade off of any investment is the beginning step to risk management in your portfolio. Knowing how to mitigate the risk of loss in your holdings is crucial to your long-term survivability in the financial markets.
4) If Everyone Jumped Off The Cliff – Would You Do It Too?
At one point or another, we have all tried with our Mom’s what every other kid has tried to since the beginning of time – the use of “peer pressure.” I figured if she wouldn’t let me do what I wanted, then surely she would bend to the will of the imaginary masses. She never did.
“Peer pressure” is one of the biggest mistakes investors repeatedly make when investing. Chasing the latest “hot stocks” or “investment fads” that are already overvalued and are running up on speculative fervor almost always end in disappointment.
In the financial markets, investors get sucked into buying stocks that have already moved significantly off their lows because they are afraid of “missing out.” This is speculating, gambling, guessing, hoping, praying – anything but investing. Generally, by the time the media begins featuring a particular investment, individuals have already missed the major part of the move. By that point, the probabilities of a decline began to outweigh the possibility of further rewards.
It is a well-known fact that the market works in what is called a “herd mentality.” Historically, investors all tend to run in one direction at one time until that direction falters, the “herd” then turns and runs in the opposite direction. This continues to the detriment of investor’s returns over long periods as shown by Dalbar investor studies.
This is also generally why investors wind up buying high and selling low. In order to be a long-term successful investor, you have to understand the “herd mentality” and use it to your benefit – which means getting out from in front of the herd before you are trampled.
So, before you chase a stock that has already moved 100% or more – try and figure out where the herd may move to next and “place your bets there.” This takes discipline, patience and a lot of homework – but you will be well rewarded for you efforts in the end.
5) Don’t Talk To Strangers
This is just good solid advice all the way around. Turn on the television, anytime of the day or night, and it is the “Stranger’s Parade of Malicious Intent”. I don’t know if it is just me, or the fact the media only broadcast news that reveals the very depths of human sickness and depravity, but sometimes I have to wonder if we are not due for a planetary cleansing through divine intervention.
Back to investing – getting your stock tips from strangers is a sure way to lose money in the stock market. Your investing homework should NOT consist of a daily regimen of CNBC, followed by a dose of Grocer tips, capped off with a financial advisor’s sales pitch.
In order to be successful in the long-run, you must understand the principals of investing and the catalysts which will make that investment profitable in the future. Remember, when you invest into a company you are buying a piece of that company and its business plan. You are placing your hard earned dollars into the belief the individuals managing the company have your best interests at heart. The hope is they will operate in such a manner as to make your investment more valuable so that it may be sold to someone else for a profit.
This is also the very embodiment of the “Greater Fool Theory,” which states that there will always be someone willing to buy an investment at an ever higher price. However, in the end, there is always someone left “holding the bag,” the trick is making sure that it isn’t you.
Also, you need to be aware that when getting advice from the “One Minute Money Manager” crew on television – when an “expert” tells you about a company that you should buy – he already owns it – and most likely he will be the one selling his shares to you.
6) You Either Need To “Do It” (polite version) Or Get Off The Pot!
When I was growing up I hated to do my homework, which is ironic, since I now do more homework now than I ever dreamed of in my younger days. Since I did not like doing homework – school projects were almost never started until the night before they were due. I was the king of procrastination.
My Mom was always there to help, giving me a hand and an ear full of motherly advice, usually consisting of a lot of “because I told you so…”
I find it interesting that many investors tend to watch stocks for a very long period of time, never acting on their analysis, buy rather idly watching as their instinct proves correct and the stock rises in price.
The investor then feels that he missed his entry point and decides to wait, hoping the stock will go back down one more time so that he can get in. The stock continues to rise, the investor continues to watch becoming more and more frustrated until he finally capitulates on his emotion and buys the investment near the top.
Procrastination, on the way up and on the way down, are harbingers of emotional duress derived from the loss of opportunity or the destruction of capital.
However, if you do your homework and can build a case for the purchase, don’t procrastinate. If you miss your opportunity for the right entry into the position – don’t chase it. Leave it alone and come back another day when ole’ Bob Barker is telling you – “The Price Is Right.”
7) Don’t Play With It – You’ll Go Blind
Well…do I really need to go into this one? All I know for sure is that I am not blind today. What I will never know for sure is whether she believed it; or if was just meant to scare the hell out of me.
When you invest into the financial markets it is very easy to lose sight of what your intentions were in the first place. Getting caught up in the hype, getting sucked in by the emotions of fear and greed, and generally being confused by the multitude of options available, causes you to lose your focus on the very basic principle that you started with – growing your small pile of money into a much larger one.
My Dad once taught me a very basic principle: KISS: Keep It Simple Stupid
This is the one of the best investment lessons you will ever receive. Too many people try to outsmart the market to gain a very small, fractional, increase in return. Unfortunately, they wind up taking on a disproportionate amount of risk which, more often than not, leads to negative results. The simpler the strategy is, the better the returns tend to be. Why? There is better control over the portfolio.
Designing a KISS portfolio strategy will help ensure that you don’t get blinded by continually playing with your portfolio and losing sight of what your original goals were in the first place.
- Decide what your objective is: Retirement, College, House, etc.
- Define a time frame to achieve your goal.
- Determine how much money you can “realistically” put toward your goal each month.
- Calculate the amount of return needed to reach your goal based upon your starting principal, the number of years to your goal and your monthly contributions.
- Break down your goal into milestones that are achievable. These milestones could be quarterly, semi-annual or annual and will help make sure that you are on track to meet your objective.
- Select the appropriate asset mix that achieves your required results without taking on excess risk that could lead to greater losses than planned for.
- Develop and implement a specific strategy to sell positions in the event of random market events or unexpected market downturns.
- If this is more than you know how to do – hire a professional who understands basic portfolio and risk management.
Conclusion:
There is obviously a lot more to managing your own portfolio than just the principles that we learned from our Mothers. However, this is a start in the right direction, and if you don’t believe me – just ask your Mother.
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Put knots on your head Ajax won't take off
They forgot the ever important, don't play with nailguns next to open windows.
Followed closely by, don't toast your bagels while taking a bath.
slow news day?
2 investment lessons from dad:
1. if you don't have the $$$ for it, you don't buy it
2. if you open a credit card (margin account) & i dare see the bill come back home, ill break your fucking legs
My son doesn't have a credit card. Ha ha ha...bless him, working hard in London and saving. This is odd, true. But he likes his legs ;-)
This world is not your mother or father's world. It is much worse than that. Traders beware.
Mom knows best.
Period.
& Mom cooks best!
As much as I love mom, she didn't tell me anything about the Federal Reserve and how it screws me yearly through inflation.
pods
Did your Dad know or anyone else? Highly unlikely. But I take your point. Still, she loved you, and that is good enough. You live. You decide. You are her finest production.
Lesson number 8:
When you look for a girl, look for one who has daddy issues
Or who is stinking rich ... really really really stinking rich
But doesn't look like Chelsea.
In my experience, all girls have daddy issues. You want the one's that you can handle ;-)
A charming post, enjoyable during the season of ostensible goodwill. Intelligent children who were loved and respected tend to apply their parent's advice in later life, as a way of keeping the connection; a good bond.
Today, my son asked me about Cuba opening up, and I said I didn't know enough about the subject for political or investment purposes, but could venture a mere opinion.
'Well, that's a first!,' he exclaimed, smiling.
Cheeky boy. Good thing he doesn't rely on me for pocket money anymore :-D
Momma told me not to marry that blonde mattress rabbit.
Shoulda listened.....
Consequences are the best teacher ;-), especially for bright, wilful children. Better luck next time, eh...
Don't eat the yellow snow.
https://www.youtube.com/watch?v=n0Qw3Foa_XE
#8 A wet dog is friendlier than a dry dog.
8) Eat your vegetables.
#1 from Dad: If you want it, earn it.
"There are two things in this world that look like Softsoap. One of them is Softsoap."
My mom has narcissistic personality disorder. Feels like she would fit right in on the trading floor.
Ha! ;-) No. She would go broke. Publishing or fashion business would suit her better...or politics. Yeah. Politics. But in her defense, she loves you, whatever her faults as you consider them to be. Just my viewpoint...
And here you are, bright, wilful; making your own way in the world. Good.
That makes two of us, PF. My mom's looks went to her head. She ended up a horribly selfish, phony, manipulative, nasty woman.
She and her conman husband also went from from riches to rags, deservedly so. Haha!
And here you are, bright and wilful.
Bertrand Russell said it was better for parents to be be a warning rather than a good example to their children. The only thing that matters is that the child lives.
As a child of the 70's, I've seen so many friends who've learned from their parents how NOT to raise their own children.
So many kids in the 70's were 'Free Range,' and practically raised by TV. If they made it, they made it, I guess. Riding in the bed of a pickup on I-285 in Atlanta was a thrill, though.
Life is thrilling. Don't give up. Fear not. Think and do.
This mom in this article is useless. It assumes fundamentals are in play.
Your mom, now we are cooking.
Kiss up to anyone in power who can help you.
Drop them like a hot potatoe the second they are of no use to you.
Be all about how things look, not how they really are. Keep up appearances at all costs.
Have no compassion for anyone, unless it makes you look good.
Throw a shit fit when you don't get your way.
She'd fit right in at the Fed.
Pop wouldn't touch the Stock Market with a 100 foot pole, he lived thru the Depression, he would do a cd ladder though although at zirp that's pretty worthless also
+ 100 When my Dad's father passed away we were cleaning out the basement and started finding bricks of alunimum foil bundles. In each bundle was about a 1000 in cash in 10's and 20's. Totaled out to about 30K. Most of it in a sand pile he used to make cement with.
They were Swedes from the old country and were whipped out when their bank folded in the Depression. They never trusted banks again - forget about the 'stock market'.
When my mother was angry with my father, she would call him a 'cold Swede', but he housed, fed and raised 4 children with my mother doing the same in a different way as a stay at home mother. Sometimes, the old ways are the best ways.
Being the old ways, I only learned about that from an aunty after my parents passed away. 'Never in front of the children.' Another old way that would serve the world well if adults could put aside their egos, and genuinely put the safety, security of the children first.
Perhaps we should all show respect for the solid, sound, solvent ways of our parents and grandparents, whatever their individual faults.
My mum's lesson imparted to me
If you don't want to suffer the indignity of poverty then learn the value of saving.
Save and be saved. Totally agree with that.
What a load of BS!
Parallel to CNBC-like narrative, purportedly alternative, honest, down-to-earth narrative is circling around as a better investment advice.
Honestly, I've heard the crap like this regurgitated many times over the last 30 years. It just flatly doesn't work because it is all unicorns and rainbows.
A small investor is going to find a good company to invest in by walking around the neigborhood or "doing the homework" with information available over the Internet?
Bull fucking crap.
I never had more money than after I stopped caring about the stock market.
The neighborhood, the neigbourhood. Got that right. We do not need lazy, overpaid politicians and bailed out banksters.
ditto. The only other bullshit to point out, "hire a professional who understands risk/reward". Absolute crap.
when I would make excuses for not doing a chore or a failing grade ma would say "if the dog wouldn't have stopped to take a shit he woulda caught a rabbit"
Dogs can't catch rabbits. A dog has about the same chance of catching a rabbit as you do being an astronaut. So you might as well take a shit if you need to.
WRONG.
Never heard of Irish coursing?
https://m.youtube.com/watch?v=AfEcsWrBVB8
Always wear a rubber, don't steal, and don't get ass-ploded.
Get ready.
Cards on the table.
I am the mother who puts her children first, and also makes money. Yeah. Trade. Yeah. Politics. Yeah. Business. Yeah. Journalism.
Remember this: your mother loves you, beyond all reason. Do not let yourself down. Be you. Be brave. Be honest.
Or as my father said: don't get angry. Get ready.
The toughest leaders in the world have been women, behind the scenes or marching with their troops. Queen Boudica. Catherine the Great. Queen Elizabeth I. Golda Meir. Indira Ghandi. Many others, names unknown.
My son and daughter are everything to me.
Get ready.
The only thing my mother knew about money was that it all came from my father, and she made sure that she spent every dollar he gave her in the least profitable way. Frankly, I never met anyone more irresponsible with a buck than good old Mommy Dearest.
Not a problem for you if you think about it. She gave you life. Decide what to do with that. My father married a beauty too. Don't whine. Make.
Your father got his jollies in minutes. 9 months or more it took your mother to make you. Stop whining.
Here's the lesson I learned: Anytime I'd place an order, it would appear on brokerage screens across the country, all naked and bare. It was the market maker's 'jawb' to take that money.
It was like advertising that I had money to throw away.
It seems someone ALWAYS managed to swipe my Puts/Calls/market orders/whatevers....
The markets are rigged by the nazionists. Never bet what you can't afford to lose. It takes a very clever or lucky monkey to outsmart the House, the monopolists; filthy liars.
If you saw them face to face as I have done, you would hang them instead of trade with them. Be brave. Be strong. Most of all, be kind, imo. Never fall down to their nasty nazionism.