- Level: For advanced
- Reading duration: 7 minutes
Let’s see what we can learn from the old master
1."The relation between stock exchange and economy is like a man walking his dog. The man walks slowly, the dog runs back and forth".
This is Kostolany’s description of the “animal spirits” of the stock market. We can never be sure what it will do next, it’s not always explicable and, at times, it may bear no relation at all to where we think it should be going.2. “Anything is possible on the stock market. Even the opposite.”
The wild unpredictability of equities means we shouldn’t pay undue attention to expert predictions or promises to beat the market. In the short term, it’s a chaotic, complex system that can defy logic.3. “One must not believe that others, when they massively buy shares, know more or are better informed. Its causes can be so different that it is practically impossible to draw consequences from it.”
Kostolany was no stranger to stock market bubbles – he was one of the few who had the foresight to short shares in the run-up to the 1929 crash. Here he warns us not to get sucked in by FOMO (=fear of missing out) during a market mania.4. “Stock market profits are compensation for pain and suffering. First comes pain, then comes money.”
Kostolany reminds us that market risk is not only real but also the source of long-term equity returns. Ultimately, we can only profit from stocks by being prepared to bear the risk of reversals.
5. “One could win, one must lose!”
This is Kostolany’s version of “No pain, no gain!” We must have the stamina and grit to endure our losses as they arise. Whenever that happens, our task is to keep our heads and resist despondency until the market recovers.6. “Who does not own shares, when their prices drop, will not own shares when prices soar.”
Building on his theme of being able to take the pain, Kostolany spells out the courage that’s required to buy stocks when they’re “on sale”. Profitable opportunities are typically greatest after a market meltdown – but you’re liable to lose out if you’re just sitting in cash, waiting for signs of a revival before investing again. The bargains are usually gone by the time it’s obvious the danger has passed.7. “You have to buy shares in a recession or crisis because the government will manage the situation by lowering interest rates and injecting liquidity.”
Kostolany did not witness the era of quantitative easing and negative interest rates but this wily observation explains why he believed investors should always stay invested. We only need remember how the central banks blasted their bazookas to restore confidence during the pandemic to realise how far-sighted he was.8. “The one who has heaps of money, can speculate, the one with little money, must not speculate, the one with even less money, must speculate.”
Here Kostolany addresses why your wealth-building plan must be tailored to your circumstances. The very rich can afford to lose money. The worst off are forced to take large risks. Those in the middle should avoid the urge to swing for the fences and stick to a sensible, balanced strategy that will grow your wealth in the long-term.9. “I can’t tell you how to get rich quickly; I can only tell you how to get poor quickly: by trying to get rich quickly.”
Kostolany was wiped out on more than one occasion by big bets that backfired. He knows what he’s talking about!10. “Buy stocks, take sleeping pills for 20 years, and stop looking at the papers. After many years, you will see: you’ll be rich.”
The old maestro knew that most people cannot stand following every twist and turn of the market. Stock-picking is stressful but there’s a better alternative: a buy-and-hold ETF strategy that can be left alone to grow.justETF Tipp: Visit our justETF academy to find out more about the right way to invest.
