Suggestion 1: believe in history

History will repeat itself again and again, and you will be in danger if you forget this one. All bubbles will burst and all investment frenzy will disappear. During the investment frenzy, vested interests as well as the media and analysts constantly encourage you to assure you that the current economic situation is unparalleled, the investment situation is optimistic, and the real economy has higher and more lasting growth potential. even if these views come from the Fed itself, you should ignore them and not be influenced too much by them.

If the market is going to rise more violently, it is just getting farther and farther away from the value of true justice. But in the end, the market will let you down, and it may fall back to a reasonable level of value in the midst of your extreme pain and impatience. The task of investors is to survive such market volatility, here are more specific measures.

Suggestion 2: don't be a borrower or a lender.

If you borrow money to invest, it will interfere with your ability to invest. Unleveraged portfolios cannot be cut off, and leveraged investments face this risk. Leverage can damage the patience of investors themselves. Lending encourages financial radicalism, which makes investors more reckless and greedy. It will increase your return temporarily, but in the end it will suddenly destroy you. It allows people to afford things that they may not be able to pay in the future. It has been proved to be extremely seductive, and both individuals and groups have proved unable to resist it, as if it were a hypnotic drug.

The government also seems to have proved itself incapable of resistance since the middle of the last century, especially now. Any sound society must recognize the temptation and addiction harm of debt to human beings and restrict it through corresponding laws. There should be no tax credit for interest payments. The debt accumulated by the government should be reasonably limited, for example, not reaching 50% of GDP, and 10 or 20 years should be given to correct the current debt problem.

Suggestion 3: don't put all your assets in one boat

This is probably one of all investment advice. Businessmen realized this 2000 years ago. Allocate your investments in several different areas and as much as possible, which can increase the resilience of your portfolio and enhance your ability to withstand shocks. Obviously, when your investments are numerous and varied, the more likely you are to survive a critical period of decline in your major assets.

Suggestion 4: be patient and focus on the long term

Investors should wait patiently for good cards. If you wait long enough, the market price may become very cheap, which is the margin of safety of your investment. So what investors need to do now is to endure the pain of waiting in the face of better investment opportunities until some of them become extremely good.

Individual stocks usually bounce back from the bottom, and the market as a whole is cyclical. If you follow the above rules, in the long run, you will benefit from the temporary bad situation facing individual stocks, because you can buy stocks at a lower price.

Tip 5: recognize your comparative advantage over professionals

By far, the biggest problem facing professionals is that, as investment agents, they have to protect their careers first, which makes them have scruples in investing. The second problem for investment professionals is that they have to be active in investing because of the need for ranking. It is almost impossible for professional institutional investors that individual investors can be more patient and wait for the right price, regardless of what others are doing.

Suggestion 6: try to control optimism in human nature

Optimism can be a positive feature of survival. We humans are an optimistic species, and successful people are likely to have higher-than-average levels of optimism. People in some countries and regions are more optimistic than others. I think the United States is a relatively more optimistic country. This boosts the real economy. For example, the United States encourages risk-taking, and failed entrepreneurs are respected.

However, optimism is a drawback for investors, especially when optimistic investors don't like to hear bad news. If someone tells you that there is a bubble in the real estate market, he will be criticized. In the US stock market bubble in 2000, bad news was as hateful as the plague. Bearish professionals will be fired simply because people don't want to hear discordant voices about the bull market. This example shows that when things look good, taking it away from people can make people very unhappy, even if it's just talk. In this frenzied situation, individual investors are more likely to remain calm than professional investors surrounded by news (and sometimes fanatical clients). In fact, it is definitely not easy, but it is relatively easier.

Recommendation 7: try to be brave in a rare situation

When extreme opportunities are presented to you, you can invest more of your money than professional institutional investors. So, if the numbers tell you that this is really a seriously underpriced market, grit your teeth and bravely join in.

Suggestion 8: stay away from the crowd and focus only on value

In real life, the emotion of the individual to the group is irresistible. It's torture for you to see your neighbor get rich in a speculative bubble and you stay out of the market all the time. The best way to resist crowd agitation is to focus on the intrinsic value of individual stocks you calculate, or to find a reliable source of value measurement (check their calculations from time to time). Then worship these values like a hero and try to ignore everything.

In particular, ignore the short-term news: the ups and downs of the economy and unimportant news released by the government. Stock value is based on the company's dividend income and cash flow earnings over the next few decades. The short-term economic downturn has no significant impact on the long-term value of companies, let alone the broader asset class. Stay away from so-called professionals who try to decipher market trends in the short term, and they will lose money in the long run.

Remember, the great opportunities to avoid grief and make money for investors are numerically obvious: compared with the long-term average price-to-earnings ratio of 15 times for the US stock market, 21 times at the peak of the market in 1929 and 35 times for the S & P 500 at the peak of the dotcom bubble in 2000! In contrast, at the 1982 low, the price-to-earnings ratio was eight times earnings. It's not complicated.

Suggestion 9: investing is really quite simple.

GMO has a simple and healthy way of forecasting returns for different asset classes: assuming that profit margins and price-to-earnings ratios will be close to the long-term average over a seven-year cycle.

Since 1994, GMO has completed 40 quarterly forecasts. From the statistics of more than 40 expectations, they are valid, and some of the data are surprisingly accurate. These estimates are not too complex mathematical theories, they are just made by GMO ignoring the influence of group emotions, using simple ratios, and being patient.

The problem is that while they may be predictable, it is difficult for professionals to use them because of performance pressure, while it is much easier for individual investors to use them.

Tip 10: be true to yourself

As an individual investor, you must understand your strengths and weaknesses. If you can wait patiently and ignore the temptation of the group, you are likely to win. But if you adopt a flawed approach, be seduced and intimidated by the group, follow the crowd, enter the market at the late stage of the rally, or leave the market at the beginning of the rally, it is disastrous for investment. You must know exactly the threshold of your pain and patience. If you can't resist temptation, you will never manage your money well.

There are two perfectly reasonable alternatives: hiring investment managers with these skills is actually more difficult for investment managers to maintain a detached mindset in front of the crowd. Or you can invest in diversified stock and bond indices around the world and try not to worry about it until you retire. On the other hand, if you are patient, have a high threshold of tolerance, have the psychological endurance of non-conformity, and have a college-level knowledge of mathematics and a lot of common sense, then you can invest.