What I Learnt From Adam Smith About Investment and Money
18 July 2020
Who is Adam Smith?
Adam Smith (1723-1790) was a philosopher and economist who was best known for authoring the book An Inquiry into the Nature and Causes of the Wealth of Nations. Wealth of Nations also happens to be one of Warren Buffett’s favourite books.
What I Learnt From Adam Smith About Investment and Money
1. Professional investors are deemed to be smarter because they can churn out ratios at the touch of a button compared to the small investor. They are in fact, not smarter, they merely have more information
It is true that the pros have more resources at hand to subscribe to Bloomberg Terminal for example which cost a bomb. And they are deemed to be smarter.
But the truth is having more resources and information may not always result in better investment performance. Because investment performance is also a lot about managing our emotions.
2. To be a good investor, you have to be a good brain picker and brain pickers are usually good for a dinner conversation
Hence the saying too, it is not just what you know, but who you know.
This does not mean that we should ask for stock tips.
I think that what Adam might be saying here is that we should leverage on people’s views on some stocks he or she might be looking at.
It is ultimately left to our judgment, analysis, and valuation on whether the stock is worth investing or not.
3. The safest way to preserve capital is to double it
I believe in this insight of him. It is indeed the safest way because if we manage to double our money, we can withstand more draw-down and still preserve our capital.
4. The stock does not know that you own it
This is one of my favorite ones. Recently I talked to a friend, an ex MD of UBS. Even a man of his experience would agree with me that people (including myself) anchor the stock to the price we bought it at. But hey, the stock does not even know that we own it. And at what price. But humans are often very emotional about stocks and anchor them to the price we bought it at.
In the end, what matters is the value of the business, not the daily stock price movement. So in a sense, the price is meaningless, our value of it – and whether we are right or wrong is.
5. 80% of the market game is psychology
I agree. That is why I named my blog re-thinkwealth. It is to remind us to rethink our assumptions and logic. And to remind me as well that ultimately the name of the game is having good emotional control as well as a rational mind.
6. If you do not know who you are, the market is a terribly expensive place to find out
I agree. The stock market often rattles people because  they follow people blindly and do not understand what they are doing  they forgot that investing in the stock market is a combination of good emotional control as well as having a rational mind.
The information provided is for general information purposes only and is not intended to be a personalized investment or financial advice.
Important: Please read our full disclaimer.
Chris Lee Susanto
Founder of the value investing blog Re-ThinkWealth.com (if you type “value investing blog” in Google, his blog is likely the first one). Being a full-time investor himself, Chris knows that he did not beat the S&P 500 return so far (as of the time of this writing) by listening to stock tips. So, when he teaches, he also doesn’t believe in giving stock tips as it is not sustainable for you in the long run. He will teach you how to make your own intelligent decisions with his 4M1S framework. Feel free to also join his free investment telegram channel here.
Read also now:
Who is Chamath Palihapitiya? Chamath is a former Facebook executive who became a venture investor. How to invest like Chamath […]
Scientists have discovered that emotions are generally caused by our own thoughts. That means that two people in the same situation […]
For stock investors, I am a firm believer in having an optimized routine that supports us emotionally and rationally – so we can hopefully […]
2020 has been another great year for my portfolio. My portfolio is up around 81.24% for the year compared to the S&P 500 total […]
20. Does Warren Buffett Invest In Options? Yes, But It’s Not What You Think Most people will not associate The Oracle of Omaha […]
Options, Weapon of Mass Destruction? Most people will not associate The Oracle of Omaha with options. Because after all, options are […]
Bitcoin can be considered the world’s best-known cryptocurrency. Today is the 21st of November, 2020 and coincidentally, Bitcoin supply is also […]
I have been wanting to buy the Oculus Quest for the longest time. A few years ago, when Oculus first came out with The Oculus Quest, I wanted to […]
Based on the current trend of the mail-in ballots, it seems likely that Biden is going to be the victor of the US election in
Netflix currently has more than 65 million U.S. subscribers and about 195 million paid […] Their last hike for the U.S. price was in January 2019.
Being an avid follower of many investment and finance blogs or websites in Singapore, I thought why not I create an
1. Long-Term Challenge With Media Division The first thing that comes to mind when we hear SPH is the newspaper. And newspaper makes money through […]
There are many value investing lessons that I have learned throughout these past five, six years. For today, I thought to share with you eight of the value investing lessons […]
Elon Musk is a fantastic marketer and an innovative entrepreneur. I have been curious about the Tesla story for quite some time. And here are my five key takeaway from Tesla 2020 […]
Snowflake does cloud computing that implements a variable pricing model, which can be at times more attractive than fixed packages […]
The adage that “In the short run, the market is a voting machine but in the long run, it is a weighing machine.” by Benjamin Graham could not be more true over the past few days. As of 9 September 2020, […]
Yesterday (3 September 2020), the US market had its deepest one day decline since June. The S&P 500 and Nasdaq had their deepest declines since June 11 and for Dow, it was their biggest decline since June 26 […]
My Bet: In 2020, The Stock Market Will Not Crash Again. Yes, it is hard to predict where the stock market is heading in the short term. But my bet with regards to virus-related concern is that I do not think that we will crash again back to March-April Lows in 2020 just because of it […]
Think About How SIA Was When Times Was “Normal” Before we got into this COVID-19 mess, SIA is already not a great business to own even when times were “normal.” All of us know that the airline […]
In this article, I’d like to share eight signs of potential fraud in our stocks portfolio that we should be careful of. These are eight simple potential warning signs of bad financial reporting or early markers […]
3. As of 1H20, Most Earnings Paid Out As Dividends Based on AEM 1H20 reports, their cumulative capital allocation breakdown from 2017 to 1H2020 is as follows: Dividends – 47%, Acquisitions – 25%, Capex – 18%, Buybacks – 10%. It is interesting to note that […]