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.
Further Learning or Doing
- Our Telegram Channel – You can get daily updates on stocks, business, economy, and value investing knowledge from us here.
- Our Value Investing Mentorship Program – Individuals looking to learn skills to become better investors can join our effective and exclusive course, taught via one-on-one mentorship, here.
Read also now:
Just like how companies take on debt from banks and pay interest to them in order to fund their operations, selling U.S. treasury bills/bonds/notes are one way the U.S. government raise funds to finance their […]
Recently, I have come into the trap of being too focused on the short term price movements of stocks. A meaningful change that can occur in a company will not happen fast. It will take the fastest months and likely […]
Circle of competence is one of the key concepts that value investors apply to make money from the stock market. Warren Buffett often talks about the circle of competence concept but not many understood it. In this article […]
I have made a lot of mistakes in my life. I have been conned, cheated and have lost money in business deals and investments. Today is my birthday so I thought it would be good to summarize the important lessons I have learned so far about […]
Return on Invested Capital is an important formula we should look at when analyzing stocks. ROIC, in short, focuses on analyzing the profitability of a company. What is the formula for ROIC?
Return on invested capital […]
My take on SIA Retail Bond 2019 where I discussed the pros, cons and overall, my thoughts on it. And whether I would invest in it or not. A few good things to say about it, and some things I thought that people should at least be informed on. Instead of using […]
Value Investing Mentorship is created with the goal to be the most effective and exclusive value investing online program. The approach is using twelve exclusive one to one educational lessons that come with assignments to do after each session. With the benefits of […]
Having multiple streams of income is important in my life. In stock investments, most investors I know get their streams of passive income from capital gains and dividends. Getting premiums/cash flow through selling options is another strategy I often use. But all the serious investors will tell you […]
Warren Buffett said that The Intelligent Investor is the best book ever written on investing. This book contains over 600 pages of wisdom. The wisdom that serves as the building blocks for all value investors. This is The Intelligent Investor Summary. Enjoy! Warren Buffett […]
The quality of our thinking creates the quality of our life. If the above sentence is true, then Charlie Munger must have made plenty of high-quality decisions over the course of his lifetime. Charlie is currently worth about US$1.8 Billion. He is the right-hand man of Warren Buffett who […]
If you are an investor of stocks, you would know that currently (as of November 2018), we are in a (or nearing) stock market correction/bear territory. Before things get worse, here are 5 intelligent things to do during any stock market crash. Here is your playbook for successful investing:
This list summarizes 100+ of the best value investing quotes of all time. They are spoken from some of the best value investing minds in the industry that I have modeled after for my investing philosophy. Both that have passed away (Benjamin Graham) and those that are […]
Daniel Ek has built a great business with Spotify. Now that it has recently IPO-ed in 2018, is this digital music streaming service of his, invest-worthy? I am sure that by now you would most likely have heard of Spotify before. But I am sure that not many of you know that Spotify was founded and […]
But over time, I would like to invest in good businesses at a fair price instead of continuing to invest in an OK business at a cheap price. Due to Facebook’s recent drop in its share price, I took a stake in Facebook during the past few months and right now, it consists of about a quarter of my portfolio.
Before we touch on the limitations of Black-Scholes. let’s do a brief recap. In the first part of the article, we talked about how the Black-Scholes model is used to price options. They are commonly known as the options pricing model to know the fair price of the put or call options. There […]
The Black-Scholes model was first developed by three economists. Two of them – Myron Scholes and Robert Merton – received a Nobel prize in 1997 for their work in this model. The Black-Scholes model is also commonly known as the options pricing model. And as the name indicates […]
The above image is how the new Re-ThinkWealth logo looks like. As you might have noticed, it is a combination of “R” and “W” which stands for Re-ThinkWealth. At the same time, the shape of the logo embodies the resemblance of how a stock market will behave. The stock market goes down and up […]
So basically, I knew that if I cannot beat the S&P 500 return over the long run, it’s better if I just invest in the S&P 500. While the S&P 500 practices in a huge diversification of 500 big companies listed in the U.S., my U.S. portfolio practices concentration of ideas in which I am most certain about […]
I am 25 years old this year and I am always fascinated by how a change in our thinking can result in a huge change in our wealth. I am convinced by the notion that how we think creates the wealth that we have. And writing has been an integral part of it all because it gives me an avenue to pen […]
Starbucks is a company that needs not much introduction. I am sure that most of us have drunk Starbucks coffee before. And many of us have studied or did some work or caught up with a friend there. Starbucks is a familiar company that is in almost every airport around the world. Their story though started back in Seattle […]
I do admit that a business is nothing without goals, hopes, and dreams. A successful business requires the founder to have a vision and to be able to turn that vision into reality. A successful business is one that has managed to turn hopes and dreams into reality. And by reality, I mean cash. Cold hard cash. Think Apple, […]