Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 566

The 9 most important things I've learned about investing over 40 years

I have now been in the investment world for 40 years. I first looked at the lessons I learned in 2019. But they haven’t changed much since. Much has happened over the last 40 years with each new crisis invariably labelled ‘unparalleled’ and a ‘defining event’: the 1987 crash; the US savings and loan crisis and the recession Australia ‘had to have’ around 1990; the Asian/LTCM crisis in 1997/1998; the late 1990s tech boom and the tech wreck in 2000; the mining boom and bust; the GFC around 2008; the Eurozone crisis that arguably peaked in 2012 but keeps recurring; China worries in 2015; the pandemic of 2020; and the resurgence of inflation in 2021-22. The period started with deregulation and globalisation but is now seeing reregulation and de-globalisation. It’s seen the end of the Cold War, US domination and the rise of Asia and China but is now giving way to a new Cold War. And so on. But the more things change the more they stay the same. And this is particularly true in investing. So, here’s an update of the nine most important things I have learnt over the past 40 years.

#1 There is always a cycle – stuff happens!

A constant is the endless phases of good and bad times for markets. Some relate to the 3-to-5-year business cycle, and many of these are related to the crises listed above that come roughly every 3 years. See the next chart. Some cycles are longer, with secular swings over 10 to 20 years in shares.

Debate is endless about what drives cycles. But all eventually contain the seeds of their own reversal and often set us up for the next one with its own crisis, often just when we think the cycle is over. So cycles & crisis are not going away. Ultimately there is no such thing as ‘new normals’ and ‘new paradigms’ as all things must pass. Also, shares often lead economic cycles, so economic data is often of no use in timing turning points in shares.

#2 The crowd gets it wrong at extremes

Cycles show up in investment markets with reactions magnified by bouts of investor irrationality that take them well away from fundamentally justified levels. This flows from a range of behavioural biases investors suffer from and so is rooted in investor psychology. These include the tendency to project the current state of the world into the future, the tendency to look for evidence that confirms your views, overconfidence, and a lower tolerance for losses than gains. While fundamentals may be at the core of cyclical swings in markets, they are often magnified by investor psychology if enough people suffer from the same irrational biases at the same time. From this it follows that what the investor crowd is doing is often not good for you to do too. We often feel safest when investing in an asset when neighbours and friends are doing the same and media commentary is reinforcing the message that it’s the right thing to do. This ‘safety in numbers’ approach is often doomed to failure. Whether it’s investors piling into Japanese shares at the end of the 1980s, Asian shares in the mid-1990s, IT stocks in 1999, US housing and credit in the mid-2000s. The problem is that when everyone is bullish and has bought into an asset there is no one left to buy but lots of people who can sell on bad news.

#3 What you pay for an investment matters – a lot!

The cheaper you buy an asset the higher its return potential. Guides to this are price to earnings ratios for shares (the lower the better) and yields, ie, the ratio of dividends, rents or interest to the value of the asset (the higher the better). Flowing from this it follows that yesterday’s winners are often tomorrow’s losers – as they get overvalued and over loved. But many find it easier to buy after shares have had a strong run because confidence is high and sell when they have had a big fall because confidence is low.

#4 It’s hard to get markets right

The 1987 crash, tech wreck and GFC all look obvious. But that’s just Harry Hindsight talking! Looking forward no-one has a perfect crystal ball. As JK Galbraith observed, “there are two kinds of forecasters: those who don’t know, and those who don’t know they don’t know.”

Usually the grander the forecast – calls for ‘great booms’ or ‘great crashes’ – the greater the need for scepticism as such calls invariably get the timing wrong (so you lose before it comes right) or are dead wrong. Market prognosticators suffer from the same psychological biases as everyone. If getting markets right were easy, prognosticators would be mega rich and would have stopped long ago. Related to this, many get it wrong by letting blind faith – ‘there is too much debt’, ‘house prices are too high’ – get in the way of good decisions. They may be right one day, but an investor can lose a lot of money in the interim. The problem for ordinary investors is that it’s not getting easier. The world is getting noisier with the rise of social media which has seen the flow of information and opinion go from a trickle to a flood and the prognosticators get shriller to get clicks. Even when you do it right as an investor, a lot of the time you will be wrong – just like Roger Federer who noted that while he won almost 80% of the 1526 singles matches in his career, he won only 54% of the points, or just over half. It’s unlikely to be much better for great investors. For most investors its best to focus on the long-term trend in returns – ie, the green line as opposed to the blue line in the first chart.

#5 Investment markets don’t learn, well not for long!

German philosopher Georg Hegel observed “The one thing that we learn from history is that we learn nothing from history”. This is certainly the case for investors where the same mistakes are repeated over and over as markets lurch from one extreme to another. This is despite after each bust, many say it will never happen again, and the regulators move in to try and make sure it doesn’t. But it does! Often just somewhere else or in a slightly different way. Sure, the details change but the pattern doesn’t. As Mark Twain is said to have said: “History doesn’t repeat, but it rhymes”. Sure, individuals learn and the bigger the blow up, the longer the learning lasts. But there’s always a fresh stream of new investors so in time collective memory dims.

#6 Compound interest is key to growing wealth

This one was drummed into me many years ago by my good friend Dr Don Stammer. Based on market indices and the reinvestment of any income flows and excluding the impact of fees and taxes, one dollar invested in Australian cash in 1900 would today be worth around $259 and if it had been invested in bonds it would be worth $924, but if it was allocated to shares it would be worth around $879,921. Although the average annual return on Australian shares (11.6% pa) is just double that on Australian bonds (5.6% pa) over the last 124 years, the magic of compounding higher returns leads to a substantially higher balance over long periods. Yes, there were lots of rough periods along the way for shares, but the impact of compounding returns on wealth at a higher long-term return is huge over long periods. The same applies to other growth-related assets such as property. So, to grow your wealth you need to have a decent exposure to growth assets.

#7 It pays to be optimistic

Benjamin Graham observed that “to be an investor you must be a believer in a better tomorrow”. If you don’t believe the bank will look after your deposits, that most borrowers will pay back their debts, that most companies will grow their profits, that properties will earn rents, etc, then you should not invest. Since 1900, the Australian share market has had a positive return in roughly eight years out of ten and for the US share market it’s roughly seven years out of 10. So, getting too hung up worrying about the two or three years in 10 that the market will fall risks missing out on the seven or eight years when it rises.

#8 Keep it simple, stupid

We have a knack for overcomplicating investing. And it’s getting worse with more options, more information, more apps and platforms, more opportunities for gearing, more fancy products, more rules and regulations. But when we overcomplicate things we can’t see the wood for the trees. You spend too much time on second order issues like this share versus that share or this fund manager versus that fund manager, or the inner workings of a financially engineered investment so you end up ignoring the key drivers of your portfolio’s performance – which is its high-level asset allocation across shares, bonds, and property. Or you have investments you don’t understand or get too highly geared. So, it’s best to keep it simple, don’t fret the small stuff, keep the gearing manageable and don’t invest in products you don’t understand.

#9 You need to know yourself

The psychological weaknesses referred to earlier apply to everyone, but smart investors seek to manage them. One way to do this is to take a long-term approach to investing. But this is also about knowing what you want. If you want to take a day-to-day role in managing your investments then regular trading and/or a self-managed super fund (SMSF) may work, but that will require a lot of effort to get right and will need a rigorous process. If you don't have the time and would rather do other things like sailing, working at your day job, or having fun with the kids then it may be best to use managed funds or a financial planner. It’s also about knowing how you would react if your investment just dropped 20% in value. If your reaction were to be to want to get out, then you will either have to find a way to avoid that as you would just be selling low and locking in a loss or if you can’t then you may have to consider an investment strategy offering greater stability over time and accept lower potential returns.

What does all this mean for investors?

All of this underpins what I call the Nine Keys to Successful Investing:

1. Make the most of the power of compound interest. This is one of the best ways to build wealth, but you must have the right asset mix.

2. Don’t get thrown off by the cycle. Cycles can throw investors out of a well thought out investment strategy. And they create opportunities.

3. Invest for the long-term. Given the difficulty in getting market moves right in the short-term, for most it’s best to get a long-term plan that suits your level of wealth, age and tolerance of volatility and stick to it.

4. Diversify. Don’t put all your eggs in one basket. But also, don’t over diversify as this will just complicate for no benefit.

5. Turn down the noise. After having worked out a strategy that’s right for you, it’s important to turn down the noise on the information flow and prognosticating babble now surrounding investment markets and stay focussed. In the digital world we now live in this is getting harder.

6. Buy low, sell high. The cheaper you buy an asset, the higher its prospective return will likely be and vice versa.

7. Beware the crowd at extremes. Don’t get sucked into the euphoria or doom and gloom around an asset.

8. Focus on investments you understand and that offer sustainable cash flow. If it looks dodgy, hard to understand or has to be based on odd valuation measures, lots of debt or an endless stream of new investors to stack up then it’s best to stay away.

9. Seek advice. Given the psychological traps we are all susceptible to and the fact that investing is not easy, a good approach is to seek advice.


Dr Shane Oliver is Head of Investment Strategy and Chief Economist at AMP. This article has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs.


John Batchler
July 01, 2024

I think most of the comments I read so far reflect the personal opinions of individual semi-professional investors, what I reckon is that Shane is on about is the average punter (General Clients) of Financial Advisers. His expressions on each aspect are I believe spot on and unfortunately, many advisers complicate the basis of long-term investments as opposed to what happened in the last 5-10 years and switch and replace many fine long-term investments based on short-term performance, it's prudent long term investments and the effects of compound interest that will prevail over the longer term and ultimately be the best investments for most clients.

John Batchler
Retired Adviser

Graeme Taylor
July 01, 2024

very well written & tks

June 30, 2024

And avoid many of the retail and bank managed funds like AMP. Witness the many that fled those and went to the industry funds after the Hayne royal commission.

June 30, 2024

Another important one is you need to understand taxation & Super rules. Don't just rely on advisors to manage this for you. You need to also understand it so you're not left in the dark about it & relying on others. As painful & boring as these topics may be to many people, they're extremely important in making & keeping your wealth.

July 01, 2024

But that is what a competent FP should be doing for you. Educating you about tax and super and helping you manage your financial situation.

Steve Dodds
June 29, 2024

I agree with all of Shane's points when it comes to shares, bonds and so forth.

But I wonder how one squares the property market, Australian's preferred avenue for wealth creation, with this wisdom.

For the forty years I too have been investing, it appears to trample every one of the keys.

Property buyers don't care about yield, don't believe in cycles, don't think long-term, don't diversify, thrive on the noise, follow the crowd, buy high, ignore cash flow, and ignore advice.

And yet every time I've said, over the past 40 years, that this can't continue I have been proved wrong.

I've done well investing in shares and bonds following similar principles to Dr Oliver. But I would have done just as well ignoring these principles and throwing money at property.

June 30, 2024

Thus lesson 101 is learned. Don't put all your eggs into the one basket. Property and shares are a great mix IMHO. As I reflect over the last 40 years, dirt has been a great ride. The buildings on top of the land have been a bonus because they provide cashflow.

Pete K
June 30, 2024

You make a vitally important and valid point Steve. Apart from within property investor circles, property - especially residential, is largely ignored as a valid investment vehicle. Yet many, including me, do it.

Property has something that few other investments have - it is finite. There can only be so many properties within 5 km of the CBD, along the riverside/ocean front, etc. And as people gain wealth from any/all sources they will tend to gravitate to these more sought after locations, pushing up prices.
Areas further away become relatively cheap and so get "gentrified" and dragged up in price too.

There are other big advantages in home investments: a well located, decent home will always rent - yes, up and down over cycles, but maybe more importantly, will never go out of business (unless the investor is excessively geared) and finally, unlike any other financial investment except perhaps owning your own business - you can influence the outcomes. You can renovate, extend, subdivide, change the rent up or down, etc., none of which are remotely possible if you hold BHP or CBA shares for example.

Property investment, including our own home has been both good and bad for me, but still forms the biggest part of my retirement investments along with shares, etc.

Jeff O
June 27, 2024

A valuable list with great insights

One or two to add - structuring, after tax & gearing/good debt and include any direct properties (your home is probably your biggest investment except for your self)

Stress test - capital & liquidity the main drivers of sustainable resilient returns


Leave a Comment:



23 lessons about money and investing

Improving financial literacy for women is a necessity

Five strategies to match your investing to your behaviour


Most viewed in recent weeks

Meg on SMSFs: Clearing up confusion on the $3 million super tax

There seems to be more confusion than clarity about the mechanics of how the new $3 million super tax is supposed to work. Here is an attempt to answer some of the questions from my previous work on the issue. 

Welcome to Firstlinks Edition 566 with weekend update

Here are 10 rules for staying happy and sharp as we age, including socialise a lot, never retire, learn a demanding skill, practice gratitude, play video games (specific ones), and be sure to reminisce.

  • 27 June 2024

Australian housing is twice as expensive as the US

A new report suggests Australian housing is twice as expensive as that of the US and UK on a price-to-income basis. It also reveals that it’s cheaper to live in New York than most of our capital cities.

The catalyst for a LICs rebound

The discounts on listed investment vehicles are at historically wide levels. There are lots of reasons given, including size and liquidity, yet there's a better explanation for the discounts, and why a rebound may be near.

How not to run out of money in retirement

The life expectancy tables used throughout the financial advice and retirement industry have issues and you need to prepare for the possibility of living a lot longer than you might have thought. Plan accordingly.

The iron law of building wealth

The best way to lose money in markets is to chase the latest stock fad. Conversely, the best way to build wealth is by pursuing a timeless investment strategy that won’t be swayed by short-term market gyrations.

Latest Updates

Financial planning

Our finances should enable and not dictate our lives

Most people would prefer to have more money than less of it. But at what point do the trappings of wealth and success start to outweigh the benefits of striving for more?


This vital yet "forgotten" indicator of inflation holds good news

Financial commentators seem to have forgotten the leading cause of inflation: growth in the supply of money. Warren Bird explains the link and explores where it suggests inflation is headed.


Emerging market equities are ripe with opportunity

Emerging markets offer compelling value compared to history and the stretched valuations of developed market equities. Investors can benefit from three big tailwinds, but only if they are selective.


Tomorrow's taxpayers pay for today's policy mistakes

Less affordable housing isn't the only thing set to weigh on Australia's younger generations. If new solutions for pension deficits and the use of resource revenue aren't found quickly, tomorrow's taxpayer will foot the bill.

How would a switch to nuclear affect electricity prices?

The Coalition's plan to build seven nuclear power stations in 15 years faces scrutiny due to high costs and slow construction. And it is unlikely the investment would yield cheaper energy for Australian households and industry.


Reader feedback from our 2024 survey

Articles that are easy to understand, quick to read, and credible; being able to engage via the comments section; and keeping Firstlinks free and independent are just some of the features valued by our readers.


Have your say on Firstlinks and the topics we cover

We’d love to hear your thoughts on Firstlinks and how we can make it better for you. If you’d like to help us out in a just a couple of minutes, please take our short survey.



© 2024 Morningstar, Inc. All rights reserved.

The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.