Everything an investor needs to know in 26 tweets

Your editors at MoneySense are acutely aware that one of the only things as important as giving good advice is to give good advice often. So much of smart investing and building wealth rests with not just an understanding of sound principles. We can hear over and over that we should be diversified in what we buy. That we should keep fees as low as possible because the same compounding magic that makes our money grow over time can also eat up more than half of your returns. (Want to scare your friends at your next dinner party, without loading spreadsheets? Just go to the Wealth Game site and calculate how much you would be ahead with lower fees on long-term investments.) And we accept as fact that churning through our accounts with aggressive trading is going to make your brokerage a lot happier than it will your portfolio. The reality is that even though we learn the lessons, our biggest enemy is always our own behaviour. We seem to have trouble following through. In that spirit, we want to share a Twitter thread by Jim O’Shaughnessy, founder, chairman, and chief investment officer of O’Shaughnessy Asset Management, LLC in Stamford, CT and the author of several investing books that have become true classics, including What Works on Wall Street.

RELATED: Watch a great Google Talk with Jim O’Shaughnessy

Jim is a legendary stock picker but he was in a reflective mood last week with a May 10 series of 26 tweets that created a buzz with the investment community. His big lesson here is that whether you are a rigorous, qualitative stock picker or a passive indexer, you can be your own worst enemy. Don’t pretend you are going to be able to pick all the next winners in the market or the economy. Set yourself up for investing success, then stick to it. He admits he is never sure which of his picks will be his big winners. But stick to your investing strategy. In the U.S., still the most important market in the world, we have come through a long bull market run that has cooled a bit but could still face a sharp correction any time now. (In Canada, the slide in energy stocks has meant a lengthy stretch of weak returns for major indexes, but that doesn’t mean we couldn’t get caught up in a fresh bear cycle led by the banks and other sectors that take their cue from the U.S. market.) So don’t expect the market won’t tumble, O’Shaughnessy cautions. It always does. But even more important, and he targets passive index/ETF investors here, be careful to avoid one of the worst moves an investor can make, which is to sell when the market tumbles and get back in after it has already rebounded. That’s good advice for stock pickers and Couch Potato investors alike. A huge part of the set-it-and-forget-it strategy is to remember to forget it. Here it is, Jim’s tweet storm:

2/I don’t know how the market will perform this year. I don’t know how the market will perform next year. I don’t know if stocks will be higher or lower in five years. Indeed, even though the probabilities favor a positive outcome, I don’t know if stocks will be higher in 10 yrs.
— Jim OShaughnessy (@jposhaughnessy) May 10, 2018

4/I do know that during these corrections, there will be a host of “experts” on business TV, blogs, magazines, podcasts and radio warning investors that THIS is the big one. That stocks are heading dramatically lower, and that they should get out now, while they still can.
— Jim OShaughnessy (@jposhaughnessy) May 10, 2018

6/I know that over time, most of these investors will not return to the market until well after the bottom, usually when stocks have already dramatically increased in value.
— Jim OShaughnessy (@jposhaughnessy) May 10, 2018

8/I think I know that this cycle will repeat itself, with variations, for the rest of my life, and probably for my children’s and grandchildren’s lives as well.
— Jim OShaughnessy (@jposhaughnessy) May 10, 2018

10/I don’t know if some incredible jump in evolution or intervention based upon new discoveries will change human nature but would gladly make a long-term bet that such a thing will not happen. (www. https://t.co/swzTkNm6gT )
— Jim OShaughnessy (@jposhaughnessy) May 10, 2018

12/ I do know that perfection is a very high hurdle that most of these innovative companies will be unable to achieve.
— Jim OShaughnessy (@jposhaughnessy) May 10, 2018

14/I infer this because “about 3,000 automobile companies have existed in the United States” (https://t.co/03FxndZKqz ) and that of the remaining 3, one was bailed out, one was bought out and only one is still chugging along on its own.
— Jim OShaughnessy (@jposhaughnessy) May 10, 2018

16/I do know that by staking my claim on portfolios that are very different than the market, I have, and will continue to have, far higher career risk than other professionals, especially those with a low tracking error target.
— Jim OShaughnessy (@jposhaughnessy) May 10, 2018

18/I know that as a systematic, rules-based quantitative investor, I can negate my entire track record by just once emotionally overriding my investment models, as many sadly did during the financial crisis.
— Jim OShaughnessy (@jposhaughnessy) May 10, 2018

20/I think I know the reason for the persistence of these “cognitive mirages” is that up to 45% of our investment choices are determined by genetics and can not be educated against. (https://t.co/9c45HkutZf )
— Jim OShaughnessy (@jposhaughnessy) May 10, 2018

22/I know I don’t know exactly how much of my success is due to luck and how much is due to skill. I do know that luck definitely played, and will continue to play, a fairly substantial role.
— Jim OShaughnessy (@jposhaughnessy) May 10, 2018

24/I think I know that the majority of active stock market investors—both professional and aficionado—will secretly believe that while these human foibles that make investing hard apply to others, they don’t apply to them.
— Jim OShaughnessy (@jposhaughnessy) May 10, 2018

26/Finally, while I think I know that everything I’ve just said is correct, the fact is I can’t know that with certainty and that if history has taught us anything, it’s that the majority of things we currently believe are wrong.
— Jim OShaughnessy (@jposhaughnessy) May 10, 2018

You can click through and read the comments, and you could tell the industry and ordinary investors alike were eating this up, with many promises to bookmark it or post it on the wall for lifelong guidance. We endorse that. And remember to follow us on the Twitter. We will hit you with smart advice every day, via @MoneySense. Well done, Jim. Here is just a sampling: