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Why Not Being Stupid Beats Being Smart

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In recent months, the Hong Kong stock market’s performance has given us little to complain about. The Hang Seng Index hovers around 30,000 points, and some individual stocks have been growing even faster. When times are good, like they are now, it seems that every financial commentator can’t wait to share an opinion about which stock will be the next superstar. But unless the people making those predictions are prophets, their visions of future growth should matter far less to you than your own careful research.

If investing were easy – if we really could predict the future – everyone would be a millionaire, and no one would ever need to learn anything about the stock market. But the market is ever-changing, filled with imperfect information. It’s hard enough to make a profit from the stock market even with study and effort, much less when you’re indulging in impulsive speculation.

We have to cultivate a healthy fear of the market, and a keen sense of our own limitations, so that we won’t make silly mistakes.

These are dangerous times to invest

Since 2015, the people of Hong Kong have become crazy about buying properties and stocks. We can see evidence of this in the long queues to open accounts at securities houses. The hot market has drawn in so many people, and made so many people overconfident in their stock-picking abilities, that we’re even seeing some fund managers get investing advice from people with no financial background.

In short, it’s easier than ever for us to make massive market mistakes. Don’t get distracted by TV investing pundits and their predictions of upcoming market trends. Focus instead, like Munger does, on digging deeply into the companies that interest you, and making certain that they offer a well-run business that deserves your investment.

We’re not suggesting you ignore well-meant advice from family and friends. The people close to you can often offer good counsel. But ultimately, the responsibility for your investing choices rests only with you. Before you take any action in the stock market, make sure you’ve taken enough time to fully understand what you’re doing, and all the risks that come with it.

Consider the advice of Charlie Munger, one of the legendary investors behind Berkshire Hathaway: “It is remarkable how much ” Sometimes, you can find greater success by simply avoiding errors than by striving for huge wins.

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Johnny Chan does not own shares of any companies mentioned. Motley Fool Hong Kong is not licensed by the Hong Kong Securities and Futures Commission to carry out any regulated activities under the Securities and Futures Ordinance.