Why Common Sense is Your Greatest Unfair Advantage in Investing
"If investing could be reduced to a formula, the wealthiest people in the world would be mathematicians." — Edgar Wackenheim III.
After 40+ years at the helm of Greenhaven Associates, Wackenheim has proven that market-beating returns (he averaged ~18% over three decades) don't come from complex algorithms. They come from Common Sense.
Here are 3 mindset shifts from his philosophy that every long-term investor needs to hear:
1. Volatility is a Friend, Not a Risk
Most people confuse price swings with "permanent loss." Wackenheim argues that volatility is merely the market breathing. Permanent loss is a business failing; volatility is just a temporary discount. If you can’t tell the difference, you’ll sell at the bottom and buy at the top.
2. Focus on "The Cake," Not Just the "Icing"
His strategy? Buy strong, undervalued growth companies before a positive catalyst (like a new product or management change) hits the news. If the catalyst happens, you get the "icing." If it doesn't, the company’s underlying strength ensures you still get "the cake."
3. The "Three Musts" of a Successful Investor
Analysis is easy; behavior is hard. To outperform the S&P 500, you must:
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• Be a Contrarian: If everyone agrees a stock is a "buy," the value is already gone.
• Think in Probabilities: You will never have 100% of the information. Learn to act on high-probability outcomes without paralyzing hesitation.
• Control Your Emotions: Markets are driven by fear and greed. If you react to the 24-hour news cycle, you lose.
The Bottom Line:
Successful investing is about being more accurate about the future than the crowd. It requires the confidence to stand alone and the patience to let "Common Sense" do the heavy lifting.
