2 mad myths undermining successful investing

On the second day of Christmas, Livewire gave to me...
Two mad myths to ditch from your strategy.

Investing is surrounded by myths that can easily mislead us about investing and how to make money. In this article, I’ll debunk two of the most common misconceptions.

First, I’ll uncover the truth about value investing and challenge the view that Benjamin Graham pioneered this fabled strategy. He didn’t, and this misconception has prevented many from fully embracing what it means to adopt a true value mindset.

Second, I’ll tackle the unhealthy obsession with beating the market and explain why performance alone isn’t the primary factor determining whether we find ourselves in a "Rich Dad, Poor Dad" (or mum) scenario.

I welcome any thoughts and dissenting views in the comments below. Let’s dive in!

Mad myth #1: Benjamin Graham pioneered value investing

Benjamin Graham, often dubbed the “father of value investing,” is widely credited with developing the principles around buying assets for less than their intrinsic value, and popularised this strategy in his 1949 book, The Intelligent Investor, often considered the modern investor's bible.

But did Graham truly pioneer value investing? Not quite.

Long before Graham, Hetty Green, earned the title "Queen of Wall Street" and cemented her reputation as America’s first value investor. By the time of her death in 1916, Green had amassed an estate worth over US$100 million (about US$2.8 billion today) and was known as a lender of last resort during financial crises [1].

Born in 1834 (60 years before Graham) Green applied value investing principles to navigate the turbulent markets of the Gilded Age.

What did Green invest in?

Green made substantial profits by purchasing U.S. railroad bonds at a steep discount and stepping in as a lender of last resort to wealthy individuals and even the government of New York City when they faced cash shortages during financial crises.

Her strategy closely mirrored that of Warren Buffett, one of Graham's disciples, who lent approximately US$10 billion to Goldman Sachs and Bank of America combined during the 2008 financial crisis. Buffett made multiples on his outlays as the value of their stocks and warrants rebounded, benefiting from mean reversion after the GFC [2] [3].

What were Green’s principles?

Historian Mark Higgins crafted an excellent synopsis of Green's investing philosophy. Green intuitively embraced the concept of a "margin of safety," which was later popularised by Graham. She demonstrated rigorous due diligence, ensuring minimal reliance on chance.

“Before deciding on an investment, I seek out every kind of information about it. There is no secret to great fortune-making. All you have to do is buy cheap and sell dear, act with thrift and shrewdness, and be persistent.” – Hetty Green

Despite the lack of privileges enjoyed by her male counterparts, like voting rights or seats on stock exchanges, Green became one of the most creditworthy lenders to major institutions and governments.

Crucially, she seemed to adopt these principles naturally, which enabled her navigate multiple market panics with success. On the other hand, Graham turned to value investing only after narrowly escaping financial disaster due to the leverage he took on before the 1929 market crash [4].

Why does this matter today?

The idolisation of Graham has skewed our understanding of financial history, transforming value investing from a mindset into a rigid set of rules. I highly recommend reading The Story of Hetty Green by Higgins (link in the sources below).

It’s an inspiring piece that reminds us that value investing is not just about numbers; it’s about discipline, patience, and a willingness to go against the crowd - while ensuring the numbers are overwhelmingly in your favour. It’s also about thriftiness, both in investment opportunities and life.

By focusing solely on Graham’s formalised approach, we risk overlooking the bigger picture: value investing is as much an art, and perhaps even a lifestyle, as it is a science.

Note: this wire doesn’t seek to downplay Graham’s contributions to our understanding of investing, but rather to properly sequence the evolution of value investing and place it in a broader context of how we make money.

Mad Myth #2: Beating the market is the holy grail of becoming rich

This brings us to a related myth many of us are conditioned to believe: that beating the market and generating 20%> returns each year will lead to luxurious upper class lifestyles and yachts in Croatia.

Unfortunately, this belief is as misguided as thinking a high-income job is the ultimate solution to financial problems.

Take, for example, former Socceroos Captain Lucas Neill, who went from earning up to $76,000 per week in the English Premier League to bankruptcy. Or consider the rise of the HENRYs (High Earners, Not Rich Yet), as reported by the AFR [5] [6].

When you have money, or see others doing well, it’s easy to rush to the car dealer and buy a Porsche just to keep up with the Joneses.

“Nothing so undermines your financial judgment as the sight of your neighbours getting rich.” - J. Pierpont Morgan, the great American banker

The truth is, relative performance, especially over brief time horizons, doesn’t matter as much as we think. The obsession with chasing “alpha” at all costs and mincing between 0.04% versus 0.06% ETF fees is frankly a waste of time.

What really matters, as the old adage goes, is “time in the market,” and patience rather than brilliance is always the scarcest asset in financial markets.

For example, a $50,000 investment will grow to over $300,000 over 25 years with an 8% return (slightly below the ASX's historical average of ~9%), before taxes and costs. While not as impressive as a 9% return or higher, the key takeaway is that the investment grows significantly simply by being in the market. And staying there is what truly matters.

This brings us back to Green and Buffett. Despite underperforming the S&P 500 in four of the last six years, both became some of the wealthiest individuals of their time by sticking to these fundamental principles.

• Investing lots
• Investing regularly
• Letting compounding work its magic
• Prioritising margin-of-safety over 10-bagger potential
• Being thrifty

Take heed of these debunked myths

As we approach 2025, let’s take a cue from Green and Buffett. Embrace value investing not as a rigid formula, but as a mindset, and perhaps even a lifestyle. Focus not on outperforming the market, but on building a financial foundation that endures.

Most importantly, question the myths holding you back. With these insights, I hope you’ll be better equipped to write your financial story and achieve the wealth you aspire to have!

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Sources

1. Museum of American Finance - The Story of Hetty Green, authored by Mark Higgins

2. Forbes - Warren Buffett's Bank Of America Rescue Was His Crisis-Era Masterpiece

3. Quartz - Here’s how Warren Buffett made $3.1 billion on his crisis-era bet on Goldman Sachs

4. Buffalo News - Even Legendary Benjamin Graham Made Errors

5. Daily Mail - How Socceroos legend Lucas Neill went from earning $76,000 a week in the Premier League to being flat broke and facing three years in jail

6. AFR - How to turn a six-figure salary into lifelong wealth