Page 40 - DIY Investor Magazine | Issue 40
P. 40

  April 2024 40
DIY Investor Magazine ·
Discover the wit and wisdom of André Kostolany, the flamboyant market legend – by Hannah Barnaby
  Kostolany was a one-of-a-kind Hungarian, celebrated for his shrewd and entertaining insights on the nature of the stock market, and as a contrarian investing guru. He died aged 93 in 1999 but his sharp observations of investor psychology are as relevant today:
1.’The relation between stock exchange and economy is like a man walking his dog. The man walks slowly, the dog runs back and forth’.
Kostolany’s described the ‘animal spirits’ of the stock market; we can’t be sure what it will do next, it’s not always explicable, and may bear no relation to where we think it should be.
2. ‘Anything is possible on the stock market. Even the opposite.’
Equities are wildly unpredictable; don’t pay undue attention to expert predictions or promises to beat the market - it’s a chaotic, complex system that can defy logic.
3. ‘Don’t believe that others, when they massively buy shares, know more or are better informed. Its causes can be so different that it is practically impossible to draw consequences from it.’
Kostolany was one of the few with the foresight to short shares in the run-up to the 1929 crash; here he warns of FOMO (fear of missing out) during a market mania.
6. ‘Who does not own shares, when their prices drop, will not own shares when prices soar.’
Courage is required to buy stocks when they’re ‘on sale’. Opportunities are greatest after a market meltdown – but you’re lose out if you’re sitting in cash, waiting for signs of a revival; the bargains are gone by the time it’s obvious the danger has passed.
7. ‘You have to buy shares in a recession or crisis because the government will manage the situation by lowering interest rates and injecting liquidity.’
Kostolany did not witness the era of quantitative easing or negative interest rates, but he believed investors should always stay invested; a wily observation - remember how the central banks blasted their bazookas to restore confidence during the pandemic.
8. ‘The one who has heaps of money, can speculate, the one with little money, must not speculate, the one with even less money, must speculate.’
Tailor your wealth-building plan must to your circumstances. The very rich can afford to lose money; the worst off are forced to take large risks. Those in the middle should stick to a sensible, balanced strategy to grow wealth in the long-term.
 4. ‘Stock market profits are compensation for pain and suffering.
9. ‘I can’t tell you how to get rich quickly; I can only tell you how First comes pain, then comes money.’
to get poor quickly: by trying to get rich quickly.’
Market risk is not only real, but also the source of long-term equity returns; we can only profit from stocks by being prepared to bear the risk of reversals.
5. ‘One could win, one must lose!’
Kostolany’s version of ‘No pain, no gain!’- have the stamina and grit to endure losses as they arise; keep our heads and resist despondency until the market recovers.
Kostolany was wiped out on more than one occasion by big bets that backfired. He knows what he’s talking about!
10. ‘Buy stocks, take sleeping pills for 20 years, and stop looking at the papers. After many years, you will see: you’ll be rich.’
The old maestro knew that most people cannot stand following every twist and turn of the market, and stock-picking is stressful.

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