Take a look at every recession we’ve been able to measure. How did the stock market respond? What can we learn from the past that is predictive of this moment? The answer is almost nothing.  

I heard an old Norm Macdonald joke once that went something like this:

An optimist looks at the glass as half full. A pessimist looks at the glass as half empty. I’m a pessimist and I look at the glass as half full…but I might have bowel cancer.

I am a glass-is-half-full guy but tend to lean optimistic unlike Norm. Just think about all that we’ve accomplished as a species.

Charlie Munger, who worked alongside Warren Buffett at Berkshire Hathaway for decades, died Nov. 28, 2023, at age 99, a little more than a month shy of his 100th birthday. Munger enlightened many investors about the value of practical, fundamentals-based investing—and he did so with a wry humor that will sorely be missed.

It’s easy for me to make a list of ideas from Warren Buffett and his partner Charlie Munger at Berkshire Hathaway that have influenced my own thinking and that of my fellow Buffett-heads here at Morningstar. The hard thing is confining the list to only 12. But here goes.

Recent retirees haven’t had an easy time of it lately. When stock and bond prices both plummeted in 2022, many retirees saw big dents in their portfolio values; a typical portfolio made up of 50% stocks and 50% bonds would have lost about 16% for the year. While market conditions have improved a bit in 2023, balanced portfolios have yet to win back all of their 2022 losses as of Oct. 31, 2023. Making matters worse, higher inflation has forced many retirees to take bigger withdrawals as their portfolio values have shrunk.

Compounding is one of the most powerful forces in the world. Just ask Albert Einstein, who’s said to have called it the “eighth wonder.” The seemingly small decisions we make every day gain power over time. That’s why it’s important to take the long view and come up with a plan—in both wellness and investing—that creates momentum in the direction of our goals. Don’t squander the power of time when you can recruit it to work in your favor.

Learning to live with the ups and downs of the stock markets is an essential part of becoming a successful investor. Of course, it’s not always easy to keep anxiety at bay. That’s why, in this video, the investment journalist MOIRA O’NEILL explains how investors can keep a rational mindset through volatile markets.

“More than any other time in history, mankind faces a crossroads. One path leads to despair and utter hopelessness. The other to total extinction. Let us pray we have the wisdom to choose.” – Woody Allen

The ‘news’ as presented to us has always had a negative bent, but one could be forgiven for thinking that it’s become even more negative with constant stories of disasters, conflict, wrongdoing, grievance and loss. This was an issue prior to coronavirus – with trade wars, social polarisation, tensions with China, worries about job loss from automation and ever-present predictions of a new financial crisis. Since the pandemic higher public debt, inflation, geopolitical tensions and rising alarm about climate change have added to the worries.

We started Dimensional in 1981 around a set of beliefs.1 These ideas remain core to our business and key to the experience we deliver.

1. Investing Is a Science

Professional money managers have offered their services for centuries, but until the 1960s, there was no empirical way to hold them accountable for their results. When computers became powerful enough to analyze immense amounts of data, researchers could start gathering and learning from historical stock returns. Now economists could measure the success of different investment strategies compared with the performance of the broader market. The science of finance took off.

Like many retirees, Henry Flagler decided to spend his later years on the sunny beaches of Florida.

However, Flagler wasn’t there to relax and drink Pina Coladas. No, the former oil tycoon was there to build up the coastlines, railroads, and cities before Florida was even a destination.

Flagler was a partner of John Rockefeller’s at Standard Oil. By the time he retired, he had made enough money to last multiple lifetimes.

No matter how familiar we are with investing, we’ve all navigated uncertainty, weighed risks and rewards, and made carefully considered tradeoff decisions. Just by being human, we’ve been compelled to tackle the central challenges of life—which also happen to be the central challenges of investing.

At Dimensional, we believe that having a good investment experience is about more than returns. What matters just as much is how someone feels along their financial journey. And that’s really what the investment business should be about: helping people live better, more fulfilling lives.

Kerala is a coastal state in India with a large fishing industry.

Beginning in 1997, mobile phones were introduced to the region. By 2001 more than 60% of the fishers and traders were using phones to coordinate sales and set prices for the fish.

Robert Jensen used data from this market in a research paper called The Digital Provide to show how the addition of more information impacted fish prices in the marketplace.

One of the most important, but difficult, aspects of long-term investing is learning to not let day-to-day market chatter and scaremongering media headlines affect your long-term strategies. Although I keep a close eye on financial markets daily (mainly to respond to a daily email inbox full of panicking punters), I look at my own long-term portfolio only once or twice per year, typically during the January break, and at financial year-end.

One of the hard parts about trying to focus on the long-term as an investor is the short-term toys with your emotions.

In years like 2022 when everything is going down, you’ll always wish you would’ve taken less risk.

In years like 2023 when everything is going up, you’ll always wish you would’ve taken more risk.

Long-term returns are the only ones that matter but you have to get through a series of short-term emotions to get there.

Short-run returns can play tricks on you.

Perhaps you’ve seen charts like the one below, which comes from Dimensional Fund Advisors. The message: Investors who try to time the market in search of better returns often end up damaging their results. To many investors, this seems intuitive, because trading isn’t easy.

But to others, market timing appears to make a lot of sense. For instance, for years, Yale University professor Robert Shiller has been maintaining a measure of market valuation known as the cyclically adjusted price-earnings (CAPE) ratio. It’s a way of measuring how expensive the market is, and it has an intuitive appeal of its own.

One of the smartest advocates of low-cost, evidence-based investing is the neurologist-turned-investment-adviser William Bernstein. He is the author of several books, including The Intelligent Asset Allocator, If You Can: How Millennials Can Get Rich Slowly, and The Delusion of Crowds. A new edition of his best-known book, The Four Pillars of Investing, has just been published.

Bill this week makes his third appearance on The Long View podcast, produced by Morningstar, and we highly recommend you listen to it. Here are seven key takeaways.

As we manage our financial life, we’re compelled to cope with heaps of uncertainty—which way the stock and bond markets will head, what financial misfortunes will strike, how long we’ll live and so much more.

But there are also ways we can exert a measure of control: spend thoughtfully, save diligently, keep a close eye on risk, hold down investment costs and manage our annual tax bill. To this list, I’d add one other key way to reclaim the advantage: have a good handle on who we are.

To that end, below are nine questions I believe we should all try to answer for ourselves. As you’ll see, the questions often probe the same issues but from different angles.

Owning your own home, in your dream suburb, and living a lifestyle you’ve always aspired towards, is arguably seen as the Australian dream. Significant wealth assets such as your home represent the fruits of your hard work, family bonds, stability, and security. However, to live a life free of uncertainty, wealth deserves to be managed purposefully. That’s why it’s essential to evaluate whether having too much of your wealth tied up in one asset such as your home, aligns with your long-term goals. By being crystal clear on your goals, it is possible to stay on track, make the most of your resources and lean into the best decisions for your future.

Do you have $50,000 invested in KiwiSaver? These days that’s not an unusual achievement, given the scheme has been around for 15 years. If you’re a full-time older professional, it’s more likely your savings sit in the $100,000 to $200,000 range.

Despite this enviable success, this scares the heck out of me. Why? Because all your money is invested with one manager.