The Forrest Gump Guide to Becoming an Investing Genius

There might be no man alive who can teach you more about life and living than Forrest Gump.

From winning a national medal of honor by trying to save his best friend Bubba’s life, to lifting his commanding officer Lt. Dan from the depths of despair to discover his true destiny, to opening China up to the rest of the world, Forrest did it all.  And no matter how famous or rich he became, he always remained true to himself and those he loved.

Okay, we all know Forrest Gump doesn’t exist.

But what he has to teach you does.

And surprisingly, he’s got almost as much to teach us about investing as he has to teach about living.

Don’t believe me?  Let’s find out:

Investing tips from Forrest Gump

Stupid is as stupid does

As Forrest clearly understood, it isn’t your IQ that determines your intelligence – it’s the stupid things you do.

It’s also the amount of stupid decisions you make that determines how good of an investor you are.  Or the size of your stupidity.

One big mistake can reveal who is swimming naked when the tide comes back in.

Usually the biggest mistakes involve leverage – don’t make bets with limited upside but unlimited downside.

It’s not worth it.

You don’t need a PhD in finance to beat the market.  But you do need to avoid the big mistakes.  Otherwise you’re just stupid.

My momma always said you’ve got to put the past behind you before you can move on

Forrest experienced some heartbreaking moments in his life – three of the four closest people in his life passed away before he reached middle age;  His Mom was taken by cancer, he watched his best friend dying in his arms, and he lost the love of his life just months after they were married.

Though he would never forget them, Forrest knew how to put the past behind him before moving on.

Even after losing Jenny, he was strong enough to be a wonderful father to little Forrest.

You can’t compare investing and love, and that’s exactly the point.  Don’t become emotionally attached to companies you’re already invested in.  It should be trivially easy to put companies that don’t fit in with your bigger plan into the past, where they belong.

But it isn’t.

Most people become attached to stocks that no longer meet the requirements they would put on new investments.  I know and have done it many times.  But like Forrest, we need to learn to let go.

If you wouldn’t buy a company at its current price, why are you still holding on to it?

My momma always said, “Life is like a box of chocolates.  You never know what you’re gonna get”

Forrest’s life really was like a box of chocolates, some bitter and many sweet.  He never knew what was coming, and was wise enough to realize it.

The same is true in the markets.

Sure, you can prevent some heartburn by knowing what you’re getting into.  But there are always companies which will leave a bad taste in your mouth, no matter how much you turn them upside down and smell them before biting in.

Just be sure to grab a big handful of investments – you’ll be more likely to find one you really like.

Now you wouldn’t believe me if I told you, but I could run like the wind blows. From that day on, if I was ever going somewhere, I was running!

Forrest knew how to get where he was going – one step in front of another and as fast as possible.

This was true when he cradled Bubba and flew away from the Vietcong and it was true as he ran across America for four years.

Once Forrest’s mind was made up, he ran.

He didn’t wait and he didn’t dilly dally.  And you shouldn’t either.

In investing, it’s important to be patient, learn as much as possible, and not act rashly.  But once you’ve decided on a course of action, don’t delay.

Because just like Forrest, once you’ve decided what to do, there’s no sense waiting.

Mama says they was magic shoes. They could take me anywhere

Forrest’s magic shoes helped him when he needed it most.  What was really magic was how he broke out of them, but in investing there is some magic which you might want to use.

Joel Greenblatt’s Magic Formula is a simple way of ranking stocks according to value and quality.

And just like methods of value investing that continue to work generations after they were discovered, the formula is likely to keep working its magic now and in the future.

And cause I was a gazillionaire, and I liked doing it so much, I cut that grass for free

After Forrest struck gold (twice), he gave back much of what he earned and focused on the things that mattered.

Don’t lose sight of what’s important – once you’ve secured your future, do things that matter to you and those you love.

Forrest understood this perfectly, and it’s how he lived his life.  We all would be happier if we did the same.

Mama always had a way of explaining things so I could understand them

If you can’t explain the reason you’re investing in a company in simple enough terms that Forrest would understand, you may be making a stupid investment.

And if that’s the case, just don’t do it.  Forrest wouldn’t.

That’s all I have to say about that

What about you?

(Thanks to The Forrest Gump Guide To Becoming A Gazillionaire for inspiration for this post)

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