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Full Description
Identify mistakes standing in the way of investment success With so much at stake in investing and wealth management, investors cannot afford to keep repeating actions that could have serious negative consequences for their financial goals. The Five Mistakes Every Investor Makes and How to Avoid Them focuses on what investors do wrong so often so they can set themselves on the right path to success. In this comprehensive reference, readers learn to navigate the ever-changing variables and market dilemmas that often make investing a risky and daunting endeavor. Well-known and respected author Peter Mallouk shares useful investment techniques, discusses the importance of disciplined investment management, and pinpoints common, avoidable mistakes made by professional and everyday investors alike.Designed to provide a workable, sensible framework for investors, The Five Mistakes Every Investor Makes and How to Avoid Them encourages investors to refrain from certain negative actions, such as fighting the market, misunderstanding performance, and letting one's biases and emotions get in the way of investing success.Details the major mistakes made by professional and everyday investorsHighlights the strategies and mindset necessary for navigating ever-changing variables and market dilemmasIncludes useful investment techniques and discusses the importance of discipline in investment managementA reliable resource for investors who want to make more informed choices, this book steers readers away from past investment errors and guides them in the right direction.
Contents
Preface xiAcknowledgments xiiiAbout the Author xvIntroduction The Market Wants to Be Your Friend xviiMistake #1 Market Timing 1The Idiots 5The Liars 5Why Is It So Hard to Beat the Market? 7The Masses Get It Wrong, Over and Over Again 8The Media Get It Wrong, Over and Over Again 9Economists Get It Wrong, Over and Over Again 9Investment Managers Get It Wrong, Over and Over Again 14Newsletters Get It Wrong, Over and Over Again 17Your Buddy 18Strategies That Don?t Sound Like Market Timing but Are Market Timing?Oh, and They Don?t Work, Either 19What Smart Investors Have to Say on Market Timing 21Knowing All This, Why Would Anyone Market Time? 21Corrections 22Bear Markets: An Overview 26When Bear Markets ?Turn,? They Make People on the Sidelines Look Silly 30The Market Is Volatile?Get Used to It 30You Can?t Wait for Consumers to Feel Good 31Learning to Accept the Bear Markets 33Miscalculating the Risk of Market Timing 34But What If I Am Perfect? 35Lump Sum Investing versus Dollar Cost Averaging 36Learning to Fly 40Avoiding Mistake #1?Market Timing 42Mistake #2 Active Trading 43The History of Active Trading 44Active Investment Managers Lose to Indexing 45Fisher Investments 46Legg Mason Value 46Jim Cramer 48Newsletters Lose to Indexing 50Active Mutual Funds Lose to Indexing 50Survivor Bias (a.k.a. Mutual Funds Perform Even Worse Than the Data Suggests) 52What About the Winners, Huh? What About the Winners?! 53Hedge Funds Lose to Indexing 56Endowments?Misperception of Performance 60Venture Capital (Sounds Sexy but Usually a Dog) 62The Taxman Commeth (a.k.a. Dear Goodness, It Gets Worse) 64Portfolio Activity Hurts Performance 64But Doesn?t Active Management Work in a Down Market? 65Why Indexes Win 65S&P 500, Here I Come! 67Avoiding Mistake #2?Active Trading 69Mistake #3 Misunderstanding Performance and Financial Information 71Misunderstanding #1?Judging Performance in a Vacuum 71Misunderstanding #2?Believing the Financial Media Exists to Help You Make Smart Decisions(a.k.a. the Media Is Killing You) 73Misunderstanding #3?Believing the Market Cares about Today 77Misunderstanding #4?Believing an All-Time High Means the Market Is Due for a Pullback 80Misunderstanding #5?Believing Correlation Equals Causation 83October Is the Worst Month to Invest 84Sell in May and Go Away 85Misunderstanding #6?Believing Financial News Is Actionable 86Misunderstanding #7?Believing Republicans Are Better for the Market Than Democrats 87Misunderstanding #8?Overestimating the Impact of a Manager 89Misunderstanding #9?Believing Market Drops Are the Time to Get Defensive 90Avoiding Mistake #3?Misunderstanding Performance and Financial Information 91Mistake #4 Letting Yourself Get in the Way 93Fear, Greed, and Herding 93The Overconfidence Effect 97Confirmation Bias 101Anchoring 103Loss Aversion 105Mental Accounting 106Recency Bias 108Negativity Bias 111The Gambler 113Avoiding Mistake #4?Letting Yourself Get in the Way 114Mistake #5 Working with the Wrong Advisor 117Most Advisors Will Do Far More Harm Than Good 118Advisor Selection Issue #1?Custody 118Advisor Selection Issue #2?Conflict 123Advisor Selection Issue #3?Competence 129A Final Thought on Advisors?Principles 132Avoiding Mistake #5?Choosing the Wrong Advisor 132Mistake #6 Getting It Right 135Rule #1: Have a Clearly Defined Plan 135Rule #2?Avoid Asset Classes That Diminish Results 137Rule #3?Use Stocks and Bonds as the CoreBuilding Blocks of Your Intelligently Constructed Portfolio 141Putting It All Together 144Rule #4?Take a Global Approach 145Rule #5?Use Primarily Index-Based Positions 147Rule #6?Don?t Blow Out Your Existing Holdings 147Rule #7?Asset Location Matters 149Rule #8?Be Sure You Can Live with Your Allocation 150Rule #9?Rebalance 151Rule #10?Revisit the Plan 152The Ultimate Rule?Don?t Mess It Up! 153Portfolio Examples 154A Path to Success?Intelligent Portfolio Construction 158The Ultimate Mistake 161Conclusion Let?s Roll! 165References 167Index 175
