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  • Jan
    30

    The “I’ll stop when I get even” mistake.

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  • Jan
    24
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  • Jan
    13

    Mistaking “activity” for control.

    payday loans

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  • Jan
    7

    If you trust us and buy and sell based on our analysis, you will beat the market.

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  • Jan
    7

    We know what the correct price of
    a stock or bond should be, and we
    can buy mispriced stocks so you
    can make a big profit.

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  • Jan
    7

    Do you know how to measure
    diversification in your portfolio?

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  • Jan
    7

    Have you discovered your
    True Purpose for Money,
    that which is more important
    than money itself?

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  • May
    31

    Indexing Works

    Filed under: Articles;

    Indexing Works

    Many investors think active managers can shift out of stocks in time to stem losses in bear markets. Not true.

    By Temma Ehrenfeld May 1, 2011

    Even fans of index funds often believe they do worse than funds with active managers during bear markets. The idea is that a savvy manager can shift money out of a crashing asset class in time to improve overall performance. As it turns out, “most events that result in major changes in market direction are unanticipated,” says Christopher B. Philips, CFA, a senior analyst in Vanguard’s Investment Strategy Group.

    The facts, according to Vanguard: In four out of seven bear markets since January 1973, the Dow Jones U.S. Total Stock Market Index beat the average actively managed fund. The two bears in which many funds did better than the index were both in the 1980s.

    Looking at a separate study by Lipper, active managers underperformed the S&P 500 in the six market corrections between Aug. 31, 1978, and Oct. 11, 1990. The average loss for the S&P during those bears was 15.1%, compared with 17% for large-cap growth funds.

    Another myth is that index funds will be forced to sell-and realize capital gains-when investors run for the doors. The truth is that net cash flow into stock index funds was positive in the last two bears. According to the Investment Company Institute, from 2000 through 2002, stock index funds received more than $62 billion in new money. In 2008, stock index funds netted $31 billion.

    Redemptions also needn’t lead to capital gains. As Philips explains, managers can sell stocks bought at high prices during outflows, creating losses that can be stockpiled to offset gains. “Redemptions in a bear market can help an index fund remain tax efficient, creating losses, not gains.”

    Indexing has other advantages, as well. The funds tend to be more diversified, unless they are designed to track a narrow class, and are therefore less volatile. They are relatively predictable since an active manager can often choose to move between asset classes. Index funds are also cheaper to run.

    In addition, a Financial Research Corp. study found that a fund’s expense ratio was the most reliable gauge of its future performance, with low-cost funds consistently above average. This cost advantage accumulates over longer time periods, Vanguard reports. Bear markets tend to be short, which might help active managers. In fact, they haven’t earned their higher fees in white-knuckle times.

    And what about during bull markets? Active managers fared even worse. In seven of the eight bulls since 1971, the Dow performed better than the average actively managed fund.

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  • Dec
    22

    Useful Links

    Filed under: Links;

    Squarespace.com
    The official Squarespace site.

    The Service Blog
    Squarespace release and service announcements.

    The Squarespace Insider
    A blog straight from the mouths — err, keyboards — of Squarespacers.

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  • Dec
    21

    We know which stocks you should own
    to get above average returns.

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  • Dec
    21

    We have experts who can accurately
    predict market movements.

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  • Dec
    21

    We have expert money managers who,
    based upon past performance, have
    a better than average chance of
    beating the market going forward.

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  • Dec
    21

    We know what is likely to happen
    next, and you can use that to beat
    the market.

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  • Dec
    21

    Too much money invested in one stock.

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  • Dec
    21

    Mistaking a lot of “stuff” for true diversification.

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  • Dec
    21

    Gambling with your money.
    a. Stock picking
    b. Market timing
    c. Track-record investing

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  • Dec
    21

    Are you invested in the Market?

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  • Dec
    21

    Do you know how markets work?

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  • Dec
    21

    Have you defined your
    Investment Philosophy?

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  • Dec
    21

    Have you identified your
    personal risk tolerance?

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  • Dec
    21

    Do you consistently and
    predictably achieve market returns?

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  • Dec
    21

    Have you measured the total
    amount of commissions and
    costs in your portfolio?

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  • Dec
    21

    Do you know where you
    fall on the Markowitz
    Efficient Frontier?

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  • Dec
    21

    When it comes to building
    your investment portfolio,
    do you know exactly what you
    are doing and why?

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  • Dec
    21

    Are you working with a
    financial coach versus
    a financial planner?

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  • Dec
    21

    Do you have a customized
    lifelong game plan to guide
    all of your investing and
    spending decisions?

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  • Dec
    21

    Do you have an
    Investment Policy Statement?

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  • Dec
    21

    Have you devised a
    clear-cut method for measuring
    the success or failure of
    your portfolio?

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  • Dec
    21

    Do you fully understand
    the implications and
    applications of diversification
    in your portfolio?

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  • Dec
    21

    Do you have a system to
    measure portfolio volatility?

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  • Dec
    21

    Are you aware of the incentives
    brokerage firms and the financial
    community have when selling
    commission-based products?

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  • Dec
    21

    Do you know the three
    warning signs that you are gambling
    and speculating with your money
    versus prudently investing it?

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  • Dec
    21

    Can you identify the cultural
    messages and personal mind-sets
    about money that destroy your
    peace of mind?

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  • Dec
    21

    Are you ready to shift your
    personal experience of money
    and investing from a scarcity
    mode to an abundance mode?

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  • Dec
    21

    The Real Truth is…
    Almost Nobody Wants You
    to Know the Truth.

    The financial industry and the financial press
    have a huge monetary interest in convincing
    investors that there is little or no difference
    between speculating and investing. They
    perpetuate the lie that by forecasting the
    future you can stock pick, market time, or
    pick future winning managers. If you don’t
    believe this works, they are out of business.

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  • Dec
    21

    You Don’t Know
    What You Don’t Know.

    All that you know is what the brokerage
    community or financial press wants you to
    know. They have trained you to accept their
    version of reality over the span of your entire
    life. There is a complete body of investing
    knowledge developed in the halls of academia.
    Most people do not even know that it exists.
    This is the real wisdom you need to create
    wealth and abundance.

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  • Dec
    21

    You Can’t Manage
    Your Own Money.

    Wirehouses and discount on-line brokerage firms
    WANT you to believe you can manage your own
    money. That keeps you speculating and makes
    them RICH. Even the most intelligent investor
    with the best intentions and lots of time is
    likely to ultimately fail because of emotions,
    instincts, and propaganda.

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  • Dec
    21

    No One Ever Prints
    a Magazine Cover with NEXT Year’s
    Top Performing Funds.

    Not even the fund companies or brokerage
    companies know what funds or stocks are
    going to do well next year. If they did, they
    wouldn’t NEED hundreds of funds and managers.
    They would have one predictably sound mutual
    fund. They don’t. They hedge their bets. They
    create products for you. In reality, they
    have no idea what their so-called experts
    will produce.

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  • Dec
    21

    If You Follow the Herd,
    You Will Get Slaughtered.

    If an investment strategy is on the cover
    of every magazine, and all of your friends
    and associates are doing it, it’s reckless to
    follow suit. Only hot, sexy, and speculative
    techniques make the cover. Don’t follow
    your friends!

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  • Dec
    21

    The Graveyards are
    Full of Gurus.

    The media loves to promote the wisdom and
    insights of managers with “hot hands” or the
    “Midas Touch.” They gleefully put them in
    advertisements and on magazine covers. These
    gurus are often featured one or two years later
    in derogatory articles about how their investing
    prowess has mysteriously disappeared. They die
    in the pages of The Wall Street Journal or
    Money Magazine.

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  • Dec
    21

    Technology Makes Investing More
    Difficult, Complex, and Confusing—
    Not Simpler.

    If you run the word “stocks” on your favorite
    search engine, you will find over 97 million
    pages containing the word. The sheer volume of
    statistics, facts, and data makes the process
    of investing infinitely complex and confusing.
    This data is changing every minute of every
    hour, all day, every day. Investing is more
    chaotic than ever.

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  • Dec
    21

    Information is Toxic.

    The nightly news, daily stock market shows,
    and cable news focus on variability to get your
    attention. They bombard you with the equivalent
    of “noise,” short-run data, and statistics
    that are useless. Paying attention to the
    short-term market fluctuations and newspaper
    headlines will completely disintegrate your
    peace of mind and ultimately your portfolio.

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  • Dec
    21

    No One
    Can Forecast the Future.

    Because no one can accurately predict the
    future consistently, no one can predict what
    the market or individual stocks will do in the
    future. If they could predict the future, why
    would they tell you?

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  • Dec
    21

    Anecdotal Evidence
    Means Nothing.

    Someone is always winning millions in the
    lottery. That does NOT make it a good or
    prudent investment. In the market, someone is
    always speculating and winning BIG. That does
    not make it a good investment.

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  • Dec
    21

    Speculating is NOT Investing.

    What typically passes for investment advice
    is stock picking, timing the market, and
    global change track-record investing. These
    are all forms of gambling and speculating with
    your money. They are not methods of prudent
    investing.

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  • Dec
    21

    Your Broker is
    NOT Your Friend!

    Brokers get paid for selling things. They are
    primarily commission driven. They represent
    their firms and work for them ! not you.
    “Brokers service investors the same way Bonnie
    and Clyde service banks.”
    William Bernstein, The Four Pillars of Investing

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  • Dec
    21

    If They Knew What
    Was Going to Happen Next,
    They Wouldn’t Need Your Money.

    Some fund or stock is always making double
    or even triple digit returns. If brokerage
    firms had any real knowledge of which stocks
    were going to take off, they wouldn’t need to
    invest your money. They would invest their own
    and keep all the profits for themselves.

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  • Dec
    21

    Beware of the
    Great Confidence Game.

    Because fund companies and broker-dealers have
    no real idea of what is going to happen next
    or what stocks or managers will do well, they
    must have a system or formula that creates the
    illusion that they do. If you don’t understand
    it, you can lose your life savings.

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  • Dec
    21

    Active Management
    Is Really
    Hyperactive Management.

    You may not be churning your portfolio, BUT
    your mutual fund manager may be hypertrading
    stocks inside of your fund. Turnover means
    trading, and it spells death to your performance.
    When it comes to turnover, less is better
    because it reduces hidden internal cost. Don’t
    let managers actively gamble your money.

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  • Dec
    21

    If You Try to
    Get Rich Quickly,
    You Will Go Broke Fast.

    If you are expecting more than an eight to
    ten percent rate of return on equities in a
    portfolio, chances are you will be disappointed.
    If you expect to double your money every three
    to five years and have picked funds based
    on managers who have done it the last five
    years, you have put your money in a very risky
    position. You can lose more than you ever
    imagined.

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  • Dec
    21

    It Looks Easy
    But It Ain’t.

    The truth is someone will always beat the
    market, but it probably won’t be you. Given
    a 20-year period, only a small percentage of
    potential money managers ever beat the market.
    No one knows in advance who it will be.
    Chances are you will be in the 95% who lose to
    the market.

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  • Dec
    21

    No One Ever Loses
    in Vegas.

    It is easy to get the impression that investing
    is a fun, easy game to win. After all, everyone
    talks about how much money they make and how
    successful they are. You may think you are
    missing out. You are not ! no one ever likes
    to talk about the losses, and they selectively
    remember only the wins.

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  • Dec
    21

    Gambling is More Fun
    in Vegas.

    Some investors say, “I enjoy speculating by
    buying stocks or watching the market.” If you
    are going to gamble, do it in Vegas. It is a
    lot more fun. Don’t do it with wealth you need
    for your life goals and dreams. Don’t gamble
    away your future.

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  • Dec
    21

    What You Don’t Do
    is Just as Important as
    What You Do.

    It is critically important to eliminate all forms
    of speculating from the investing process. Harbor
    no delusions that it is possible and prudent
    to beat the market, pick stocks or find the
    winning manager in advance. You must eliminate
    all hopes of getting rich quick to accept a
    better way.

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  • Dec
    21

    If Your Broker Really Knew
    What was Going to Happen, He
    Wouldn’t Be Cold Calling You While
    You’re Eating Dinner.

    ‘Nuff said.

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  • Dec
    21

    Fire Your Broker.
    Hire A Coach.

    A broker gets paid for selling products and
    making commissions. A coach gets paid to help
    you achieve peace of mind about your money and
    experience life more abundantly. Hiring a
    financial coach is your first and best strategy
    for creating wealth.

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  • Dec
    21

    He’s Not Your Real Uncle.
    Uncle Sam has his hand out to take away your
    portfolio returns and line his pockets.
    Interest and capital gains are frequently
    created inside a mutual fund even though you
    did not sell shares of the fund. Confused? The
    fund manager often churns the stocks inside
    the fund, causing tax liability for you. Often,
    you pay taxes on a fund that IS LOSING YOUR
    MONEY.

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  • Dec
    21

    Your Brain Wants
    the Big Fix.

    When you bet on a long shot in gambling or
    assume excessive risk by trying to pick the
    “big winner,” your brain releases dopamine.
    This chemical produces a euphoric feeling and
    is closely related to the high that cocaine
    and morphine produce. For stock pickers, even
    thinking about placing an order for a stock
    they hope will bring them huge returns can
    produce this chemical. All the while stock
    pickers ignore the real risks and likely losses
    in the speculative venture.

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  • Dec
    21

    Not Everybody Can Be an Above
    Average Investor, and Chances Are,
    You Won’t Either.

    The S&P rate of return from 1973-2006: 11.14%
    The average investor from 1984-2006: 4.12%
    Average holding period: 2.9 years
    Most investors get caught up in speculating
    and using money as a drug. As a result, their
    behavior is self-defeating and their results
    poor. Chances are, you’re one of them.
    Dalbar 2006 Quantitative Analysis of Investor Behavior Report.

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  • Dec
    21

    Money Managers Pick Stocks
    and Charge Big Bucks.
    Orangutans Work for Peanuts.

    Taken as a whole, professional money managers
    cannot outperform a room full of monkeys randomly
    picking stocks. Think about that. Professional
    money managers can’t even beat random chance.
    This is clearly bad news for the managers and
    even worse news for unsuspecting investors who
    pay them to invest their hard earned money.

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  • Dec
    21

    You Don’t Need To
    Pick Stocks or Time the
    Market To Be an Extremely
    Successful Investor.

    What have Free Market Indices historically produced?

    U.S. Micro Cap Stocks
    13.04 Annualized Capital Return
    1927-2006

    S&P 500 (Large U.S.)
    10.41 Annualized Capital Return
    1927-2006

    Small Cap Value
    15.56 Annualized Capital Return
    1927-2006

    Large Value
    12.50 Annualized Capital Return
    1927-2006

    Int’l Small Co’s
    16.88 Annualized Capital Return
    1970-2006

    Int’l Large Co’s
    11.57 Annualized Capital Return
    1970-2006

    No Stock Pickers Required!

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  • Dec
    21

    Real Control is
    More Important Than
    Perceived Control.

    Brokerage firms create the illusion of “control”
    by encouraging investors to generate activity
    – frequent buying and selling. In a similar
    fashion, gamblers feel more in control of the
    outcome when they actively pull the arm of a
    slot machine. Activity is not control. Buying
    and selling often feels “good” and proactive. In
    reality, activity is often counterproductive.

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  • Dec
    21

    When Investing for Peace of Mind,
    Always Consider the
    Sum of All Outcomes.
    Just because someone else got lucky doesn’t
    mean you will. If we offered you a million
    dollars to play Russian roulette with a gun
    containing one bullet and five empty chambers,
    you would be a fool to ignore the chance of
    blowing your brains out. Every day in the world
    of investing someone takes a foolish gamble,
    gets lucky, and wins big. When investing,
    you must always consider the sum of all
    probable outcomes, including the bullet in
    the chamber.

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  • Dec
    21

    You Only Get to See
    the “Winners.”

    Most mutual fund companies know many, if not
    most, of their managers will produce below
    market returns and only a handful will beat
    the market through random luck. So what do they
    do with the funds that fail? They make them
    disappear by closing them or merging them with
    more successful funds. The lucky funds that
    survive are paraded out in marketing campaigns
    to lure more investors into the trap. Academics
    call this Survivor Bias.

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  • Dec
    21

    Your Broker’s Biggest Nightmare
    is the Index Fund.
    Why? Because if you understand it, he is out
    of business. Informed and educated investors
    would not buy and sell through a broker if
    they fully understood the massive advantages
    of index funds, or, even better, structured
    market portfolios.

    No Comments
  • Dec
    21

    Make Enough Predictions and
    Something is Bound to Come True.
    Stock market analysts, magazines, and newspaper
    publishers are infamous for making a huge
    number of predictions about the future ! which
    stocks are going to do well, what the economy
    will do, or where the market is going. Because
    of the vast number of predictions, some of
    them are always going to become realities. In
    future publications the soothsayers will only
    mention forecasts that happened and selectively
    “forget” forecasts that failed; leaving the
    investor with the illusion that the forecast
    as a whole was accurate and useful.

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  • Dec
    21

    No Tree Grows to Heaven.

    No one investment type or class goes up forever.
    It seems obvious, but when an asset class has
    done well for several years, it creates the
    illusion that it will go on forever. No tree
    grows to heaven.

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  • Dec
    21

    Free Markets Work.

    Free markets left to their own devices
    set prices better than any individual or
    committee. They incorporate all of the
    knowable and predictable information in the
    present, as well as knowable information
    about the future. Only unknowable future
    news and information can change prices
    going forward.

    No Comments
  • Dec
    21

    Markets are Random-
    Get Over It!
    If you invest in stock markets no one can
    “save” you from the down periods!NO ONE. If
    markets were not random and unpredictable,
    they wouldn’t offer higher expected returns.
    Markets randomly and unpredictably go up
    and down.

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  • Dec
    21

    You Can’t Measure a Snake
    Until It is Dead.

    Investors will often look at the last ten or
    even fifteen years of an asset class, categorize
    its performance, and if it’s low, assume it is
    a lousy investment. Even a 60-year period may
    not be long enough accurately to predict this.
    Many times a low performing asset class will
    be the leader for the next decade.

    No Comments
  • Dec
    21

    Use Market Forces,
    Don’t Fight Them.
    The power and force of free markets may be
    the most powerful human force known to man.
    It’s impossible to outsmart the market and
    consistently beat it. However, you can harness
    its massive power by investing to receive
    market returns.

    No Comments
  • Dec
    21

    No One Knows If the Next 20%
    Movement Will Be UP or DOWN, But
    the Next 100% Movement Will Be Up.

    Markets fluctuate widely in the short term.
    Fortunately, every major crash has a recovery,
    with stocks regaining all of their losses,
    given enough time. Similarly, while the stock
    market has seen many 100% gains, it has
    never suffered a 100% loss. Arguably, only
    a global catastrophe such as nuclear war,
    asteroid collision, or other extinction level
    event could cause such a disaster. In that
    case, your portfolio would be the least of
    your worries.

    No Comments
  • Dec
    21

    Markets are Efficient,
    Individual Investors are Not.

    The invisible hand of the market sets prices
    more efficiently than any other process known
    to man. Is it perfect? Indeed, No. There is
    no perfect price; only what a willing buyer
    and seller negotiate. The market instantly
    incorporates the collective mind of every market
    participant. Markets work. Unfortunately, most
    investors never tap their real power.

    No Comments
  • Dec
    21

    Your Instincts are Your Enemy.
    The human instincts to avoid pain and pursue
    pleasure are among your worst enemies when
    investing. They cause you to buy high and sell
    low and forsake diversification.

    No Comments
  • Dec
    21

    Emotions Override Statistics.

    You can justify almost any imprudent investment
    decision with “facts.” Information is filtered
    by our emotions to create “facts” that support
    our decisions or beliefs. Without outside
    guidance, it is impossible to tell when and how
    this happens. Truth in the field of investing
    is elusive.

    No Comments
  • Dec
    21

    Most People Prefer an Easy Lie
    to the Hard Truth.

    1. You can lose weight without dieting
    or exercise, by taking our magic fat-absorbing
    pill before bed.
    2. You can call the psychic network
    hotline for insight into your future.
    3. You can beat the market because we have
    experts who know which stocks will offer
    the highest return on investment.

    No Comments
  • Dec
    21

    Avoid the Triggers.

    Watch reruns of Andy Griffith instead of the
    stock report. Don’t listen to the latest S&P
    update on the radio and avoid the temptation
    to frequently check your portfolio on the
    Internet. These short-term driven impulses
    will drive you crazy and destroy your peace of
    mind. They will cause unnecessary anxiety when
    you should relax. Trust your mix and let time
    and diversification work. These media stimuli
    can easily trigger buying and selling that is
    imprudent and self-destructive.

    No Comments
  • Dec
    21

    Admit That You are Powerless.
    After you build a prudent diversified portfolio,
    accept that you have no control over markets or
    your return. Free markets work long-term, but
    their natural volatility appears chaotic in
    the short run. Accept your powerlessness over
    this and let discipline and diversification
    carry the day.

    No Comments
  • Dec
    21

    Now You See It, Now You Don’t.

    The human brain is programmed to look for
    and see patterns. This was helpful to early
    humans because observing the pattern of the
    seasons told them when to plant crops and
    hunt migrating animals. Unfortunately, this
    part of the brain often “sees” patterns where
    none exist. The tech stock crash of 2000 is
    a perfect example of an upward “pattern” that
    mysteriously disappeared.
    Whoops! Now you see it. Now you don’t.

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  • Dec
    21

    Every Imprudent Action Requires
    a Necessary Lie.

    A necessary lie is a rationalization to justify
    self-destructive behavior. Some examples:
    I will start my diet tomorrow…
    so I will pig out today.
    One drink won’t hurt…
    so I will have just one.
    I’ll just gamble until I get even…
    so I will let it ride.
    This time I really do know what the market
    is going to do…
    so it’s all right to speculate with my money.

    No Comments
  • Dec
    21

    It’s Not a Portfolio Problem,
    It’s a People Problem.

    When it comes to investing, your own emotional
    and instinctual urges are your worst enemies.
    Work with a coach to help keep yourself in
    check and manage your emotions, as well as
    your money.

    No Comments
  • Dec
    21

    Comparison to Others is
    at the Root of Our Discontent.

    Psychologists Kahneman and Tversky showed that
    more people would prefer to make $70,000 per
    year when others were making $60,000 than to
    make $80,000, when others were making $90,000.
    (1)There will always be “others” with more assets,
    money, or larger portfolios. We are doomed to
    disappointment because comparison destroys the
    joy of having and using what we already have.
    Most people would agree to make or have less
    as long as others were even poorer. Resist the
    impulse to compare yourself to your neighbor.

    (1)Tversky, Amos and Kahneman, Daniel,
    “Loss Aversion in Riskless Choice: A Reference-Dependent Model.”
    The Quarterly Journal of Economics, Vol 106, No. 4, Nov 1991 pg 1053

    No Comments
  • Dec
    21

    Leave Your Ego
    at the Door.
    To be a successful investor you must find
    a way to eliminate ego from the process.
    Ego can make you slow to accept that the way
    you invested in the past was imprudent. This
    makes it nearly impossible to adopt a new and
    better way.

    No Comments
  • Dec
    21

    “Diversification is Your Buddy”.
    -Merton Miller, Nobel Laureate

    Proper diversification spreads risk across
    various asset classes with varying return
    characteristics or dissimilar price movement.
    Simply said: they don’t do the same thing at
    the same time.

    No Comments
  • Dec
    21

    Being Diversified Means
    Looking Different.

    Most investors are narrowly diversified into
    top performing funds or classes of the last
    five to ten years. They often feel diversified
    but aren’t. To be diversified means including
    classes or types of funds in your portfolio
    that did poorly over the last five to ten years.
    If you do this, your portfolio will look and
    perform very differently from your neighbors’
    or friends’ portfolios.

    No Comments
  • Dec
    21

    The Three Simple Rules
    of Investing.

    1. Own structured Equity Indexes
    2. Diversify
    3. Rebalance
    (Repeat until you die)

    No Comments
  • Dec
    21

    The Cost of Capital =
    The Return on Capital.

    Where do returns really come from? Most
    investors never know. Investors who put up
    the money to help finance the capital needs of
    companies are hopefully rewarded with return
    on their money. If it is the “right” type of
    risk, the higher the risk, the higher the
    expected return. The cost of capital for the
    company is thus the return to the provider of
    the capital (the investor).

    No Comments
  • Dec
    21

    Now is Always the Best Time
    to Be Prudent.

    Many times investors who speculate or gamble
    with their money will lose large percentages or
    chunks in short time periods. When they realize
    that their investing activities were imprudent,
    they want to change, but say, “I have to wait
    until it comes back before I can change my ways.”
    Remember the same ill-advised strategy that
    failed can continue to squander your wealth. If
    you have broken the rules of prudent investing,
    NOW is always the best time to adopt to a
    better way.

    No Comments
  • Dec
    21

    The Common Index Fund
    is the Greatest Investment Tool
    Known to Man.

    The common index fund is low cost and captures
    the market return, eliminating stock picking
    and track-record investing. Its characteristics
    should be the backbone of your portfolio,
    and your broker does not want you to know
    about it.

    No Comments
  • Dec
    21

    Large Stocks Have an Expected
    Risk Premium over Risk Free
    Investments of About 3%-6%.

    Historically, the added return on an index of
    the largest company stocks over T-bills is an
    additional 6%. No one knows what it will be
    in the future, but because this asset class
    has the additional risk of volatility, it
    has a higher expected return. After historic
    inflation of about 5%, you will still have a
    positive growth rate.

    No Comments
  • Dec
    21

    Small Stocks Have
    a Higher Expected Return
    Than Large Stocks.
    The historic additional return for small
    stocks over large stocks is about 2%-3%.
    Small stocks do better than large but are
    more volatile.

    No Comments
  • Dec
    21

    Distressed Stocks Have
    a Higher Expected Return
    Than Growth Stocks.

    Companies with poor earnings and uncertain
    financial prospects actually have a higher
    expected return on their stocks than stable
    growth companies. Historically, this additional
    premium has been 3%-4%. Because these companies
    are riskier, they have a higher cost of capital
    and, therefore, a higher return to investors
    willing to provide that capital. These stocks
    are better known as “value” or “high book-tomarket”
    stocks.

    No Comments
  • Dec
    21

    Most Investors Have Very Little
    Exposure to the Risk and Return
    Dimensions of Distressed
    and Small Company Stocks.

    Because most brokers spend so much time picking
    stocks and predicting the future, they put very
    little emphasis on broad diversification and
    portfolio design. They desperately believe if
    they can simply pick the best stocks and managers,
    they won’t have to embrace true diversification
    into value and small stocks, which might
    be hard to explain or sell for commissions
    to investors.

    No Comments
  • Dec
    21

    The MIX is Everything!

    Allocating your assets wisely and prudently
    over widely divergent asset categories is the
    key to preserving and growing your wealth.
    Investment professionals call this asset
    allocation. It accounts for 91.5% of the
    positive expected return.
    The MIX is everything.
    “Determinants of Portfolio Performance,” Financial Analysts Journal,
    Gary P. Brinson, L. Randolph Hood, and Gilbert L. Beebower, 1986,
    1990, 1991.

    No Comments
  • Dec
    21

    Reduce Risk, Go Global.

    Many investors hold the mistaken belief that
    if it’s home grown, it’s less risky. You can
    reduce the overall volatility of your portfolio
    by going global and investing 10%-30% of your
    equities overseas. No one can tell you if U.S.
    or international stocks are going to do better
    over the next 30 years. So own some of both.

    No Comments
  • Dec
    21

    A Good Story Does Not a
    Good Investment Make.

    Every company and product has a story. Almost
    all of them can be quite compelling if you
    listen. STOP LISTENING! There is no good reason
    to put all or a large portion of your money in
    one stock or company. It violates the second
    rule of investing: Diversification.

    No Comments
  • Dec
    21

    A Lot of “Stuff”
    Does Not Mean
    You are Diversified.

    You may own a lot of stuff in your portfolio.
    For example, you could own 50 U.S. stocks. If
    they are in the same asset class, however,
    you don’t have true diversification. If you
    own 50 Blue Chip stocks and the S&P drops
    20%, it’s likely your portfolio will also
    decline. Very few investment portfolios are
    truly diversified.

    No Comments
  • Dec
    21

    What You See is Often
    Not What You Get.

    Many investors who buy several mutual funds
    with different names and objectives believe
    they are diversified. When the market drops,
    to their horror, they lose most of their
    money. Many funds give their managers the
    freedom to buy whatever they think will be
    the proverbial goose that lays the golden
    egg. This only confuses investors. Dozens
    of funds from the same brokerage house can
    have vastly different names, but own the
    same companies.

    No Comments
  • Dec
    21

    You Don’t Have to
    “Beat the Market” to Be
    a Highly Successful Investor.

    Market returns are enough. Almost every major
    equity and stock market has consistently
    outperformed inflation and all the hyperactively
    trading professional money managers trying to
    outdo the market. Most investors aren’t aware
    they have another option. Chances are you will
    beat all of your friends and the vast majority
    of managers, with the market returns from index
    funds and structured market portfolios.

    No Comments
  • Dec
    21

    Rebalancing Your
    Portfolio is Crucial.

    This process ensures that you are always selling
    off some of the assets that are relatively high
    in your portfolio and buying asset classes
    that are relatively low.

    No Comments
  • Dec
    21

    Don’t Build a Portfolio Without
    an Investment Policy Statement.

    Just as you would never take a long distance
    car trip without a map, you should never buy
    any investment without an Investment Policy
    Statement. This is a written document that
    states the goal of your portfolio, how much
    risk you will take, and what you will and won’t
    do when markets become volatile and crash.

    No Comments

Disclosures and Disclaimers

Joshua Helman, M.D., FAAEM is an investment adviser representative of SmartPlan Investing.

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