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January 16 - January 21, 2018
execution trumps knowledge every day of the week.
“The only value of stock forecasters is to make fortune-tellers look good.”
But these periods of consumer pessimism are often the ideal time to invest.
you can protect yourself against this sort of disaster by building a portfolio that’s broadly diversified globally and also among different types of assets.
The stock market is a device for transferring money from the impatient to the patient. —WARREN BUFFETT
It certainly makes sense not to take carefree risks when stocks have soared for years.
In other words, market turmoil isn’t something to fear. It’s the greatest opportunity for you to leapfrog to financial freedom. You can’t win by sitting on the bench. You have to be in the game. To put it another way, fear isn’t rewarded. Courage is.
If an advisor charges a money management fee for selecting investments, that should be it. End of story. Why should they be able to add another fee for pooling those investments together? I’ll tell you why: because they can. Because you might not notice.
You have to be very focused on protecting the downside at all times.”
we have to design an asset allocation that ensures we’ll “still be okay,” even when we’re wrong.
US stocks, international stocks, emerging-market stocks, real estate investment trusts (REITs), long-term US Treasuries, and Treasury inflation-protected securities (TIPS).
“The holy grail of investing is to have 15 or more good—they don’t have to be great—uncorrelated bets.”
I learned that courage was not the absence of fear, but the triumph over it. The brave man is not he who does not feel afraid, but he who conquers that fear. —NELSON MANDELA
If you want to be certain that you’ll never lose money in the financial markets, you can keep your savings in cash—but then you’ll never stand a chance of achieving financial freedom. As Warren Buffett says, “We pay a high price for certainty.”
A simple rule dictates my buying: be fearful when others are greedy, and be greedy when others are fearful. And most certainly, fear is now widespread. —WARREN BUFFETT IN OCTOBER 2008, explaining why he was buying stocks as the market crashed
In 2008 the S&P 500 fell 38%, whereas investment grade bonds rose 5.24%.I If you owned stocks and bonds, you took less risk—and achieved better returns—than if you owned only stocks.
Over time the economy and the population grow, and workers become more productive. This rising economic tide makes businesses more profitable, which drives up stock prices.
tank. In short, bad news is an investor’s best friend.
Conservative investors who are retired or can’t tolerate the volatility of stocks might choose to invest a large percentage of their assets in bonds. Less conservative investors might put a smaller portion of their assets in high-quality bonds to meet any financial needs that could arise over the next two to seven years.
More aggressive investors might keep a portion of their money in bonds to provide them with “dry powder” that they can use when the stock market goes on sale.
Any investments other than stocks, bonds, and cash are defined as alternatives.
As Tony mentioned in the last chapter, we sometimes recommend MLPs because they pay out a lot of income in a tax-efficient way.
They don’t make sense for many investors (especially if you’re young or have your money in an IRA), but they can be great for an investor who is over 50 and has a large, taxable account.
In reality, the type of assets you own should be matched to what you personally need to accomplish.
What asset classes will give you the highest probability of getting from where you are today to where you need to be?
For example, you might start with a goal of saving three or six months of income, and then work your way—over many years—toward the ultimate goal of setting aside seven years of income.
As Princeton professor Burton Malkiel told Tony, unsuccessful investors tend to “buy the thing that’s gone up and sell the thing that’s gone down.” One benefit of rebalancing, says Malkiel, is that it “makes you do the opposite,” forcing you to buy assets when they’re out of favor and undervalued. You’ll profit richly when they recover.
may seem overly simplistic, but all that’s really required is a set of system solutions—a simple system of checks and balances—to neutralize or minimize the harmful effects of our faulty Flintstone wiring.
“If you know your limitations, you can adapt and succeed. If you don’t know them, you’re going to get hurt.”
Mistake 1: Seeking Confirmation of Your Beliefs Why the Best Investors Welcome Opinions That Contradict Their Own
The Solution: Ask Better Questions and Find Qualified People Who Disagree with You
Mistake 2: Mistaking Recent Events for Ongoing Trends Why Most Investors Buy the Wrong Thing at Exactly the Wrong Moment
There’s actually a technical term for this psychological habit. It’s called “recency bias.” This is just a posh way of saying that recent experiences carry more weight in our minds when we’re evaluating the odds of something happening in the future.
The Solution: Don’t Sell Out. Rebalance.
Mistake 3: Overconfidence Get Real: Overestimating Our Abilities and Our Knowledge Is a Recipe for Disaster!
The Solution: Get Real, Get Honest
Mistake 4: Greed, Gambling, and the Quest for Home Runs It’s Tempting to Swing for the Fences, but Victory Goes to the Steady Survivors
The Solution: It’s a Marathon, Not a Sprint
Mistake 5: Staying Home It’s a Big World out There—So How Come Most Investors Stay So Close to Home?
The Solution: Expand Your Horizons
Mistake 6: Negativity and Loss Aversion Your Brain Wants You to Be Fearful in Times of Turmoil—Don’t Listen to It!
The Solution: Preparation Is Key
Every day, think as you wake up, “Today I am fortunate to be alive, I have a precious human life, I am not going to waste it.” —THE DALAI LAMA
The First Step to Achieving Anything You Want Is Focus.
The Second Step Is to Go Beyond Hunger, Drive, and Desire, and to Consistently Take Massive Action.
The Third Step to Achieving Whatever We Want Is Grace.
The First Principle: You Must Keep Growing.
The Second Principle: You Have to Give.
A man is but the product of his thoughts. What he thinks, he becomes. —MAHATMA GANDHI
Are you committed to being happy, no matter what happens to you?
