Insights

(Continued from Discipline: A Necessary Condition for Successful Investing Part 2 of 3) There’s another way to reduce the risk of investment depression. Myopic Loss Aversion and the Pain Ratio Nobel Prize winner in economics Richard Thaler, author of the book Misbehaving, has found that we tend to feel the pain of a loss twice as much as we feel joy from an equal­-sized gain. This tendency leads to the behavior known as “myopic loss aversion,” creating a problem for
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(Continued from Discipline: A Necessary Condition for Successful Investing Part 1 of 3) Perhaps the greatest anomaly in finance is that while investors idolize Warren Buffett, they not only fail to follow his advice but often do exactly the opposite of what he recommends. Buffett’s Advice Warren Buffett, probably the most highly regarded investor of our era, has offered the following advice over the years. Listen carefully to his statements regarding efforts to time the market. “Inactivity strikes us as intelligent
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A good friend, Sherman Doll, related the following story. Sherman has been a two­ line sport kite flier for years. While not a pro, he has learned a few tricks from observing the flying behavior of these kites. He told me that one of the most difficult skills for beginners to master is what to do when their kite starts to plunge earthward. The natural, panicky impulse is to yank backward on the lines. However, this only accelerates the kite’s
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Over the last nine decades, the U.S. experienced 9 bear markets and 15 recessions or depressions, World War II and Vietnam, and any number of crises big and small. Yet $1 invested in 1927 could have grown to more than $6,229 by the end of 2017.1 Markets have shown a remarkable ability to reward patient, long-term investors for staying invested. This is important, since most of us are investing for the long term. For a 65-year-old couple, there is a
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Investment fads are nothing new. When selecting strategies for their portfolios, investors are often tempted to seek out the latest and greatest investment opportunities. Over the years, these approaches have sought to capitalize on developments such as the perceived relative strength of particular geographic regions, technological changes in the economy, or the popularity of different natural resources. But long-term investors should be aware that letting short- term trends influence their investment approach may be counterproductive. As Nobel laureate Eugene Fama
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