A Wealth of Common Sense E-Book

Ben Carlson

• Herausgeber: John Wiley & Sons
• Kategorie: Fachliteratur
• Serie: Bloomberg
• Sprache: Englisch
• Veröffentlichungsjahr: 2015

Seitenzahl: 353

Beschreibung

A simple guide to a smarter strategy for the individual investor A Wealth of Common Sense sheds a refreshing light on investing, and shows you how a simplicity-based framework can lead to better investment decisions. The financial market is a complex system, but that doesn't mean it requires a complex strategy; in fact, this false premise is the driving force behind many investors' market "mistakes." Information is important, but understanding and perspective are the keys to better decision-making. This book describes the proper way to view the markets and your portfolio, and show you the simple strategies that make investing more profitable, less confusing, and less time-consuming. Without the burden of short-term performance benchmarks, individual investors have the advantage of focusing on the long view, and the freedom to construct the kind of portfolio that will serve their investment goals best. This book proves how complex strategies essentially waste these advantages, and provides an alternative game plan for those ready to simplify. Complexity is often used as a mechanism for talking investors into unnecessary purchases, when all most need is a deeper understanding of conventional options. This book explains which issues you actually should pay attention to, and which ones are simply used for an illusion of intelligence and control. * Keep up with--or beat--professional money managers * Exploit stock market volatility to your utmost advantage * Learn where advisors and consultants fit into smart strategy * Build a portfolio that makes sense for your particular situation You don't have to outsmart the market if you can simply outperform it. Cut through the confusion and noise and focus on what actually matters. A Wealth of Common Sense clears the air, and gives you the insight you need to become a smarter, more successful investor.

Leseprobe

Since 1996, Bloomberg Press has published books for financial professionals, as well as books of general interest in investing, economics, current affairs, and policy affecting investors and business people. Titles are written by well-known practitioners, BLOOMBERG NEWS® reporters and columnists, and other leading authorities and journalists. Bloomberg Press books have been translated into more than 20 languages.

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A Wealth of Common Sense

WHY SIMPLICITY TRUMPS COMPLEXITY IN ANY INVESTMENT PLAN

Ben Carlson

Cover image: Maze Solution © Wth/Shutterstock.com Cover design: Tom Nery

Copyright © 2015 by Ben Carlson. All rights reserved.

Published by John Wiley & Sons, Inc., Hoboken, New Jersey. Published simultaneously in Canada.

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ISBN 978-1-119-02492-7 (Hardcover) ISBN 978-1-119-02489-7 (ePDF) ISBN 978-1-119-02485-9 (ePub)

For Cortney and Libby, who make me smile every single day.

Contents

Introduction: Why Simplicity Is the New Sophistication

Noise

How Hard Can It Be?

Notes

CHAPTER 1 The Individual Investor versus the Institutional Investor

Institutional versus Individual Investors

We're All Human

Extra Zeroes

Long-Term Thinking

Key Takeaways from Chapter 1

Notes

CHAPTER 2 Negative Knowledge and the Traits Required to Be a Successful Investor

The Biggest Problem of All

Traits of a Successful Investor

Standing on the Shoulders of Giants

Key Takeaways from Chapter 2

Notes

CHAPTER 3 Defining Market and Portfolio Risk

Volatility: Risk or Opportunity?

Understanding Rule Number 1 of Investing

The Risk Tolerance Questionnaire

Risk versus Uncertainty

Risk Aversion

The Cycle of Fear and Greed

Key Takeaways from Chapter 3

Notes

CHAPTER 4 Market Myths and Market History

Myth 1: You Have to Time the Market to Earn Respectable Returns

Myth 2: You Have to Wait until Things Get Better Before You Invest

Myth 3: If Only You Can Time the Next Recession, You Can Time the Stock Market

Myth 4: There's a Precise Pattern in Historical Market Cycles

Myth 5: Stocks and Bonds Always Move in Different Directions

Myth 6: You Need to Use Fancy Black Swan Hedges in a Time of Crisis

Myth 7: Stocks Are Riskier Than Bonds

Myth 7a: Bonds Are Riskier Than Stocks

Myth 8: The 2000s Were a Lost Decade for the Stock Market

Myth 9: New All-Time Highs in the Stock Market Mean It's Going to Crash

Myth 10: A Yield on an Investment Makes It Safer

Myth 11: Commodities Are a Good Long-Term Investment

Myth 12: Housing Is a Good Long-Term Investment

Myth 13: Investing in the Stock Market Is Like Gambling at a Casino

Key Takeaways from Chapter 4

Notes

CHAPTER 5 Defining Your Investment Philosophy

Degrees of Active and Passive Management

The Benefits of Doing Nothing

Exercising Your Willpower

Simplicity Leads to Purity

Defining Yourself as an Investor

Key Takeaways from Chapter 5

Notes

CHAPTER 6 Behavior on Wall Street

Threading the Needle

So Never Invest in Active Funds?

The Most Important Thing

Key Takeaways from Chapter 6

Notes

CHAPTER 7 Asset Allocation

Asset Allocation Decisions

Why Diversification Matters

Mean Reversion and Rebalancing

Risk Factors, Value Investing, and the Power of Patience

The Value Premium

The Rise of Smart Beta

How to See It Through

Key Takeaways from Chapter 7

Notes

CHAPTER 8 A Comprehensive Investment Plan

Why Do You Need a Plan?

The Investment Policy Statement (IPS)

Lifecycle Investing

Beating the Market

Saving Money

Taxes and Asset Location

Key Takeaways from Chapter 8

Notes

CHAPTER 9 Financial Professionals

Vetting Your Sources of Financial Advice

Outsourcing to a Financial Professional

What a Financial Advisor Can Do for You

How to Be a Good Client

Benchmarking and Ongoing Maintenance

Alternatives

Key Takeaways from Chapter 9

Notes

Conclusion

Book List

Notes

About the Author

Index

EULA

List of Tables

Chapter 1

Table 1.1

Chapter 3

Table 3.1

Table 3.2

Table 3.3

Chapter 4

Table 4.1

Table 4.2

Table 4.3

Table 4.4

Table 4.5

Table 4.6

Table 4.7

Table 4.8

Table 4.9

Table 4.10

Table 4.11

Chapter 6

Table 6.1

Table 6.2

Table 6.3

Table 6.4

Table 6.5

Chapter 7

Table 7.1

Table 7.2

Table 7.3

Table 7.4

Table 7.5

Table 7.6

Chapter 9

Table 9.1

List of Illustrations

Chapter 2

Figure 2.1

Eight Symptoms of Groupthink

Chapter 3

Figure 3.1

Annual Stock Market Returns, 1928–2013 (Standard & Poor's 500)

Figure 3.2

Annual Bond Returns, 1928–2013 (10-Year Treasury Bonds)

Figure 3.3

Annual Cash Returns, 1928–2013 (Three-Month Treasury Bills)

Figure 3.4

The Wrong Move at the Wrong Time

Chapter 4

Figure 4.1

Three-Year Rolling Correlation between Stocks and Bonds

Figure 4.2

S&P 500 1900 to 2014

Figure 4.3

S&P 500 Dividends 1900 to 2014

Chapter 9

Figure 9.1

Words and Phrases to Watch Out for with Poor Financial Advice

Guide

Cover

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Introduction:Why Simplicity Is the New Sophistication

In 1776, Thomas Paine, a political activist, philosopher, and poet published a simple pamphlet that likely altered history as we know it. The title of his publication was plain and simple—Common Sense. This tiny pamphlet, which numbered less than 90 pages, inspired the original 13 colonies to seek their independence from Great Britain and form the United States of America. It's been said that virtually every rebel read, or at least listened to, the words written by Paine. This was Paine's introduction to Common Sense:

In the following pages I offer nothing more than simple facts, plain arguments, and common sense; and have no other preliminaries to settle with the reader, than that he will divest himself of prejudice and prepossession, and suffer his reason and his feelings to determine for themselves; that he will put ON, or rather that he will not put OFF, the true character of a man, and generously enlarge his views beyond the present day.1

Paine's simple words ignited the people of that day to fight for their independence. As John Quincy Adams, the second president of the United States, once said, “Without the pen of the author of , the sword of Washington would have been raised in vain.” Paine's plain, common sense arguments provided the motivation that was so desperately needed to unite people from all walks of life to stand together in their cause. So why did Paine's words resonate with so many people? In a word—simplicity. Many writers of that day and age used dense philosophy and Latin to get their point across. Paine made his case for the benefits of independence by using clear, concise language that everyone could understand. worked well with the crowds in the taverns, but was sophisticated enough to be given credibility by the Colonial dignitaries. His words lived up to the title, as common sense works on a number of levels.