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by Peter Mallouk
The 5 Mistakes Every Investor Makes and How to Avoid Them, 2nd Edition
Cover
Title Page
Copyright
Dedication
Preface
Acknowledgments
Notes
About the Author
Legal Disclosure
INTRODUCTION: The Market Wants to Be Your Friend
Note
MISTAKE #1: Market Timing
The Idiots
Why Is It So Hard to Beat the Market?
Efficient Markets
The Evidence (Research and Stuff)
The Media Get It Wrong, Over and Over Again
Economists Get It Wrong, Over and Over Again
Investment Managers Get It Wrong, Over and Over Again
Newsletters Get It Wrong, Over and Over Again
Your Buddy
Strategies That Don't Sound Like Market Timing but Are Market Timing—Oh, and They Don't Work Either
Asset-Class Rotation
Tactical Asset Allocation
Style Rotation
Sector Rotation
What Smart Investors Have to Say on Market Timing
Knowing All This, Why Would Anyone Market Time?
Corrections
Bear Markets: An Overview
Bear Markets Happen for Different Reasons, but the Outcome Is Always the Same
Bear Markets Are Not Predictable
When Bear Markets “Turn,” They Make People on the Sidelines Look Silly
The Market Is Volatile—Get Used to It
You Can't Wait for Consumers to Feel Good
Learning to Accept the Bear Markets
Miscalculating the Risk of Market Timing
But What If I Am Perfect?
Lump-Sum Investing versus Dollar-Cost Averaging
Learning to Fly
Avoiding Mistake #1—Market Timing
Notes
MISTAKE #2: Active Trading
The History of Active Trading
Active Investment Managers Lose to Indexing
Newsletters Lose to Indexing
Active Mutual Funds Lose to Indexing
Survivor Bias (a.k.a. Mutual Fund Performance Is Even Worse Than the Data Suggests)
What About the Winners, Huh? What About the Winners?!
Hedge Funds Lose to Indexing
Endowments—Misperception of Performance
Venture Capital (Sounds Sexy but Usually a Dog)
The Taxman Cometh (a.k.a. Dear Goodness, It Gets Worse)
Portfolio Activity Hurts Performance
But Doesn't Active Management Work in a Down Market?
Why Indexes Win
But Indexing Results in Average Returns
S&P 500, Here I Come!
Avoiding Mistake #2—Active Trading
Notes
MISTAKE #3: Misunderstanding Performance and Financial Information
Misunderstanding #1—Judging Performance in a Vacuum
Misunderstanding #2—Believing the Financial Media Exists to Help You Make Smart Decisions (a.k.a. the Media Is Killing You)
Misunderstanding #3—Believing That the Market Cares About Today
Misunderstanding #4—Believing an All-Time High Means the Market is Due for a Pullback
Misunderstanding #5—Believing Correlation Equals Causation
October Is The Worst Month to Invest
Sell in May and Go Away
Misunderstanding #6—Believing Financial News Is Actionable
Misunderstanding #7—Believing Republicans Are Better for the Market Than Democrats
Misunderstanding #8—Overestimating the Impact of a Manager
Misunderstanding #9—Believing Market Drops Are the Time to Get Defensive
Avoiding Mistake #3—Misunderstanding Performance and Financial Information
Notes
MISTAKE #4: Letting Yourself Get in the Way
Fear, Greed, and Herding
The Overconfidence Effect
Confirmation Bias
Anchoring
Loss Aversion
Mental Accounting
Recency Bias
Negativity Bias
The Gambler
Avoiding Mistake #4—Letting Yourself Get in the Way
Notes
MISTAKE #5: Working with the Wrong Advisor
Most Advisors Will Do Far More Harm Than Good
Advisor Selection Issue #1—Custody
Advisor Selection Issue #2—Conflict
Test #1—Independent Advisor or Broker?
Investment Advisor Defined
Broker Defined
So What's the Difference?
So What's the Difference?
Test #2—Pure Independent versus Independent and Broker
Test #3—Proprietary Funds versus No Proprietary Funds
A Final Thought on Conflicts
Advisor Selection Issue #3—Competence
Competence Check #1—Do the Advisor's Credentials Meet Your Needs?
Competence Check #2—Is the Advisor Right for You?
Competence Check #3—Is the Advisor Following a Process That You Agree With?
A Final Thought on Advisors—Principles
Avoiding Mistake #5—Choosing the Wrong Advisor
Notes
MISTAKE #6: No Mistaking
Rule #1: Have a Clearly Defined Plan
Rule #2: Avoid Asset Classes That Diminish Results
Cash— The Illusion of Safety
The Illusion of Gold as a Way to Grow Wealth
Rule #3: Use Stocks and Bonds as the Core Building Blocks of Your Intelligently Constructed Portfolio
Rule #4: Take a Global Approach
Rule #5: Use Primarily Index-Based Positions
Rule #6: Don't Blow Out Your Existing Holdings
Rule #7: Be Sure You Can Live with Your Allocation
Rule #8: Rebalance
Rule #9: Revisit the Plan
The Ultimate Rule: Don't Mess It Up!
Portfolio Example
The “I Want to Beat the Market” Portfolio
The “I Need 7 Percent to Hit My Long-Term Retirement Goal” Portfolio
The “Get Me What I Need for the Rest of My Life with the Least Volatility Possible” Portfolio
The “I Have More Money Than I Will Ever Need and I Want It to Grow with Minimal Volatility” Portfolio
The “I Have More Money Than I Will Ever Need, Volatility Doesn't Bother Me, and I Want It to Grow Along with the Market” Portfolio
A Path to Success: Intelligent Portfolio Construction
Notes
You're the One
Note
CONCLUSION: Let's Roll!!
Notes
References
Index
End User License Agreement
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Copyright
THE
5 MISTAKES
EVERY INVESTOR MAKES AND HOW TO
AVOID THEM
Getting Investing Right
Second Edition
PETER MALLOUK
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