Debunkery: Learn It, Do It, and Profit From It—Seeing Through Wall Street's Money-Killing Myths

PART 1

BASIC BUNK TO MAKE YOU BROKE

There are myriad reasons investors fail, long term, to get the returns they want. Folks have a romantic notion about “beating the market.” A lofty goal—and possible, though difficult—but most investors not only fail to beat the market; they don’t match the market or come anywhere close.

You’d think with all of today’s technology and instant information, we’d have banked on all that past collective wisdom and do better at investing—overall and on average. Yet, overwhelmingly, investors don’t.

There’s no one reason, but a major reason—maybe the primary one—is our brains aren’t set up to do this stuff right. (I’ll talk about this more in future chapters.) Our brains evolved to keep us warm, dry, fed, and safe from charging beasts. That helps us in our quest to build taller, stronger, safer buildings and develop life-saving vaccines, but it does nothing in our quest to conquer capital markets. In fact, it can hurt us. Humans are intuitive creatures; markets are inherently counterintuitive.

Simply, the way our brains evolved can make us see the world completely wrong. We see heightened risk exactly when risk is actually least. (Bunks 7, 9.) We seek patterns where there are none (Bunk 10)—we want to see order in something that is inherently and beautifully chaotic. Then, despite our innate desire to assign meaning when there is none, we completely ignore obvious patterns—even mock them! (Bunks 1, 2.)

Part 1 deals with the most basic fundamental misunderstandings. ...