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

PART 4

HISTORY LESSONS

Past performance is never a guarantee of future results. So why the heck does this book have a chapter called “History Lessons”? History can’t tell you what stocks will do. True—nothing can tell you what stocks will do. But history can teach you if something is reasonable to expect.

Far too many people think of investing like a craft. I talked about this in my 2006 book, The Only Three Questions That Count. Investors frequently think if they learn and train in the right craft-like methods—apprenticing under a master, rather like blacksmiths used to—they’ll eventually become master craftsmen themselves and somehow have an edge over others.

Folks who think this way forget the stock market is an efficient discounter of widely known information—and most all craft-like applications, particularly those taught in masters’ programs and at the major banks and brokerages, qualify as “widely known information.” Do those crafts—even very well—and by definition you don’t have an edge.

Instead, investors should think about investing as a science. In science, you develop a hypothesis, test, confirm, and retest—continuously. It’s a non-stop query session. While investors don’t have a traditional lab like biologists or chemists, they do have history. History is the investors’ lab.

Nearly every day, you can pick up a paper or listen to news and hear folks say, “XYZ is happening, which is terrible, and that will be bad for stocks!” Less frequently (because bad news sells advertising ...