I suppose you should always try to think clearly about everything. But it seems extra important when it comes to investing. We are awash in facts that hold various degrees of relevance and accuracy. The purpose of the next two chapters is to give you some insight into which facts are important, which to note, and which to ignore. These chapters focus on the need to be skeptical, to see through commonplace misconceptions, to consider the impact of other investors, to deal with the unknown, and to learn how to overcome weaknesses. How well you apply these “facts” to the task of investing will, to a great extent, determine your success. It is just as important to learn how to think, as it is to learn what to think. We'll begin with a quiz.
Clear Thinking Quiz
If you know how to think, then you should be able to answer these questions without any trouble. If you can't, read on.
Answers are at the end of this chapter.
If you have never taken a course in statistics, here's one thing you should learn: Correlation is not causation. Just because two series move in tandem, it doesn't mean one series causes the other.
Investment lore includes any number of correlations that can be quite high, but may not mean a thing. Probably the best-known example is the Super Bowl indicator. It's bullish when the winner is a team from ...