Who wants to be an average investor? We all dream of beating the market and being super investors, and we spend an inordinate amount of time and resources in this endeavor. Consequently, we are easy prey for the magic bullets and the secret formulas offered by salespeople pushing their wares. In spite of our best efforts, though, most of us fail in our attempts to be more than average. Nonetheless, we keep trying, hoping that we can be more like the investing legends—another Warren Buffett, George Soros, or Peter Lynch. We read the words written by and about successful investors, hoping to find in them the key to their stock-picking abilities, so that we can replicate them and become like them.
In our search, though, we are whipsawed by contradictions and anomalies. On one corner of the investment town square stands an adviser, yelling to us to buy businesses with solid cash flows and liquid assets because that's what worked for Buffett. On another corner, another investment expert cautions us that this approach worked only in the old world, and that in the new world of technology we have to bet on companies with great growth prospects. On yet another corner stands a silver-tongued salesperson with vivid charts who presents you with evidence of the charts' capacity to get you in and out of markets at exactly the right times. It is not surprising that facing this cacophony of claims and counterclaims we end up more confused than ever.
In this chapter, we ...