More Straight Talk on Investing

17“It's a Mad, Mad, Mad, Mad World”

At the outset of this book, I asserted that the key to successful investing is to get a few important things right and avoid making big, costly mistakes. I've already discussed the good habits that you need to develop—saving money, investing regularly, adhering to a buy-and-hold approach, and minimizing costs, among others. Now, we'll turn our attention to circumstances and temptations that can undermine your investment program.

As we've witnessed during the first two decades of this century, the financial markets have presented challenges to investors, including severe stock market declines and subsequent run-ups, as well as historically low interest rates. It may seem paradoxical, but we'll see why run-ups can be a challenge in a moment.

The tests from the markets aren't the only ones that you will face as an investor. You'll encounter advice that can lead you astray. You'll be buffeted at times by your own emotions or behavioral biases that can hamper your decision-making and cloud your judgment. You'll be tempted by opportunities that appear alluring. In Part 4 of this book, I'll aim to examine these enticements and urges in an effort to provide you with some defensive tools as you embark on your journey as an investor.

In the hope that a little knowledge will help to inoculate you against temptations and the potential for self-inflicted mistakes, this chapter will be devoted to reviewing a few past manias and bubbles. There's no question ...