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The 5 Mistakes Every Investor Makes and How to Avoid Them: Getting Investing Right

Book Description

Identify mistakes standing in the way of investment success

With so much at stake in investing and wealth management, investors cannot afford to keep repeating actions that could have serious negative consequences for their financial goals. The Five Mistakes Every Investor Makes and How to Avoid Them focuses on what investors do wrong so often so they can set themselves on the right path to success. In this comprehensive reference, readers learn to navigate the ever-changing variables and market dilemmas that often make investing a risky and daunting endeavor. Well-known and respected author Peter Mallouk shares useful investment techniques, discusses the importance of disciplined investment management, and pinpoints common, avoidable mistakes made by professional and everyday investors alike.

Designed to provide a workable, sensible framework for investors, The Five Mistakes Every Investor Makes and How to Avoid Them encourages investors to refrain from certain negative actions, such as fighting the market, misunderstanding performance, and letting one's biases and emotions get in the way of investing success.

  • Details the major mistakes made by professional and everyday investors

  • Highlights the strategies and mindset necessary for navigating ever-changing variables and market dilemmas

  • Includes useful investment techniques and discusses the importance of discipline in investment management

  • A reliable resource for investors who want to make more informed choices, this book steers readers away from past investment errors and guides them in the right direction.

    Table of Contents

    1. Cover
    2. Title Page
    3. Copyright
    4. Preface
    5. Acknowledgments
    6. About the Author
    7. Introduction: The Market Wants to Be Your Friend
    8. Mistake #1: Market Timing
      1. The Idiots
      2. The Liars
      3. Why Is It So Hard to Beat the Market?
      4. The Masses Get It Wrong, Over and Over Again
      5. The Media Get It Wrong, Over and Over Again
      6. Economists Get It Wrong, Over and Over Again
      7. Investment Managers Get It Wrong, Over and Over Again
      8. Newsletters Get It Wrong, Over and Over Again
      9. Your Buddy
      10. Strategies That Don't Sound Like Market Timing but Are Market Timing—Oh, and They Don't Work, Either
      11. What Smart Investors Have to Say on Market Timing
      12. Knowing All This, Why Would Anyone Market Time?
      13. Corrections
      14. Bear Markets: An Overview
      15. When Bear Markets “Turn,” They Make People on the Sidelines Look Silly
      16. The Market Is Volatile—Get Used to It
      17. You Can't Wait for Consumers to Feel Good
      18. Learning to Accept the Bear Markets
      19. Miscalculating the Risk of Market Timing
      20. But What If I Am Perfect?
      21. Lump Sum Investing versus Dollar Cost Averaging
      22. Learning to Fly
      23. Avoiding Mistake #1—Market Timing
    9. Mistake #2: Active Trading
      1. The History of Active Trading
      2. Active Investment Managers Lose to Indexing
      3. Fisher Investments
      4. Legg Mason Value
      5. Jim Cramer
      6. Newsletters Lose to Indexing
      7. Active Mutual Funds Lose to Indexing
      8. Survivor Bias (a.k.a. Mutual Funds Perform Even Worse Than the Data Suggests)
      9. What About the Winners, Huh? What About the Winners?!
      10. Hedge Funds Lose to Indexing
      11. Endowments—Misperception of Performance
      12. Venture Capital (Sounds Sexy but Usually a Dog)
      13. The Taxman Commeth (a.k.a. Dear Goodness, It Gets Worse)
      14. Portfolio Activity Hurts Performance
      15. But Doesn't Active Management Work in a Down Market?
      16. Why Indexes Win
      17. S&P 500, Here I Come!
      18. Avoiding Mistake #2—Active Trading
    10. Mistake #3: Misunderstanding Performance and Financial Information
      1. Misunderstanding #1—Judging Performance in a Vacuum
      2. Misunderstanding #2—Believing the Financial Media Exists to Help You Make Smart Decisions (a.k.a. the Media Is Killing You)1
      3. Misunderstanding #3—Believing the Market Cares about Today
      4. Misunderstanding #4—Believing an All-Time High Means the Market Is Due for a Pullback
      5. Misunderstanding #5—Believing Correlation Equals Causation
      6. October Is the Worst Month to Invest
      7. Sell in May and Go Away
      8. Misunderstanding #6—Believing Financial News Is Actionable
      9. Misunderstanding #7—Believing Republicans Are Better for the Market Than Democrats
      10. Misunderstanding #8—Overestimating the Impact of a Manager
      11. Misunderstanding #9—Believing Market Drops Are the Time to Get Defensive
      12. Avoiding Mistake #3—Misunderstanding Performance and Financial Information
    11. Mistake #4: Letting Yourself Get in the Way
      1. Fear, Greed, and Herding
      2. The Overconfidence Effect
      3. Confirmation Bias
      4. Anchoring
      5. Loss Aversion
      6. Mental Accounting
      7. Recency Bias
      8. Negativity Bias
      9. The Gambler
      10. Avoiding Mistake #4—Letting Yourself Get in the Way
    12. Mistake #5: Working with the Wrong Advisor
      1. Most Advisors Will Do Far More Harm Than Good
      2. Advisor Selection Issue #1—Custody
      3. Advisor Selection Issue #2—Conflict
      4. Advisor Selection Issue #3—Competence
      5. A Final Thought on Advisors—Principles
      6. Avoiding Mistake #5—Choosing the Wrong Advisor
    13. Mistake #6: Getting It Right
      1. Rule #1: Have a Clearly Defined Plan
      2. Rule #2—Avoid Asset Classes That Diminish Results
      3. Rule #3—Use Stocks and Bonds as the Core Building Blocks of Your Intelligently Constructed Portfolio
      4. Putting It All Together
      5. Rule #4—Take a Global Approach
      6. Rule #5—Use Primarily Index-Based Positions
      7. Rule #6—Don't Blow Out Your Existing Holdings
      8. Rule #7—Asset Location Matters
      9. Rule #8—Be Sure You Can Live with Your Allocation
      10. Rule #9—Rebalance
      11. Rule #10—Revisit the Plan
      12. The Ultimate Rule—Don't Mess It Up!
      13. Portfolio Examples
      14. A Path to Success—Intelligent Portfolio Construction
    14. The Ultimate Mistake
    15. Conclusion: Let's Roll!
    16. References
    17. Index
    18. End User License Agreement