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The Indomitable Investor: Why a Few Succeed in the Stock Market When Everyone Else Fails by Steven M. Sears

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Ladders

Remember the risk ladder mentioned earlier in the book? As people climb that risk ladder, forgoing conservative investments that pay less for riskier investments that pay more, they need to be reminded of their actions, and the consequences. Too often, people forget they are climbing a risk ladder. All they focus on is the chance to make more money. Put another way: Everyone would be well served to remember the dictum that the higher a monkey climbs the more we see of his behind. If Las Vegas bookmakers can post odds for football matches, and casinos know the odds of all its games, something similar should be developed for stocks. Using a Sharpe ratio and standard deviation measurements are fine for those trained in their use, but the tools need to be translated for nonfinancial people who are increasingly active in the stock market. They need to understand basic concepts like how much of a stock’s future return is based on risk, and how likely a stock is to move up or down. If we can create actuarial tables that predict when people will die, and even send people to the moon, we can surely come up with simple, intuitive tools to help people think properly about the risks—as well as rewards—about stocks and investing.

When New York City’s Mayor Michael Bloomberg made it a law that restaurants post calories, a Stanford University study found that Starbucks customers made healthier choices. A credit card debt survey found that people paid off their balances faster after the ...

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