Members often tell me about the books they find most helpful. As you know, there’s a lot out there to read if you so desire about just about every topic you can think about regarding investing, trading and the markets.
Recently a member expressed appreciation for my prior recommendation of Jason Zweig’s Your Money & Your Brain. I recommended the book after he told me about several situations over the past few years where he seemed to mentally work against himself and his performance in the markets.
With my member’s expressed permission, here are some of key points of Zweig’s book many of which are true gems for both traders and investors alike:
There are only three kinds of investors – those who think they are geniuses, those who think they are idiots, and those who aren’t sure.
One of the clearest signals that you are wrong about an investment is having the hunch that you are right about it.
Investors who focus on price levels earn between five and ten times higher profits than those who pay attention to price changes.
The only way to be more certain it’s true is to search harder for proof that it is false.
Business value changes over time, not all the time. Stocks are like weather, altering almost continually and without warning; businesses are like the climate, changing much more gradually and predictably.
When rewards are near, the brain hates to wait.
The market isn’t always right, but it’s right more often than it is wrong.
Often, when we are asked to judge how likely things are, we instead judge how alike they are.
Most of what seem to be patterns in stock prices are just random variations.
In a rising market, enough of your bad ideas will pay off so that you’ll never learn that you should have fewer ideas.
The more often people watch an investment heave up and down, the more likely they are to trade in and out over the short term – and the less likely they are to earn a high return over the long term.
Investing is not you versus “Them”. It’s you versus you.
The single greatest challenge you face as an investor is handling the truth about yourself.
Hindsight bias keeps you from feeling like an idiot as you look back – but it can make you act like an idiot as you look forward.
Ignorance of our own ignorance haunts our financial judgments.
Investing requires taking a stand on at least some of the uncertainties that the future holds. So your goal is to be as sure as possible that you don’t think you know more than you really do. How much you know is less important than how clearly you understand where the borders of your ignorance begin. It’s not even a problem to know next to nothing, as long as you know you know next to nothing.
Being part of the herd is fun while it lasts, but it’s seldom lucrative for very long, and it’s impossible to predict when the herd will change its “mind.” If you want to make more money than other people, you can’t invest like other people.
Knowing, or even imagining, that someone else is relying on your advice can make you feel more accountable, forcing you to go beyond your gut feelings and fortify your opinions with factual evidence.
Find out who has a negative view and give this devil’s advocate a full hearing.
Whether you should take a risk depends not just on the probability that you are right but also on the consequences if you are wrong. You must always weigh how right you think you are against how sorry you will be if you turn out to be mistaken.
We are often most afraid of the least likely of dangers, and frequently not worried enough about the risks that have the greatest chances of coming home to roost.
When an intangible feeling of risk fills the air, you can catch other people’s emotions as easily as you can catch a cold.
Overreacting to raw feelings “blinking” in the face of risk is often one of the riskiest things an investor can do.
There’s safety in numbers only when there’s nothing to be afraid of.
Many of the world’s best investors have mastered the art of treating their own feelings as reverse indicators. Excitement becomes a cue that it’s time to consider selling, while fear tells them that it may be time to buy.
A mistake that stems from an action hurts worse than a mistake that results from inaction.
Once you have a handful of options, adding even more choices will lower you odds of making a good decision and increase your chances of regretting whatever decision you do make.
The harder the choice feels, the less people want to choose. Yet, the threat of having less choice almost always disturbs us.
The closer you come to hitting your target, the more regret you are apt to feel if you miss it.
The human brain is a brilliant machine for comparing the reality of what is against the imagination of what might have been.
There’s no end to the roads not taken.
Investors probably hurt themselves more by avoiding risks they imagine they might regret than by taking risks they really do end up regretting.
Instead of making judgments one at a time, you should follow policies and procedures that put your investing decisions on autopilot.
The more you can automate your investing, the easier it should be to control your emotions.
The pleasure you expect tends to be more intense than the pleasure you experience.
We often find out that what we thought we wanted before we got it is no longer what we really want once we have it.
There are two tragedies in life. One is to lose your heart’s desire. The other is to gain it.
Your memory of what was is shaped largely by what is.
If you focus too narrowly on the task at hand, you may never use your peripheral vision.
Chance favors the prepared mind.
Those are some very interesting and I think overall very helpful observations! When you have time, Jason’s website is also worthwhile and has many items of interest you might find helpful as well.