Sunday, 31 January 2010

The Only Three Questions That Count: Investing by Knowing What Others Don't

Investing is far more complex than that.

The idea is to get us to think more deeply.
The three questions are:
  • What do you believe that is actually false? Test the received wisdom to see if it is really true. 
  • What can you fathom that others find unfathomable? Look for unusual areas of competitive advantage that you have that are possessed by few. 
  • What the heck is my brain doing to blindside me now? Your emotions will often lead you astray: Look for opportunity amid fear; look for shelter amid wild abandon.

Competitive advantage in investing is an elusive thing.
  • The clever idea that you might discover is just one journal article away from an academic toiling in obscurity, but will go to a hedge fund two years from now.
  • Patterns that work in one market should work in most markets. If your discovery seems to work in most places, it might work well, until it is discovered and used heavily.
Fisher uses E/P relative to bond yields to try to estimate whether markets are rich or cheap.

Now, in the intermediate-run, most things that people are scared about don’t affect the market much.
  • Government deficits? Seem to be a positive for stocks in the short run.
  • Trade deficit? Little effect on stocks.
  • Weak dollar? Little effect.
This book debunks a number of common worries.

The Only Three Questions That Count: Investing by Knowing What Others Don’t
(Fisher Investments Press)

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