Monday, 22 June 2009

Learn from the Worst: Summary

We have learned that we have a lot going against us when it comes to investing in the stock market -
  • our brains,
  • our emotions,
  • timing, and even,
  • the mutual fund industry itself.
We've also learned that if we want to grow our money by any substantial margin over the long run, the market is the best place to be.

Therefore, it is important to have good philosophy and strategy on how to stay in the market and avoid these pitfalls.


While the stock market is unpredictable in the short term, it becomes predictable - and predictably good - over the long term. In fact, it has proven to be far and away the best long-term investment vehicle of all-time, especially when inflation is factored in.

Despite that fact, the vast majority of individual investors, mutual fund managers, and stock recommendation newsletters fail to beat the market over the long run, often underperforming by wide margins.

The reason for most underperformance is that investors' emotions lead them astray, causing them to react to short-term price movements and the interpretation of those movements by experts featured in the media. This leads to selling low and buying high.

Much of the stock market's gains come on a limited number of days - and no one knows exactly when those big days will occur; if you jump in and out of the market, you risk missing them.

In order to make money by timing the market, you need to be right on about 75% of your market calls - and research shows that most investors, even so-called experts don't come closee to that success rate.

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