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Most of the time, economic data is fairly benign. I don't wish to imply it is meaningless, but it is not a driver of stock markets. Indeed, the correlation between economic noise and how equity markets perform has been wildly overemphasized.
Barry Ritholtz
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As investors, we want to believe we are smart, insightful and uniquely talented - even though we often fail to do the heavy lifting, put in the long hours, and make the uncomfortable but necessary decisions to achieve success.
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If your investing approach requires that you become Nostradamus to succeed, then you are destined to fail.
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Whenever you try to pick market tops and bottoms, you are making a prediction. Guessing what stock is going to outperform the market is forecasting, as is selling a stock for no apparent reason. Indeed, nearly all capital decisions made by most people are unconscious predictions.
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In the investment business, you must expect to be wrong.
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Even when you are right, there are costs and taxes associated with being tactical. When you are wrong, there are opportunity costs.
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If you think too-big-to-fail banks are not worthy of investment because of their impossible-to-read balance sheets, well then, don't buy them.
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If you are not making any mistakes, you are being excessively risk-averse. Investing involves risk, and that means you will occasionally be wrong. And although it is okay to be wrong, it is not okay to stay wrong.
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Here is a dirty little secret: Stock-picking is wildly overrated. Sure, it makes for great cocktail party chatter, and what is more fun than delving into a company's new products? But the truth is that individual stocks are riskier than broad indices.
TruthGreatFunTruth IsPartyNew
We must recognize our own behavioral errors. To be blunt, you are not likely to become a cognitive Zen master anytime soon. But a little enlightenment could keep you from making some common investing errors.
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Owning a variety of asset classes means that some part of your portfolio will be doing well when the cyclical turmoil arises. A broadly diversified portfolio includes large capitalization stocks, small cap, emerging markets, fixed income, real estate and commodities.
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What you pay for an investment is the single biggest determinant for how successful that investment will be. When equity prices are high, your returns will be lower. When they are cheap, your returns will be higher.
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