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20/20 Money: See the Markets Clearly and Invest Better Than the Pros

Book Description

2O/2O Money: See the Markets Clearly and Invest Better Than the Pros

To be a more successful investor, you need to see the investment landscape more clearly. 20/20 Money—from Fisher Investments Press—can help you achieve this goal.

Designed to help you think differently about your investing choices, this reliable resource addresses new ideas and challenges widely held conventions. With 20/20 Money as your guide, you'll quickly learn how gaining a firm understanding of various concepts—from stock market and systems theory to neuroscience and psychology—can help you begin making better investment decisions. Along the way, you'll also discover some of the most successful strategies for thinking and learning, and how they can be applied to your investing endeavors.

To become a better investor, you have to have the discipline to make tough choices—choices that may not always be in line with tradition or commonly accepted invested wisdom. But the approach outlined throughout these pages can help you gain the vision to begin making better-informed investment decisions.

Table of Contents

  1. Copyright
  2. Acknowledgments
  3. Introduction
    1. ASKING THE RIGHT QUESTIONS
  4. 1. INVESTING IS A SCIENCE
    1. 1.1. APOLLO'S ARROW SHOT CROOKED
    2. 1.2. DIONYSUS—MORE THAN JUST A GOOD VINTNER
    3. 1.3. USE THE METHOD, NOT THE DOGMA
      1. 1.3.1. I Think, Therefore I Invest
      2. 1.3.2. The Scientific Method
      3. 1.3.3. Theory and Reality
        1. 1.3.3.1. The Only Worthwhile Philosophy Is a Pragmatic One.
    4. 1.4. CAREFUL WITH CATEGORIES
    5. 1.5. COULD MATH BE WRONG?
      1. 1.5.1. Where Math Failed: Long-Term Capital Management
    6. 1.6. REDUCTION: WHY YOU CAN'T QUANTIFY EVERYTHING
      1. 1.6.1. Reduction is Good!
      2. 1.6.2. Reduction is Bad!
      3. 1.6.3. Reducing the Truth Away
  5. 2. INVESTING IS A DISCIPLINE
    1. 2.1. DISCIPLINE, DISCIPLINE, DISCIPLINE
      1. 2.1.1. Consciousness: Being Human is Great! Here's Why...
        1. 2.1.1.1. Real, or Imagined?
        2. 2.1.1.2. Free Will or Free Won't?
      2. 2.1.2. Rewire Yourself?
        1. 2.1.2.1. Tips for Boosting Self-Knowledge and Self-Awareness.
    2. 2.2. SAGACITY: SEEING ISN'T BELIEVING
      1. 2.2.1. Data Drunk
    3. 2.3. UNDERSTANDING AND BEING CURIOUS
  6. 3. HUMAN BEHAVIOR
    1. 3.1. BRAIN BASICS
      1. 3.1.1. The Triune Brain
      2. 3.1.2. Hierarchy and the Unconscious
      3. 3.1.3. Modules and Instinct
      4. 3.1.4. Neural Plasticity and Neural Networks
    2. 3.2. BRAINS ON THE MARKET
      1. 3.2.1. Wired for the Short Term
      2. 3.2.2. You've Never Been a Villain, Have You?
      3. 3.2.3. Lemmings, Herds, and Humans—Oh, But I Repeat Myself
      4. 3.2.4. Time Ticks by So Slowly...
    3. 3.3. MY, WHAT A TERRIBLE MEMORY YOU HAVE!
      1. 3.3.1. Proteins and Networks
      2. 3.3.2. False Memories
    4. 3.4. BAD BEHAVIORAL FINANCE
    5. 3.5. BEHAVIORAL MISCELLANY
  7. 4. SENTIMENT AND THE MEDIA
    1. 4.1. SENTIMENT BASICS
      1. 4.1.1. Tracking the Consensus
      2. 4.1.2. The Short and Long of It
    2. 4.2. NEWS AND THE MEDIA
      1. 4.2.1. The Media is a Command System ... For Now
        1. 4.2.1.1. Old-World Command Systems.
        2. 4.2.1.2. Information Age Revolution?
    3. 4.3. WHAT'S THEIR MOTIVE?
    4. 4.4. TIPS AND TRICKS TO NAVIGATE THE MEDIA
      1. 4.4.1. Who Are You Getting News From?
      2. 4.4.2. Read What's Popular, and Also What's Fringe
      3. 4.4.3. Read the Headline and First Two Paragraphs, Then Go
      4. 4.4.4. Learn to Skim and Look for Key Words
      5. 4.4.5. Be Conscious of Adjectives Versus Facts
      6. 4.4.6. What's the Point of View?
      7. 4.4.7. Anecdote Is No Antidote
      8. 4.4.8. Seek Diversity and Multiplicity
      9. 4.4.9. Ignore the "Could" Headlines
      10. 4.4.10. Don't Fall Prey to "The Myth of One"
    5. 4.5. METAPHORS WE INVEST BY
  8. 5. HOW STOCK MARKETS REALLY WORK
    1. 5.1. CAPITALISM BY ANY OTHER NAME
      1. 5.1.1. Adam Smith
      2. 5.1.2. Joseph Schumpeter
      3. 5.1.3. Friedrich Hayek
      4. 5.1.4. Milton Friedman
    2. 5.2. IT'S COMPLICATED ... A CRASH COURSE IN CEAS
      1. 5.2.1. Ants Get Us Started
      2. 5.2.2. We're Not Ants! But We Are a Community
      3. 5.2.3. Irrational and Efficient Is Easy ... If We Share Information
      4. 5.2.4. Changes ... Turn and Face the Strange
      5. 5.2.5. Not Drunk, Just Buzzed
    3. 5.3. THE NEW GOLDEN RULE
      1. 5.3.1. By Many Names, Still the Golden Rule
      2. 5.3.2. A Softer, Gentler Kind of Golden Rule
      3. 5.3.3. The Long and Short (Term) of the Golden Rule
      4. 5.3.4. The Golden Rule's Big Benefit
      5. 5.3.5. A Few Tips for Using the Golden Rule
    4. 5.4. OLDEST AND STILL THE BEST: SUPPLY AND DEMAND
      1. 5.4.1. Balancing Act
      2. 5.4.2. A Different Kind of Equilibrium
      3. 5.4.3. Demand Is Only a Two-Way Street
      4. 5.4.4. Don't Ignore Supply
        1. 5.4.4.1. A Bit of Criticism ...
  9. 6. FORECASTING, PART 1—THE PRINCIPLE OF PROBABILITY
    1. 6.1. FORECASTING IS STRANGE ALCHEMY
    2. 6.2. TYPES OF PREDICTIONS
    3. 6.3. PROBABILITY THEORY, OR HOW MARKETS ARE NOTHING LIKE COIN TOSSES
      1. 6.3.1. The Specific and the General
      2. 6.3.2. Expected Value
        1. 6.3.2.1. Coin Flips or Sports Books?
      3. 6.3.3. Let's Go Gambling, Monte Carlo Style
        1. 6.3.3.1. Calculating Monte Carlo.
    4. 6.4. THE BIGGEST PROBLEM OF THEM ALL
    5. 6.5. INVESTING LESSONS FROM PROBABILITY
      1. 6.5.1. Make Room for Anomaly
      2. 6.5.2. Normality? No Such Thing
      3. 6.5.3. Search for Asymmetric Risks
    6. 6.6. LOOKING AHEAD . . .
  10. 7. FORECASTING, PART 2—RECOGNIZING PATTERNS
    1. 7.1. A PATTERN BY ANY OTHER NAME
    2. 7.2. STOCK MARKET PATTERNS
    3. 7.3. PATTERNS THROUGH THE NOISE
    4. 7.4. IT'S A GAME OF RELATIVE EXPECTATIONS
    5. 7.5. BACK TO THE FUTURE: USING HISTORY TO FIND PATTERNS
    6. 7.6. THREE BIG DRIVERS
      1. 7.6.1. Economic
      2. 7.6.2. Political
      3. 7.6.3. Sentiment Drivers
    7. 7.7. AN OPTIMISTIC NOTE ON FUTURE PATTERNS
  11. 8. PRACTICAL PORTFOLIO MANAGEMENT
    1. 8.1. THE VIRTUES OF HEURISTICS
    2. 8.2. GOAL SETTING
      1. 8.2.1. Never Have Another Bad Day...Ever!
    3. 8.3. PERSONAL GOALS
      1. 8.3.1. The Long and the Short of It
    4. 8.4. PORTFOLIO GOALS
      1. 8.4.1. First Things First: Stocks Are the Best
      2. 8.4.2. Know You Could Be Wrong—Or, Why We Diversify
      3. 8.4.3. Train Yourself to See the Portfolio, Not the Stocks
    5. 8.5. THE TOP-DOWN PHILOSOPHY
      1. 8.5.1. Stocks Zig and Zag Together
      2. 8.5.2. The Joys of Benchmarking, or Why I Hate Stamp Collectors
      3. 8.5.3. The Biggest Risk
      4. 8.5.4. Passive, Active, and Being Offensive
      5. 8.5.5. The Four Market Scenarios
      6. 8.5.6. That Good-Old Home Country Bias
        1. 8.5.6.1. A Quick Word on Emerging Markets...
    6. 8.6. MISCELLANEOUS HEURISTICS
      1. 8.6.1. Fees Are Expensive—Inactive Is Good
      2. 8.6.2. Don't Fire Your Bad Employees, or When to Buy and Sell Stocks
      3. 8.6.3. Don't Be a Contrarian
      4. 8.6.4. Be Along for the Ride
      5. 8.6.5. Secular Is Blasphemy
  12. 9. THE NATURE OF RISK AND NAVIGATING MARKETS IN TROUBLED TIMES
    1. 9.1. RISK AND UNCERTAINTY
    2. 9.2. FINANCIAL RISK, OR WHAT HAPPENS WHEN YOU ASSUME
      1. 9.2.1. Standard Deviation
      2. 9.2.2. Systemic Risks
      3. 9.2.3. Beta to the Max
      4. 9.2.4. The Sharpe Ratio
      5. 9.2.5. Value at Risk (Var)
    3. 9.3. IN TROUBLED TIMES
      1. 9.3.1. For Every Bear, a Bull
      2. 9.3.2. Keep the Strategy, Change Your Mind
      3. 9.3.3. Sidestepping the Bear
        1. 9.3.3.1. Bears Are Rare!
      4. 9.3.4. Formula for a Bear
        1. 9.3.4.1. Bears and Recessions.
        2. 9.3.4.2. Bubbles and Panics Are the Same.
        3. 9.3.4.3. The Panic of 2008: The Simplest Choice.
        4. 9.3.4.4. Crucibles
        5. 9.3.4.5. The Amazing (and Destructive) Adaptability of Capitalism.
  13. Parting Thoughts
  14. Notes
    1. 9.4. CHAPTER 1: INVESTING IS A SCIENCE
    2. 9.5. CHAPTER 2: INVESTING IS A DISCIPLINE
    3. 9.6. CHAPTER 3: HUMAN BEHAVIOR
    4. 9.7. CHAPTER 4: SENTIMENT AND THE MEDIA
    5. 9.8. CHAPTER 5: HOW STOCK MARKETS REALLY WORK
    6. 9.9. CHAPTER 6: FORECASTING, PART 1 — THE PRINCIPLE OF PROBABILITY
    7. 9.10. CHAPTER 7: FORECASTING, PART 2 — RECOGNIZING PATTERNS
  15. Selected Bibliography and Further Reading
  16. ABOUT THE AUTHOR