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A Wealth of Common Sense: Why Simplicity Trumps Complexity in Any Investment Plan

Book Description

A simple guide to a smarter strategy for the individual investor

A Wealth of Common Sense sheds a refreshing light on investing, and shows you how a simplicity-based framework can lead to better investment decisions. The financial market is a complex system, but that doesn't mean it requires a complex strategy; in fact, this false premise is the driving force behind many investors' market "mistakes." Information is important, but understanding and perspective are the keys to better decision-making. This book describes the proper way to view the markets and your portfolio, and show you the simple strategies that make investing more profitable, less confusing, and less time-consuming. Without the burden of short-term performance benchmarks, individual investors have the advantage of focusing on the long view, and the freedom to construct the kind of portfolio that will serve their investment goals best. This book proves how complex strategies essentially waste these advantages, and provides an alternative game plan for those ready to simplify.

Complexity is often used as a mechanism for talking investors into unnecessary purchases, when all most need is a deeper understanding of conventional options. This book explains which issues you actually should pay attention to, and which ones are simply used for an illusion of intelligence and control.

  • Keep up with—or beat—professional money managers

  • Exploit stock market volatility to your utmost advantage

  • Learn where advisors and consultants fit into smart strategy

  • Build a portfolio that makes sense for your particular situation

  • You don't have to outsmart the market if you can simply outperform it. Cut through the confusion and noise and focus on what actually matters. A Wealth of Common Sense clears the air, and gives you the insight you need to become a smarter, more successful investor.

    Table of Contents

    1. Cover Page
    2. Title Page
    3. Copyright
    4. Dedication
    5. Contents
    6. Introduction: Why Simplicity is the New Sophistication
      1. Noise
      2. How Hard Can It Be?
      3. Notes
    7. Chapter 1: The Individual Investor versus the Institutional Investor
      1. Institutional versus Individual Investors
      2. We're All Human
      3. Extra Zeroes
      4. Long-Term Thinking
      5. Key Takeaways from Chapter 1
      6. Notes
    8. Chapter 2: Negative Knowledge and the Traits Required to Be a Successful Investor
      1. The Biggest Problem of All
      2. Traits of a Successful Investor
      3. Standing on the Shoulders of Giants
      4. Key Takeaways from Chapter 2
      5. Notes
    9. Chapter 3: Defining Market and Portfolio Risk
      1. Volatility: Risk or Opportunity?
      2. Understanding Rule Number 1 of Investing
      3. The Risk Tolerance Questionnaire
      4. Risk versus Uncertainty
      5. Risk Aversion
      6. The Cycle of Fear and Greed
      7. Key Takeaways from Chapter 3
      8. Notes
    10. Chapter 4: Market Myths and Market History
      1. Myth 1: You Have to Time the Market to Earn Respectable Returns
      2. Myth 2: You Have to Wait until Things Get Better Before You Invest
      3. Myth 3: If Only You Can Time the Next Recession, You Can Time the Stock Market
      4. Myth 4: There's a Precise Pattern in Historical Market Cycles
      5. Myth 5: Stocks and Bonds Always Move in Different Directions
      6. Myth 6: You Need to Use Fancy Black Swan Hedges in a Time of Crisis
      7. Myth 7: Stocks Are Riskier Than Bonds
      8. Myth 7a: Bonds Are Riskier Than Stocks
      9. Myth 8: The 2000s Were a Lost Decade for the Stock Market
      10. Myth 9: New All-Time Highs in the Stock Market Mean It's Going to Crash
      11. Myth 10: A Yield on an Investment Makes it Safer
      12. Myth 11: Commodities Are a Good Long-Term Investment
      13. Myth 12: Housing is a Good Long-Term Investment
      14. Myth 13: Investing in the Stock Market Is Like Gambling at a Casino
      15. Key Takeaways from Chapter 4
      16. Notes
    11. Chapter 5: Defining Your Investment Philosophy
      1. Degrees of Active and Passive Management
      2. The Benefits of Doing Nothing
      3. Exercising Your Willpower
      4. Simplicity Leads to Purity
      5. Defining Yourself as an Investor
      6. Key Takeaways from Chapter 5
      7. Notes
    12. Chapter 6: Behavior on Wall Street
      1. Threading the Needle
      2. So Never Invest in Active Funds?
      3. The Most Important Thing
      4. Key Takeaways from Chapter 6
      5. Notes
    13. Chapter 7: Asset Allocation
      1. Asset Allocation Decisions
      2. Why Diversification Matters
      3. Mean Reversion and Rebalancing
      4. Risk Factors, Value Investing, and the Power of Patience
      5. The Value Premium
      6. The Rise of Smart Beta
      7. How to See It Through
      8. Key Takeaways from Chapter 7
      9. Notes
    14. Chapter 8: A Comprehensive Investment Plan
      1. Why Do You Need a Plan?
      2. The Investor Policy Statement (IPS)
      3. Lifecycle Investing
      4. Beating the Market
      5. Saving Money
      6. Taxes and Asset Location
      7. Key Takeaways from Chapter 8
      8. Notes
    15. Chapter 9: Financial Professionals
      1. Vetting Your Sources of Financial Advice
      2. Outsourcing to a Financial Professional
      3. What a Financial Advisor Can Do for You
      4. How to be a Good Client
      5. Benchmarking and Ongoing Maintenance
      6. Alternatives
      7. Key Takeaways from Chapter 9
      8. Notes
    16. Conclusion
      1. Book List
      2. Notes
    17. About the Author