Debunkery: Learn It, Do It, and Profit From It—Seeing Through Wall Street's Money-Killing Myths

PART 3

“EVERYONE KNOWS”

Your mom used to say, “If your friends jumped off the Brooklyn Bridge, would you?” This section covers the bunk that makes otherwise reasonable, rational folks want to follow their buddies off a high bridge into shark-infested, polluted waters.

Investing is tough business. It can seem easier to rely on rules of thumb, common “wisdom,” catchy phrases, and other simple rules that “everyone knows.” They neaten up investing into easy-to-follow, how-to, you-can-do-its. But “easier” doesn’t guarantee “better results.” In fact, since the stock market is an efficient discounter of widely known information—including cutesy rules of thumb—following common “wisdom” can usually mean netting much worse or even disastrous results.

In your normal life, “rules of thumb” are fine. Everyone knows: Don’t smoke. Don’t mix ammonia and bleach. Look both ways before crossing the street. Eat vegetables every day. Floss! No one argues with these—quick, easy-to-remember quips keeping you safe, non-toxic, and vitamin-fortified. It’s the investing version of these that can be toxic.

In investing, there are no rules that say, “Always sell when X happens,” or “Always buy after you see Y,” that work consistently, long term. If only investing were that easy! If there were “rules of thumb” that worked, I wouldn’t have written this book, and you certainly wouldn’t have bothered buying it. Sure, sometimes some rules work—but that’s usually coincidence, not because they’re fundamentally correct. ...