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  • MAGICAL THINKING IN INVESTING


  • In investing, there are many assumptions that are false; yet many depend on them as though they were facts. Following are sixty examples of such assumptions that could be called - magical thinking. Investors should not rely on any of them.




  • 1) Stocks are a better buy, the higher their price. (The reason for the buying frenzy at tops)


  • 2) Stocks are a worse buy the cheaper their price. (The reason stocks are dumped at bottoms)


  • 3) Brokers' and advisors' number one interest is in the investor's making money.


  • 4) Somebody out there really knows what the markets will do.


  • 5) The majority is usually correct about the markets.


  • 6) Some information that the investor discovers is timely.


  • 7) Dividends are an insignificant factor in long term capital accumulation.


  • 8) Investors should try to make investment gains quickly in order to increase performance.


  • 9) An investor is benefited by acting on their "gut instincts" in buying and selling.


  • 10) There really is a safe way to invest one's savings.


  • 11) The value of the US dollar doesn't affect the US investor.


  • 12) One's first investments should be in growth and tech stocks.


  • 13) One should never buy stocks in an economic downturn.


  • 14) Someone else will better select individual stocks for the investor, than the investor can.


  • 15) The history of the stock market is irrelevant for making successful investments.


  • 16) Investment success is only a matter of luck.


  • 17) Actively trading stocks is the fastest way to become wealthy.


  • 18) If a person is smart, then they should expect to "beat the market".


  • 19) Small compounded rates of portfolio increase are not significant in wealth accumulation.


  • 20) Boring stocks should be avoided if one wants to become financially independent.


  • 21) One should "go for broke" in investing by just investing in a few stocks.


  • 22) One should be alert to negative portfolio news so that sales can be made immediately.


  • 23) Borrowing by opening a margin account, is the smartest way to invest if one is sure.


  • 24) Initial investor losses, means that one will be a poor long-term investor.


  • 25) If the market goes up faster than one's portfolio, then one should invest differently.


  • 26) It doesn't make any difference to a portfolio if the Fed changes interest rates.


  • 27) The best thing about successful investing is being able to brag about it.


  • 28) It's best to use as many different investment methods as possible.


  • 29) Movie stars are authorities about any field that they comment on (politics, economics, etc.).


  • 30) Populists really benefit the nation because their objectives are so worthy.


  • 31) If an individual or a group benefits more than others, then they must have taken from others.


  • 32) Everything in a highly respected financial publication is true or else it wouldn't be there.


  • 33) There are fundamental differences between gambling and speculation.


  • 34) Knowing how to retain wealth, is not as important as knowing how to gain wealth.


  • 35) The economy would be better off if everyone knew what the Fed was doing now.


  • 36) One can become like Warren Buffet by imitating his buying and selling.


  • 37) Nationwide, the prices of homes always go up.


  • 38) Wars are good for the stock market.


  • 39) Those that loan money should have their first obligation to those that borrowed from them.


  • 40) In investing, logic and reasoning should only be employed as a last resort.


  • 41) It's best to sell stocks that go up so that one is sure of making a profit.


  • 42) It's best to hold on to losing stocks because they'll eventually go back up.


  • 43) One needs to be very smart to succeed in the stock market.


  • 44) One's strong economic beliefs have more to do with one's reasoning than one's neuroses.


  • 45) Stock option plans for management were created to benefit the stockholders.


  • 46) The Federal Reserve should be under congressional control in order to benefit the economy.


  • 47) Income tax consequences should only be a minor factor to consider when investing.


  • 48) One should wait until they have several thousand dollars to start investing.


  • 49) Financial publications have no interest in influencing the minds of their readers.


  • 50) Market volatility is the enemy of the small investor.


  • 51) The number one interest of corporate CEOs is to benefit their stockholders.


  • 52) Knowledge about investing is more important than self-knowledge for long-term success.


  • 53) Self-deception and self-delusion are seldom factors in choosing investments.


  • 54) The stock market is rigged to defeat the small investor.


  • 55) If the investor ignores economic realities, they will go away.


  • 56) An investor should be out of the stock market during a period of market decline.


  • 57) If someone offers an investor "confidential information", the investor should be grateful.


  • 58) Poverty can be eliminated by government subsidy, with wealth taken from the wealthy.


  • 59) The government is the best judge of what prices should be.


  • 60) Victims of "magical-thinking" have only others to blame.


  • WALT HASKINS


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