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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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