Novel Investor

When it comes to investing, it’s often what you don’t do that matters most. The best example of this is misbehavior.

Unfortunately, not nearly enough investors see it that way. And why should we? We’re bogged down with messages about owning the right investments for today’s environment. Which leads to market timing and forecasts. Two things were terrible at, by the way.

Besides, when patience and fortitude are cited as reasons behind investing success, it comes off as too easy…at first. A few decades of experience might challenge that perception.

Investing is a long-term game, that requires long-term patience at the risk of being constantly distracted from that effort. We’re tempted by headlines and market moves to act on a daily basis.

And sometimes it works because we like stories. Headlines offer simple explanations — that link cause with effect — for why the market did what it did that day.

It doesn’t matter that the story is wrong. Markets are too complex to pinpoint the sole reason behind a day’s action. But that doesn’t matter. Our simple brains prefer the stories because the stories present an illusion of control over the outcome and often times a scapegoat for why we lost money. Which is better than the alternative apparently. We much prefer to believe that we control the outcome rather than being at the whim of chance. Continue Reading…

Thomas Gibson had a front-row seat to the speculative madness in Wall Street at the start of the 1900s. He saw traders succeed and (mostly) fail on a regular basis for a decade. In those few successes and many failures, some common themes stood out.

For instance, ignorance, overtrading, and negligence were the main reasons people lost money.

The business method, as he called it, was absent. More often than not, speculators treated the market as a casino rather a place to buy and sell shares of businesses for cash. They knew little about the companies behind the shares they bought — relying on tips over research.

Worst of all, they seemed to do everything backward. The height of speculation was always at market peaks when prices and enthusiasm were highest. But when opportunities were prevalent at lower prices, that interest and enthusiasm had dried up. It seemed as though they wanted quick riches, with little to no effort, or not at all. Slowly wouldn’t do.

Gibson wrapped up those experiences in his first book published in 1906. The Pitfalls of Speculation is a perfect example of how long sound investing principles have been around and how rarely investors heed them. You’ll find some highlights from the book below: Continue Reading…