The basic principles of sound investing have not changed in a couple of centuries. But neither has the most common errors made by investors.

A perfect example of how little investor misbehavior has changed can be found in a book by Thomas Gibson. Gibson wrote several books on investing and speculation. One of his more recent was published in 1923.

In it, Gibson recounts a study he did of the trading history of some 4,000 brokerage accounts over a 10 year period.

Two patterns really stood out. Far more people bought at high prices than low prices and almost every account that showed some type of plan for buying and selling not only gave up on the plan but would have made a profit had they stuck with it. Overall, losses were an overwhelming result.

His book, The Facts about Speculation, sums up the most common errors he found and the best ways to correct them. You’ll find a few highlights below: Continue Reading…

There’s a difference between a good investment and an investment that makes money. Let me explain.

You don’t have to look far to find someone who makes a small fortune in a short amount of time. It happens in every bull market. Sometimes they’re looked on with envy or jealously. And eventually, someone asks how did they do it? What’s the strategy?

It’s a perfectly normal human response because who doesn’t want to get rich too.

Except, attempts to repeat the same results…fail miserably. There are a few possible reasons why it failed. Maybe the strategy wasn’t followed to the letter. Maybe it wasn’t run long enough. Maybe behavior got in the way. Or maybe it was never the “strategy” at all.

Warren Buffett once described a fictitious contest that helps explain why often it’s simply a matter of luck. Continue Reading…

The late 1920s market bubble was one of the biggest bubbles U.S. markets ever saw. Yet, not all industries participated in it. A breakdown of how each industry performed over that period tells the tale.

The Cowles Commission started collecting market data in 1932. The data is available online (linked below), stretches from 1871 to 1937, and is broken down by industry.

A chart of the 1929 bubble and burst looks like this:

The data is price returns only — no dividends included.

The chart is a hot mess (done so on purpose). It’s also incomplete. For instance, the financial industry, along with investment trusts are missing from the picture. That said, it does show just how few industries were inflated at the time. Continue Reading…