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December 2, 2014

Jonathan Tobin: Defending the Right to a Jewish State

Heather Hale: Compliment your kids without giving them big heads

Megan Shauri: 10 ways you are ruining your own happiness

Carolyn Bigda: 8 Best Dividend Stocks for 2015

Kiplinger's Personal Finance editors: 7 Things You Didn't Know About Paying Off Student Loans

Samantha Olson: The Crucial Mistake 55% Of Parents Are Making At Their Baby's Bedtime

Densie Well, Ph.D., R.D. Open your eyes to yellow vegetables

The Kosher Gourmet by Megan Gordon With its colorful cache of purples and oranges and reds, COLLARD GREEN SLAW is a marvelous mood booster --- not to mention just downright delish
April 18, 2014

Rabbi Yonason Goldson: Clarifying one of the greatest philosophical conundrums in theology

Caroline B. Glick: The disappearance of US will

Megan Wallgren: 10 things I've learned from my teenagers

Lizette Borreli: Green Tea Boosts Brain Power, May Help Treat Dementia

John Ericson: Trying hard to be 'positive' but never succeeding? Blame Your Brain

The Kosher Gourmet by Julie Rothman Almondy, flourless torta del re (Italian king's cake), has royal roots, is simple to make, . . . but devour it because it's simply delicious

April 14, 2014

Rabbi Dr Naftali Brawer: Passover frees us from the tyranny of time

Greg Crosby: Passing Over Religion

Eric Schulzke: First degree: How America really recovered from a murder epidemic

Georgia Lee: When love is not enough: Teaching your kids about the realities of adult relationships

Cameron Huddleston: Freebies for Your Lawn and Garden

Gordon Pape: How you can tell if your financial adviser is setting you up for potential ruin

Dana Dovey: Up to 500,000 people die each year from hepatitis C-related liver disease. New Treatment Has Over 90% Success Rate

Justin Caba: Eating Watermelon Can Help Control High Blood Pressure

The Kosher Gourmet by Joshua E. London and Lou Marmon Don't dare pass over these Pesach picks for Manischewitz!

April 11, 2014

Rabbi Hillel Goldberg: Silence is much more than golden

Caroline B. Glick: Forgetting freedom at Passover

Susan Swann: How to value a child for who he is, not just what he does

Cameron Huddleston: 7 Financial Tasks You Should Tackle Right Now

Sandra Block and Lisa Gerstner: How to Profit From Your Passion

Susan Scutti: A Simple Blood Test Might Soon Diagnose Cancer

Chris Weller: Have A Slow Metabolism? Let Science Speed It Up For You

The Kosher Gourmet by Diane Rossen Worthington Whitefish Terrine: A French take on gefilte fish

April 9, 2014

Jonathan Tobin: Why Did Kerry Lie About Israeli Blame?

Samuel G. Freedman: A resolution 70 years later for a father's unsettling legacy of ashes from Dachau

Jessica Ivins: A resolution 70 years later for a father's unsettling legacy of ashes from Dachau

Kim Giles: Asking for help is not weakness

Kathy Kristof and Barbara Hoch Marcus: 7 Great Growth Israeli Stocks

Matthew Mientka: How Beans, Peas, And Chickpeas Cleanse Bad Cholesterol and Lowers Risk of Heart Disease

Sabrina Bachai: 5 At-Home Treatments For Headaches

The Kosher Gourmet by Daniel Neman Have yourself a matzo ball: The secrets bubby never told you and recipes she could have never imagined

April 8, 2014

Lori Nawyn: At Your Wit's End and Back: Finding Peace

Susan B. Garland and Rachel L. Sheedy: Strategies Married Couples Can Use to Boost Benefits

David Muhlbaum: Smart Tax Deductions Non-Itemizers Can Claim

Jill Weisenberger, M.S., R.D.N., C.D.E : Before You Lose Your Mental Edge

Dana Dovey: Coffee Drinkers Rejoice! Your Cup Of Joe Can Prevent Death From Liver Disease

Chris Weller: Electric 'Thinking Cap' Puts Your Brain Power Into High Gear

The Kosher Gourmet by Marlene Parrish A gift of hazelnuts keeps giving --- for a variety of nutty recipes: Entree, side, soup, dessert

April 4, 2014

Rabbi David Gutterman: The Word for Nothing Means Everything

Charles Krauthammer: Kerry's folly, Chapter 3

Amy Peterson: A life of love: How to build lasting relationships with your children

John Ericson: Older Women: Save Your Heart, Prevent Stroke Don't Drink Diet

John Ericson: Why 50 million Americans will still have spring allergies after taking meds

Cameron Huddleston: Best and Worst Buys of April 2014

Stacy Rapacon: Great Mutual Funds for Young Investors

Sarah Boesveld: Teacher keeps promise to mail thousands of former students letters written by their past selves

The Kosher Gourmet by Sharon Thompson Anyone can make a salad, you say. But can they make a great salad? (SECRETS, TESTED TECHNIQUES + 4 RECIPES, INCLUDING DRESSINGS)

April 2, 2014

Paul Greenberg: Death and joy in the spring

Dan Barry: Should South Carolina Jews be forced to maintain this chimney built by Germans serving the Nazis?

Mayra Bitsko: Save me! An alien took over my child's personality

Frank Clayton: Get happy: 20 scientifically proven happiness activities

Susan Scutti: It's Genetic! Obesity and the 'Carb Breakdown' Gene

Lecia Bushak: Why Hand Sanitizer May Actually Harm Your Health

Stacy Rapacon: Great Funds You Can Own for $500 or Less

Cameron Huddleston: 7 Ways to Save on Home Decor

The Kosher Gourmet by Steve Petusevsky Exploring ingredients as edible-stuffed containers (TWO RECIPES + TIPS & TECHINQUES)

Jewish World Review

Four mistakes that make everyone a bad investor

By Morgan Housel





Accepting this should change the way new investors think about investing, from trying to find the next big winner to trying to avoid the next big blunder.


JewishWorldReview.com | "How can I become a great investor?"

That's probably the most common question we get.

But for most investors, especially beginners, it's the wrong question to ask. Most investors underperform the market. When that's the case, how to become a great investor isn't what's important; becoming a less-bad investor should be the goal. The difference is subtle, but important. Economist Erik Falkenstein explains:

"In expert tennis, 80 percent of the points are won, while in amateur tennis, 80 percent are lost. The same is true for wrestling, chess and investing: Beginners should focus on avoiding mistakes, experts on making great moves."

Accepting this should change the way new investors think about investing, from trying to find the next big winner to trying to avoid the next big blunder.

Here are four big blunders investors commonly make.

1. You lack diversification

There's a scene in the documentary "Enron: The Smartest Guys in the Room" where Enron's HR director is asked by an employee in a 1999 meeting, "Should we invest all of our 401(k) in Enron stock?"

The HR executive laughs and blurts out, "Absolutely!"

Enron stock made up more than half of Enron employees' 401(k)s when the company went bankrupt a year later, according to FINRA.



Warren Buffett once said, "Diversification is protection against ignorance. It makes little sense if you know what you are doing." But most investors don't know what they're doing, and Buffett's own Berkshire Hathaway controls 55 separate subsidiaries in industries ranging from underpants to private jets, newspapers to industrial chemicals.

William Goetzmann of Yale and Alok Kumar of the University of Texas analyzed the portfolios of 60,000 investors over a six-year period and concluded: "The least diversified (lowest decile) group of investors earns a 2.4-percent lower return annually than the most diversified group (highest decile) of investors on a risk-adjusted basis."

From Enron to General Motors to Kodak and Lehman Brothers, the number of companies that have gone from revered blue chips to bankrupt casualties is longer than you might think. And every stock and every asset class will eventually experience a drawn-out period of dismal underperformance. History knows no exception to this rule, but it knows many investors who learned it the hard way.

2. You trade too much

The decline of trading costs is one of the worst things to happen to investors, as it makes frequent trading possible. High transaction costs used to cause people to think hard before they acted.

Terrance Odean and Brad Barber of University of California, Berkeley studied tens of thousands of individual investors and came to an important and pithy conclusion: "Trading is Hazardous to Your Wealth."


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Investors who traded the most underperformed the S&P 500 by more than six percentage points per year, the pair found. That's a staggering amount. Over time, it's the difference between a good retirement and no retirement.

Inexperienced investors tend to overestimate their skill, convincing themselves they can beat the market by actively trading when, in fact, they stand little chance. "Overconfidence can explain high trading levels and the resulting poor performance of individual investors," Odean and Barber wrote.

There's some good news. Last year, three economists published a paper showing that investors tend to earn better returns as their experience increases, and a characteristic of experienced investors is lower portfolio turnover. Experienced investors learn from their mistakes. If you're new to the game, try to learn from them vicariously.

3. You plan for the long run and react to the short run

Most investors have a plan, whether it's subconscious or explicit: They're trying to have more money to finance some event down the road, like retirement or school for their kids. That "event" is usually years or even decades away.

But while we plan for the long run, most investors react to the short run.

Retiring in 10 years? You lose sleep when the market has a bad month.

Kids going to college in 15 years? Stocks have a bad day, and you question how you've invested their college funds.

It's natural to do this. I do it, too. But while long-term financial plans have the benefit of compound growth, short-term reactions have the curse of emotions and randomness. Very few decisions investors make based on reactions to short-term market moves will help them achieve their long-term goals. The investor who ignores the noise and becomes blissfully unaware of what the market did last week may have a big advantage over the professional who watches every tick.

4. You ask the wrong questions

The investment media provides answers. Here are the stocks you should buy. Here's when you should sell. Here's what this news means for you. Do this. Do that.

But even when these answers come from smart people (they often don't), they can be addressing the wrong questions.

Instead of asking what stocks they should buy, many investors should ask whether they should be picking stocks in the first place (passive index funds are a great alternative).

Instead of asking what the market did today, many investors should ask whether it matters at all if they're in it for the long run.

Instead of asking how much potential an investment has to increase, many investors should ask whether they can afford to take additional risks.

Financial advisor Carl Richards has three smart questions investors should ask themselves before making big decisions:


  • If I make this change and I am right, what impact will it have on my life?

  • What impact will it have if I'm wrong?

  • Have I been wrong before?


The media can't answer these questions because it doesn't know details about you. But they are some of the most important questions investors can ask.

(Morgan Housel owns shares of Berkshire Hathaway. The Motley Fool recommends Berkshire Hathaway. The Motley Fool owns shares of Berkshire Hathaway.)

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Morgan Housel, a columnist at The Motley Fool, is a two-time winner, Best in Business award, Society of American Business Editors and Writers and Best in Business 2012, Columbia Journalism Review.


Previously:


Learning from the past, and the Next Big Tren

What newspapers were saying when you should have been buying

Why you never learn from your investment mistakes

The curse of success, and why most mutual funds fail miserably

If you know only five things about investing, make it these

Why spotting bubbles is so much harder than you think

When smart investors do stupid things

The deep downside of home ownership

The biggest retirement myth ever told

He's rich, smart and old: Listen to him

Admit it: No one has any idea what's going on

Gold collapse: The start of something big?

BAD NEWS: EVERYONE IS RIGHT!

Twitter: The carnival barker of investing

Warning: Don't waste your capital being fooled by profit prophets

25 important things to remember as an investor

New paradigm for both drivers and car companies

Biases that make you a bad investor

Nine financial rules you should never forget

Gaining from financial destruction

How to read financial news

Housing: Partying like it's 1925

A rebuttal to student loan horror stories

CONGRATULATIONS: We just saved half a trillion dollars

End this crazy tax: It will boost the economy

Medicare: A dangerously good deal

Economic future looks bright

The Biggest Threat to Your Portfolio (It's Not What You Think)

Bond Market Bull Run dead at 30



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