What are some simple rules for investors? Dr Meir Statman provides some insights in this interview with Anne Kates Smith: Smart Investors Keep It Simple-Kiplinger.
- Don’t try to beat the market
- Save regularly
- You don’t need many rules.
What trips us up? Emotions!
Thinking errors we make as humans:
- Hindsight … “When people look back, they tell themselves that they just knew what was going to happen, and they confuse the ability to forecast the past with the ability to forecast the future.”
- Extrapolation … we imagine not most recent returns, but the most vivid returns. What’s normal? 2008 and 2009? “This view prevents people from taking reasonable risks.”
- Have you ever seen a lottery commercial of the losers? No … you see winners and think “Why shouldn’t I win?”
Statman explains that when he goes to the doctor he doesn’t try to duplicate his knowledge. He goes because his doctor knows what to do. Similarly he suggests people go to see a “financial physician.” Do-it-yourself investors “should not be too-smart-by-half investors.”
There are other pearls of wisdom in the short article as well.
My other blog posts that include snippets from Meir Statman.