Tuesday, January 03, 2012

Volume 3 Issue 52: Intelligent Investing

The Loser's Game

What's the Losers' Game?

The game that 99.9% of the people who talk about investing appear to be playing: Namely, following global economics and markets and investment advice and trying to make smart decisions along the way.

That pretty much describes what happens to the Main Streeters. We love talking about it, boasting about whatever inside tips that we have, and asking for whatever tips or rumors on whatever hot stocks there are in the market.

Ever wonder where these "news" come from? If these rumors and tips are news that no one has heard about, what do you think is the more likely outcome? The news is not true, or the person from whom you got the news is in the loop? Quite often, it is the former, and that is an understatement. 

Even if what you hear in the financial media occasionally proves to be "right," you should still ignore it. Because as you'll learn the hard way if you consume enough financial media, there will be no way to tell in advance which of the many things you hear will turn out to be right. And the ones that turn out to be wrong will cost you a lot more money than you will make from the ones that turn out to be right. 
The second thing you need to understand if you want to invest intelligently is that if you choose to play this global sport, you will not be playing in a special Little League or low-stakes table with the folks like you who just aren't that good at it. You will play in the same league as the best professional players in the world. And you should expect to do as well against them as you would do against the PGA Tour players at the Masters or the Green Bay Packers in the Super Bowl or the Yankees in the World Series or grand masters in chess.

Because the third thing you need to understand is that the only way for you to make money trading versus investing intelligently (owning low-cost index funds) is to out-play these top professionals.

And when you soberly assess your competition--massive global institutional investors with decades of experience and tens of billions of dollars to spend on research, traders, trading systems, information, advice, access to companies and governments, and a hundred other advantages that you've never even heard of--you will (or should) gradually come to the conclusion that this competition is pretty fierce and that your chances of winning that alpha pot instead of contributing to it with losses are small.
And if you don't begin to realize that, you should at least remember the old poker adage: 
If you don't know who the sucker is at the table it's you.
Click on the link the read the full article. And here is Carl Richards, the author of "The Behavior Gap: Simple Ways to Stop Doing Dumb Things with Money", with more:
Successful investing is hard. Not complicated, just hard. It’s hard because for the most part, we are wired to make the same mistake over and over again. We buy high and sell low because that’s what everyone else is doing. But like any problem that needs to be fixed, the first step is recognizing the problem and then coming up with a plan to prevent it.
Still interested in playing the Loser's Game?

Source: Business Insider

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