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Cognitive Investing

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Contents

Introduction.....................................................................................................................................................................ix1. What makes understanding the investment landscape so difficult?...............................................................................................................32. Why do stock prices go up and down?...........................................................................................................................................63. Are rising markets always good and falling markets bad?.......................................................................................................................94. What is the relationship between financial markets and the economy?...........................................................................................................125. Should my investments be based on a particular prediction of the future course of the economy?................................................................................156. Why do all these different types of financial companies want my business?.....................................................................................................187. Why is an investment process better than an investment plan?..................................................................................................................238. What is the difference between investing and gambling?........................................................................................................................269. What is the problem with treating my investments like a collection?...........................................................................................................3010. What are the characteristics of a thorough and effective investment process?.................................................................................................3311. What is the relationship between risk, reward, uncertainty, and volatility?..................................................................................................3912. What are the different types of risks one should consider when making investment decisions?..................................................................................4413. How should I determine an appropriate level of risk for my personal portfolio?...............................................................................................4714. How do the various psychological biases lead to inferior investment decisions? What should one do to avoid the pitfalls from these psychological biases?.....................5315. Spectrum #1: Simple vs. Complex..............................................................................................................................................5616. Spectrum #2: The Trees vs. The Forest........................................................................................................................................6017. Spectrum #3: Today vs. Tomorrow..............................................................................................................................................7418. Spectrum #4: Stories vs. Concepts............................................................................................................................................8919. Spectrum #5: Pictures vs. Numbers............................................................................................................................................7320. Spectrum #6: Light vs. Dark..................................................................................................................................................8521. Spectrum #7: The Middle vs. The Edge.........................................................................................................................................9022. Spectrum #8: Me vs. Everyone Else............................................................................................................................................9423. Spectrum #9: Static vs. Dynamic..............................................................................................................................................10124. Spectrum #10: Craftsmanship vs. Systematic Rules.............................................................................................................................10425. Why should investment decisions be framed as asset allocation, security selection, or market timing decisions? Which is most important?......................................10926. Why is diversification important?............................................................................................................................................11127. How important is correlation in the asset allocation process?................................................................................................................11428. How should I decide what my asset allocation should be?......................................................................................................................11730. How should I pick securities? How concerned should I be about costs? Taxes?..................................................................................................12531. Should I own individual bonds or bond funds?.................................................................................................................................13032. Should I own individual stocks or stock funds?...............................................................................................................................13533. Should I own actively-managed funds or index funds?..........................................................................................................................14034. How should I choose index funds?.............................................................................................................................................14335. Why do individual investors make poor market timing decisions and how can I avoid making similar mistakes?...................................................................14936. Should I use stop loss orders to control risk?...............................................................................................................................15237. How does dollar cost averaging work?.........................................................................................................................................15438. Why rebalance?...............................................................................................................................................................15639. How about furnishing some sample portfolios?.................................................................................................................................16540. What is so great about this portfolio management process?....................................................................................................................17441. How should these portfolios be managed over time?............................................................................................................................17842. How will these portfolios behave in the next several years? What should I...