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the sloth investors bite-sized summary of the little book of Market myths by Ken Fisher information overload the more you read View and discuss about investing the more information that you will encounter knowing what to believe can increasingly become a problem the more information you have access to using research and as many years of experience within the domain of investing Ken Fisher busts through the myths that are commonly spotted by Financial media this is a book that will help to demystify the investing process and it's a key reason why it's a recommended read by the sloth investor summary point one a stop loss can stop your losses are you a sports fan do you support a football team a basketball team or some other sporting team if you do then undoubtedly you would have experienced how terrible it feels when your team loses doesn't the feeling of loss always seem to hurt more than the amazing feeling you get when your team wins naturally as a devout football fan I've experienced the pain of loss on many occasions it's difficult to forget about those losses curiously it appears far easier to recall the Heartbreak than the successes quite simply loss aversion can be defined as a fear of bad things occurring a mistake that a significant number of investors make is to use stop-loss orders let's Ponder on those three words for a moment stop loss order I mean who doesn't want to stop losses doesn't that sound good well it perhaps is Until you realize that very often stop-loss orders result in negative consequences for investors let's slow down a little though and reflect on what exactly a stop loss order is a stop loss order is in order to automatically sell a stock or a fund that falls below a certain amount Civic amount is up to the individual investor it's commonly the case that investors will pick round numbers such as 10 15 or 20 percent lower than their purchase price the underlying rationale behind a stop loss order is that it is supposed to protect investors from Big downside it sounds appealing doesn't it again as I mentioned earlier who doesn't want to stop losses the problem is that stop loss orders very often have negative effects on the overall returns of an investors portfolio first of all they result in more transaction fees in addition and somewhat ironically they more often stop Keynes than they do losses Market Corrections are a common feature of investing and the use of a stop loss order during such times is very likely to have negative consequences for the overall return of your portfolio in the little book of Market myths Ken Fisher States certainly stop losses appeal to that caveman part of our brains that hates losses more intensely than it likes gains but Falling prey to evolutionary responses hurts much more often than it helps in investing who wants to invest like a caveman Market Corrections are common they happen about once a year if a stock drops with a broader Market that's not necessarily the Stock's fault the stop loss then doesn't protect you against loss it just guaranteed you sold at a relative low and paid another transaction fee you might be sitting in cashmere market and you're now sold stock reverse course fast and zoomed to Fresh highs this is buying High selling low remember that the first Bedrock principle of the sloth investor is simplicity a key aspect of this focus on Simplicity is inactivity therefore it should come as no surprise that Mr sloth Echoes Ken Fisher's sentiments regarding stop-loss orders quite simply an irrationally minded investor must recognize that a stop loss or will very often hinder rather than healthy overall return of your Investment Portfolio okay here are some final words from Ken Fisher on stop loss orders stock losses don't guarantee protection against losses they do increase the odds you miss out on upside and they definitely increase transaction costs perhaps why some Brokers have never stopped promoting them there's no evidence they produce better results but there's mountains of evidence to the contrary better to think of than by the name that describes them better stop gains stop yourself before using stop losses summary Point 2 wait until you're sure clarity there I said it it's a medium-sized word but jam-packed full of significance it's something we humans crave clarity about the future whether it be geopolitical concerns your future job prospects or even something as simple as the weather these are aspects of life that know dot most of us can relate to it's no different when it comes to investing naturally investors crave some sense of certainty about the future direction of the stock market however as much as we wish we possessed one the simple truth is that none of us possess a crystal ball in the little book of Market myths Ken Fisher States Clarity is one of the most expensive things to purchase in the capital markets that's true whether it's a bull bear or any of the innumerable counter-trend rallies Within no one can perfectly time bear Market bottoms sure you can get lucky but luck isn't a strategy it's an accident as painful as late bear Market wild Wiggles are in the shorter term you don't want to miss the start of a new bull market new bull market returns are super Swift and massive quickly raising almost all late stage downside volatility even if you suffer the last 15 to 20 percent of Air Market it's still almost certainly small compared to the subsequent initial up the leg of the next bull market so what are you waiting for get invested summary point three turmoil travel stocks Wars pandemics fluctuating oil prices tensions in the Middle East terrorist attacks natural disasters it seems that not a day goes by without there being some fresh new geopolitical crisis however despite the fact that the world can be a pretty scary place through all the ups and downs of the past 200 years the stock market has continued its gradual upward trend perhaps one of the best examples of this notion of continuing to invest through the good times and the bad of staying the course is the story of Grace Groner when Grace Groner passed away at the age of 100 in 2010 she left seven million dollars this money was used to fund the grace Elizabeth Groner Foundation this Foundation seeks to enrich young people's education and Future the establishment of such an honorable Foundation is fantastic naturally though the source of the foundation's funds may have puzzled some observers at the time where did Grace get all of that money was it inherited did you win the state lottery no it was of course neither of these two scenarios Grace simply continued to invest a partial amount of her monthly salary as a secretary and she then allowed time in the magic of compound interest to work its Wonders on her stock portfolio the remarkable story of Grace Groner teaches us many lessons about what it takes to be a successful investor firstly as an investor Grace appeared to possess an impregnable mindset remaining impervious to external geopolitical events in the periodic bouts of volatility that they cause this is a crucial component to successful investing the ability to turn off the noise and remain committed to investing at all times through good times and bad let's think about some of the tumultuous times that Grace lived through during her time as an investor in 1939 World War II began in 1950 there was the Korean War in 1963 the world could have ended with the onset of the Cuban Missile Crisis you can imagine the Jitters at these key geopolitical events would have caused in the minds of many investors and yet Grace groener stayed true stayed committed to her investing Journey I use the word Journey because that's what investing is every Journey has highs and lows and inevitably Grace's shares would have experienced both euphoric highs and depressing lows it would have been easy for investors to pull out to sell during depressing lows caused by the extreme geopolitical events that occurred during the period from 1930 until 2010.
this is the period during which Grace invested however Grace demonstrated the attributes of a sloth investor in that she refused to cower to the volatility that is an inevitable feature of a life of an investor when investing and particularly when engaging in the form of sloth investing inactivity Trump's activity into her credit Grace Groner seemed to understand this for a young age Grace groner's type Verizon as an investor in her temperament her steadfast ability to remain invested at all times provides a fantastic example of how a seemingly ordinary average person can become an extraordinary investor in the little book of Market myths Ken Fisher States remember that in the near term stocks can wildly wiggle but over time their upward sweep represents the potentially infinite upward sweep of profits as mentioned throughout the book profit motive is an intensely powerful positive force it's at the root of capitalism and the reason free Democratic capitalistic Nations Thrive and less free Nations don't profit motive isn't sap because Humanity faces challenges in fact challenges and a need for Innovation can new motivating factors for those willing to take risks to chase future profits Capital markets are resilient because humanity is resilient those who bet against that have been proven wrong time and again so there you have it quite simply don't let geopolitical events deter you from investing summary point 4 News you can use switch on the financial news on your television or read the financial media it will take long until you're confronted with forecasts of the future movement of the stock market if you're not careful a combination of slick media coverage and finance related jargon could tempt you to begin to take seriously the forecasts that you hear and read about let's think back to the first Bedrock principle of the sloth investor simplicity so here's some simple advice ignore stock market predictions unfortunately a close friend made the wrong decision based upon such a forecast in late 2016.
my friend had recently read a financial news article about the likely negative effects of a Donald Trump presidency on the stock market indeed shortly after reading the article my friend contacted me to warn me of the Peerless effect that Trump's intended geopolitical decision-making could have on our portfolios despite my friend's concerns in true sloth and master fashion I informed him that he should always remain invested and to ignore the click paid headlines of the financial media unfortunately my friend did not he by advice and shortly after Trump acceded to the presidency he was true to his word selling a significant percentage of his portfolio was this a good decision disappointingly for my friend it was not at the end of 2017 with almost a full calendar year of trump in office the American Stock Market had returned over 20 percent the lesson for my friend it's best not to try and predict the future after all to any of us possess a crystal ball instead of behaving like a sloth investor for example do nothing to his portfolio my friend attempted to use his fictional crystal ball with the best course of action would have simply been an action viewer engagement with financial media is triggered by appeals to our most basic emotions for example the need to exert some degree of control about the future and in the case of investing the desire to obtain knowledge about the future direction of the stock market despite this it will be far better for your mental health if you disregard the sound bite circus of the financial media and its future predictions of the stock market instead conserve your mental bandwidth for other aspects of your life such as family friends your leisure Pursuits and your employment in the little book of Mark admits Ken Fisher States bad news sells just a fact you'd know that instinctively when news outfits cover negative news that's a business decision pure and simple to gain eyeballs there's nothing wrong with that if you like reading a newspaper you want it to be profitable and being profitable means the media will often lead with what Humanity naturally will be most interested in summary 0.5 stocks are more volatile than ever so want me to let you in on a secret regarding this video I started working on the script for this video shortly after the new year period at that point in the calendar year at the beginning it's customary for people to be asked to renew their subscriptions to things such as the gym or perhaps to a piece of online software this entails an acceptance of a yearly or monthly fee well within the realm of investing I would argue that a subscription to a long-term belief in the historical returns of the stock market entails an acceptance of volatility this may perhaps sound corny but volatility is not a bug but an inherent feature of the system Morgan housel author of the psychology of money States volatility is the price of admission the prize inside are superior long-term returns you have to pay the price to get the returns many art similarly in the little book of Market myths Ken Fisher States first volatility is itself volatile it's normal to go through periods of higher and lower volatility second it's a fallacy to assume higher volatility spells trouble okay that's the sleuth investors summary of the little book of Market myths by Ken Fisher which summary Point resonated the most with you if you have time please let me know in the comment box below to keep up to date with the latest content from the sloth investor whether this be my book reviews My podcast or other video content please remember to subscribe to this channel
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