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A Wealth of Common Sense: Why Simplicity Trumps Complexity in Any Investment Plan / Edition 1

A Wealth of Common Sense: Why Simplicity Trumps Complexity in Any Investment Plan / Edition 1

by Ben Carlson


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Product Details

ISBN-13: 9781119024927
Publisher: Wiley
Publication date: 06/29/2015
Series: Bloomberg Series
Pages: 224
Sales rank: 776,124
Product dimensions: 6.00(w) x 9.10(h) x 0.90(d)

About the Author

BEN CARLSON, CFA, has spent his career managing institutional portfolios for endowments, foundations, and pensionplans. He is also the creator and author of the blog A Wealth of Common Sense ( and is aYahoo! Finance Contributor.

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Table of Contents

Introduction: Why Simplicity Is the New Sophistication xi

Chapter 1 The Individual Investor versus the Institutional Investor 1

Institutional versus Individual Investors 5

We’re All Human 9

Extra Zeroes 12

Long-Term Thinking 13

Key Takeaways from Chapter 1 16

Notes 16

Chapter 2 Negative Knowledge and the Traits Required to Be a Successful Investor 19

The Biggest Problem of All 25

Traits of a Successful Investor 27

Standing on the Shoulders of Giants 33

Key Takeaways from Chapter 2 38

Notes 38

Chapter 3 Defining Market and Portfolio Risk 41

Volatility: Risk or Opportunity? 48

Understanding Rule Number 1 of Investing 49

The Risk Tolerance Questionnaire 50

Risk versus Uncertainty 52

Risk Aversion 54

The Cycle of Fear and Greed 58

Key Takeaways from Chapter 3 60

Notes 60

Chapter 4 Market Myths and Market History 63

Myth 1: You Have to Time the Market to Earn Respectable Returns 66

Myth 2: You Have to Wait until Things Get Better Before You Invest 67

Myth 3: If Only You Can Time the Next Recession, You Can Time the Stock Market 68

Myth 4: There’s a Precise Pattern in Historical Market Cycles 70

Myth 5: Stocks and Bonds Always Move in Different Directions 71

Myth 6: You Need to Use Fancy Black Swan Hedges in a Time of Crisis 73

Myth 7: Stocks Are Riskier Than Bonds 74

Myth 7a: Bonds Are Riskier Than Stocks 75

Myth 8: The 2000s Were a Lost Decade for the Stock Market 76

Myth 9: New All-Time Highs in the Stock Market Mean It’s Going to Crash 77

Myth 10: A Yield on an Investment Makes It Safer 78

Myth 11: Commodities Are a Good Long-Term Investment 80

Myth 12: Housing Is a Good Long-Term Investment 81

Myth 13: Investing in the Stock Market Is Like Gambling at a Casino 82

Key Takeaways from Chapter 4 84

Notes 85

Chapter 5 Defining Your Investment Philosophy 87

Degrees of Active and Passive Management 90

The Benefits of Doing Nothing 94

Exercising Your Willpower 96

Simplicity Leads to Purity 98

Defining Yourself as an Investor 99

Key Takeaways from Chapter 5 100

Notes 101

Chapter 6 Behavior on Wall Street 103

Threading the Needle 107

So Never Invest in Active Funds? 112

The Most Important Thing 114

Key Takeaways from Chapter 6 115

Notes 116

Chapter 7 Asset Allocation 119

Asset Allocation Decisions 121

Why Diversification Matters 123

Mean Reversion and Rebalancing 131

Risk Factors, Value Investing, and the Power of Patience 135

The Value Premium 136

The Rise of Smart Beta 138

How to See It Through 143

Key Takeaways from Chapter 7 146

Notes 147

Chapter 8 A Comprehensive Investment Plan 149

Why Do You Need a Plan? 150

The Investment Policy Statement (IPS) 152

Lifecycle Investing 154

Beating the Market 158

Saving Money 159

Taxes and Asset Location 160

Key Takeaways from Chapter 8 161

Notes 161

Chapter 9 Financial Professionals 163

Vetting Your Sources of Financial Advice 166

Outsourcing to a Financial Professional 168

What a Financial Advisor Can Do for You 171

How to Be a Good Client 174

Benchmarking and Ongoing Maintenance 176

Alternatives 177

Key Takeaways from Chapter 9 178

Notes 178

Conclusion 179

Book List 186

Notes 187

About the Author 189

Index 191

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