The Only Three Questions That Count: Investing by Knowing What Others Don't

From the Publisher

In The Only Three Questions That Count, Ken Fisher challenges the conventional wisdoms of investing, overturns glib theories with hard facts, and blows up complacent beliefs about money and the markets. Ultimately, he says, the key to successful investing is daring to challenge yourself and whatever you believe to be true. Packed with more than 100 visuals, usable tools, and a glossary, The Only Three Questions That Count is an entertaining and educational experience in the markets unlike any other, giving you an opportunity to reap the huge rewards that only the markets can offer.

Excerpts

Some say Warren Buffet is the greatest money manager of all time. I don't think he is a money manager at all, a point most observers miss. He is the CEO of a very successful insurance company owning a few stocks and often takes companies private when he wants. (...) In the past decade, its (stock) returns would have placed it in the 51st percentile relative to the stocks in the S&P 500.

If investing were a craft (...) there would be repeatability and consistency.

...most of what there is to know about investing doesn't exist yet and is subject to scientific inquiry and discovery. It isn't in a book and it isn't finite. (...) We are at the beginning of a process of inquiry and discovery, not the end. Its scientific aspect is very much in its infancy.

To know things others don't, you just need to think like a scientist - think freshly and be curious and open. As a scientist you should approach investing not with a rule set, but with an open, inquisitive mind.

The three questions:

1. Identify those things we believe that are actually false

2. What can I fathom that others find unfathomable?

3. What the heck is my brain doing to mislead and misguide me?

People persist in believing things that are wrong because, individually, people rarely investigate their own beliefs, particularly when what they believe makes sense intuitively - even more so when those around them agree with them.

I refer to the market by its proper name, "The Great Humiliator".

...you can have high correlation between two things out of quirky luck with no causation.

Your brain wasn't really set up to deal with the stock market. It was set up to deal with those problems of basic human survival.

From tens of thousand of years of evolution, we are mentally hardwired to turn toward the noise, face it as a group, and instinctually presume our ability to immediatly unite our tribal eyes and ears and react.

We often take property rights for granted because America is the best, most perfected, and most stable system of property rights in the world's history.

The guy on the right side of the trade can be stupid too -  just lucky and right.

Accumulating pride and shunning regret were basic to our ancestors' survival.

We cling to outmoded and useless craftery becuase we love patterns. They feel safe, reassuring, and nonpoisonous.

...your brain is designed with bodily survival in mind, not financial survival.

You must reverse your natural inclinations permanently. You must shun pride and accumulate regret.

Being grossly overallocated in a hot sector makes you a terrific dart-thrower but a risky money manager.

...why being a classic contrarian doesn't work. The amrket does something different, not necessarily the reverse of what people expect.

Direction is far more important than magnitude.

A quarter century is a long, long time to wait for averages to revert (...) darned few can afford to be wrong for a full quarter of a century.

A weel-constructed index is market capitalization weighted.

When you step outside your benchmark, you're adopting benchmark risk.

It takes a long time to learn capital markets and build capital markets science and technology.

Markets are really part science and part making mistakes.

Personal debt (in the US) is a mere 4 percent of overal US debt. (...) all personal debt is just 3.6 percent of the US overall net worth.

The main way Americans "save" is through capital gains. (...) ...(Bill Gates) got to be the richest guy in the world by not ever "saving".

...no major Western country's budget deficit or surplus has any relationship to the relative strength of its currency.

Avoiding a big slice of those bear markets is a huge piece of what built my career.

When something is really a bubble, it isn't called a bubble and people don't fear it.

Two bear markets in a row rarely start with the same causes because most investors are always fighting the last war and are prepared for what took them down last time.

...risk is multifaceted and virtually impossible to fully comprehend in any moment for anyone.

But investors not only want returns, of course, the want to keep up with the Joneses, or not to suffer from excess opportunity cost.

You're not statistically unique (...) you probably share extremely similar investing goals with about 98 percent of humanity. (...) You're not unique nuless you're weird.

The industry loves selling capital preservation and growth. It sounds warm, comfprting and fuzzy - like a cute and cuddly puppy. Who doesn't want to protect what they have and grow at the same darn time - and who doesn't love puppies ?