Investing For Dummies

Investing For Dummies – Profitably

I’m a really dumb investor. The reason I say that is because smart investors believe they know stuff. Dumb investors realize how little they know so they test everything to figure out what is true. I’m as dumb as they get, but I suppose that is why my portfolio earned a positive return in 2008 while so many smart investors lost money.

You see, the only difference between you and me is I already know I can’t invest my way out of a paper bag if brain power is required. If my profits resulted from my knowledge and ability to reason I would already be broke. That’s probably true for you also but you just haven’t figured it out yet. In all likelihood, you believe you know certain things about investing causing you to accept some of the following common illusions as true:

Buy and hold for the long-term is an appropriate investment strategy at all times.
Stocks outperform bonds and real estate.
Daily news and events drive market price movements.
Expert financial advice equals profitable portfolios.
The Fed controls interest rates.
and much more…

I’m dumb enough to realize I don’t know if these and many other supposed investment truths are really true or not – so I test them. In fact, I have spent two decades testing more investment ideas you assume to be true than I care to remember. Amazingly, what I have learned is very little is really true. Much of what passes for financial wisdom is either dangerous half-truths or outright lies. Very little conventional investment wisdom holds up to critical analysis.

That’s why I’m so dumb. The more I test the less I know. Things that passed for knowledge become illusion. I’ve learned enough to know how little I know. I’ve reached such an incredible level of ignorance that it could almost pass for wisdom.

But here’s the rub. No matter how wrong conventional investment strategy is I still have to reliably earn a profit investing for myself to enjoy financial security. Ignorance is no excuse for failure in the pursuit of wealth. I knew there had to be a basis by which I could make sense of the investment process and produce consistently profitable investment results. But what could it be?

That is when I landed on the concept of mathematical expectation as the basis for all investment decisions. Logic backed by science proved what was false, and logic backed by science would also prove what was true. Using positive, robust, mathematical expectation as the crucible for a viable investment strategy wasn’t perfect - but nothing is. In fact, accepting ignorance and imperfection was part of my required learning on the path to becoming a successful investor.

What I discovered was a portfolio of investment strategies with provable, positive mathematical expectation based on rigorous research was about as good as it gets. No hunches, hot tips, hot stocks, expert advice, financial forecasts, or any other nonsense would qualifiy as a viable investment strategy because those were all examples of gambling – not investing. Rigorous research proved how a positive expectancy and acceptable risk to reward ratio was the only way to reliably make money when you are dumb like me. It’s okay for smart guys to think about brilliant investment ideas and lose money, but not us dummies.

Now you may be reading this thinking it all sounds nice but you don’t have the time or inclination to do years of research so that you can escalate your ignorance to my level. Fortunately, you don’t have to because most of what you need to know already exists for free on the internet.

For example, in this newsletter I teach you many of the important ideas, and I provide links to other financial experts in my “best of the web” series where you can learn their best thoughts – again, usually for free. My goal is to teach you what I call the “second level of investment knowledge” (for lack of a better tagline; however, I am all ears if you have a better tagline to help me with. C’mon all you creative types.).

For example, in a new article I just added to this website titled “”Five Hot Stocks That Could Double This Year” And Other Useless Financial Advice” I share with you my hard learned experience of going down the rabbit hole of financial market forecasting. You will learn the sordid history of financial forecasting and become “curiouser and curiouser” as to why it exists at all and what value it holds for your investment strategy – if any. This is an example of the second level of knowledge where you learn what works, what doesn’t, and why for investment strategy. You can check out this new article here and move one step closer to blissful investment ignorance.

In summary, if you want to be consistently profitable then learn to invest like a dummy. Learn how little of the common financial wisdom is really true so that you can eliminate all such nonsense from your investment strategy. Get really ignorant so that you can reach the second level of financial knowledge that allows you to focus your precious time and energy on the few things that actually work – and discard all the rest.

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