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7 Mistakes Every Investor Makes (and How to Avoid Them)
Book

7 Mistakes Every Investor Makes (and How to Avoid Them)

A Manifesto for Smarter Investing

Joachim Klement
Harriman House, 2020
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Editorial Rating

8

Qualities

  • Well Structured
  • Engaging
  • Insider's Take

Recommendation

Volatility has returned to stock markets with a vengeance – a harsh reality that makes veteran research analyst Joachim Klement’s insights into common investor errors all the more valuable. In this accessible guide, Klement walks through the seven “deadly sins” of investing, including using short time horizons, dismissing risk and paying professional managers too much. While he doesn’t break new ground, Klement’s academic research and exploration of his own past missteps add nuance to his arguments. Readers will find his advice to keep an “investment diary” – and review it regularly – especially useful.

Summary

Forecasting is a largely futile endeavor.

A wag once quipped, “Economists put decimal points into their forecasts to show they have a sense of humor.” Accurately predicting movements in the stock market is impossible, but that doesn’t stop investment strategists from trying. In one classic example of overly precise forecasting, an auto analyst predicted that vehicle manufacturer Geely  would sell 1,618,939 vehicles in 2019, 1,753,059 units in 2020 and 1,858,030 cars in 2021. In general, the more specific a forecast, the less reliable it is.

Savvy investors understand that the future is unknown; unrealistically specific forecasts won’t change that reality. Legendary investors like Warren Buffett and Peter Lynch delve deeply into companies’ numbers, using exhaustive analysis to probe for weaknesses and search out value. For all their hard work, however, these greats avoid the temptation to boil their findings down to a single price target or exact expected rate of return. 

Investors should simply ignore experts’ projections about where the S&P 500 or other index will stand in a year. Investors must also understand the...

About the Author

Joachim Klement is a research analyst and former chief investment officer who advises wealthy individuals and family offices.

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