Notes

UNSHAKABLE SUMMARY
hedge fund manager Ray Dalio, index fund visionary Jack Bogle, JPMorgan Asset Management CEO Mary Callahan Erdoes, oil billionaire T. Boone Pickens and legendary investor Warren Buffett.
“The single biggest threat to your financial well-being is your own brain.”
keep your mind attuned to “what you can control, not what you can’t,” and be sure to “control what you can.” Don’t make decisions based on fear of the future.
“You’re never going to earn your way to financial freedom. The real route to riches is to set aside a portion of your money and invest it, so that it compounds over many years.
seven facts
Market corrections occur yearly.
Few corrections go beyond a 10% downturn and turn into bear markets.
No one can reliably predict a market upturn or downturn.
In spite of periodic downturns, the market eventually goes up.
Bear markets follow a consistent three- to five-year cycle.
Market downturns become upturns, just as confidence turns into anxiety and fear.
Getting out of the market altogether is the most perilous course.
For an investor, eliminating excessive fees is a positive step toward a profitable future.
mutual funds are a treat for managers not for clients
“If you don’t understand the incentives of your adviser, you’re liable to discover that you’ve done wonders for his financial future while potentially wrecking your own
“Don’t lose” – Successful investors have a special aversion to losses because losing makes it harder to get back to where they began. This is a matter of time and money. You can waste years recouping losses. Successful investors protect themselves against “unexpected events” and “nasty surprises” that might set them back.
“Asymmetric risk/reward” – The returns you expect should far exceed the risks you face. The purpose of any investment practice is to control risk and increase returns.
“Tax efficiency” – Measure investment success by the net amount you retain. Don’t ever ignore tax consequences. Mishandling potential tax liabilities can cost millions of dollars that an investor could otherwise put to sound use.
“Diversification” – Vary the different dimensions of your portfolio. Diversify the types of investments and the things you invest across different world markets and currencies, and – since timing can be everything – “across time.
hen faced with a threat, be it an attack by a carnivore or a major financial loss, the survival instinct kicks in and people flee for their lives. Making financial decisions under that kind of pressure can lead to disaster. To compensate for this impulse, maintain an “internal control checklist” and have the discipline to follow it rigorously.
Investors conflate recent events with ongoing trends because of a cognitive fault called the “recency bias,” giving more weight to recent events than to past experience when you are thinking about what to do in the future. An investor might purchase a stock with a recent history of strong performance. When its value drops, the investor will impulsively “sell out.” Avoid this by having a process for regaining your emotional balance and following a straightforward rule, like “don’t sell out” when things get fraught. knowledege and preparation can help to overcome this fear.Another common error, especially in economically turbulent times, is to act out of fear of loss. Investors despise financial loss and might do anything to avoid it. Yet “corrections and bear markets” offer both risks and opportunities.
Take-Aways
No one can consistently predict the future course of the stock market, but making predictions isn’t necessary for success.
To win the “financial game,” you must “control what you can control.”
The secret to achieving wealth is compounding investments over a lifetime.
Protect yourself against market downturns by developing a portfolio that is “broadly diversified globally.”
Most people are unaware of the fees they pay financial services companies for managing their investments.
People widely – and often rightfully – distrust their financial advisers.
Make sure an investment’s rewards outweigh its risks.
The assets you acquire should mirror the nature of your financial goals.
In volatile times, your brain wants to be fearful: Don’t listen to it.
“Financial freedom” enables you to live the life you want to live.