In the previous essay, I described the game/contest mental model for making investment decisions and detailed many of the problems that result.  The model’s inherent problems are due to how it simplifies an overwhelming choice of options in a manner that ignores too many important aspects of the investment landscape.  Let’s revisit the three critical questions and develop a better mental model. Read the rest of this entry »

Investors face a daunting set of choices.  They can be grouped into three general categories:

1. What to own
2. When to buy or sell
3. How much to invest in any single investment

What to own: There are tens of thousands of potential securities to own if you only include those available to the broad public.  Including private investments would push the total number into the millions.

When to buy or sell: Securities can be bought and sold almost continuously.  They can be held for seconds, minutes, hours, days, months, or years.

How much to invest in any single investment: One can invest any amount from a trivial amount of money to much more than their net worth by borrowing. Read the rest of this entry »