Rich Willis is the author of Cognitive Investing: The Key to Making Better Investment Decisions. He has been studying markets and the investing process for more than 30 years. He has managed client portfolios and provided investment advice to individual investors for more than 15 years. He has taught investing classes at the Osher Lifelong Learning Institute at Santa Clara University and had articles published in Forbes ASAP magazine.
Please contact Rich at: richwillis@cognitiveinvesting.com
What inspired you to write Cognitive Investing?
Several years ago, I was teaching an investment class for the Osher Lifelong Learning Institute at Santa Clara University, and I wanted to recommend a single investment book that covered the essential concepts the individual investor should know in order to make intelligent decisions. I wanted to make sure it covered most of the key items that make a true difference without leading investors astray. Although several books covered some topics reasonably well, all fell short in some key area. For example, John Bogle’s books do a great job describing the problems with actively managed mutual funds and active trading in general, but he does not emphasize the underlying reasons for the counterproductive behavioral tendencies of the average investor. In fact, most investing books give short shrift to behavioral finance, which is a shame, since the primary reason investors make so many mistakes is due to a lack of understanding about the psychological underpinnings of decision making. Benjamin Graham said that making investing decisions is 25% intelligence and 75% psychology, yet few investors give the psychological aspects the attention they deserve.
Those books that do focus on behavioral finance typically don’t integrate the findings sufficiently with sound portfolio management principles, but more often just rehash the psychology experiments that demonstrate how we make financial decisions irrationally. Many are written by academics, who are trying to influence the rationalists in the academic economics community, who in turn, dismiss behavioral finance because it does not lend itself to explanation by mathematical formulas. Their target audience is not the inquisitive individual investor. So rather than cobble together parts and pieces of many different books and articles, I wrote Cognitive Investing to fill this gap.
What is the target audience for the book?
The people who will benefit most are professionals who do not work in the financial industry and have accumulated an investment portfolio of typically six or seven figures. They have years of experience in making investment decisions, but not necessarily wise ones. These investors are skeptical about exaggerated claims by industry pundits, since many of them have proven to be false. They are looking for better solutions to portfolio management without spending an inordinate amount of time researching securities and closely following the markets. Readers should have somewhat of a “do-it-yourself” attitude about their personal finances, not willing to delegate key decisions to others who might not have their best interests in mind.
What is unique about Cognitive Investing?
Much of what is purported to be useful investment advice is really a thinly disguised sales pitch for a product or service. The writers are trying to sell a newsletter, a mutual fund, or a perpetual advisory relationship. These ulterior motives compromise the integrity of the message and lead to proposed action plans that serve the needs of the writer more than those of the reader. One of my goals in writing Cognitive Investing was to provide a complete handbook that someone can use to make sound investment decisions without buying any additional products or services.
Another unique aspect of the book is the organization and presentation of the key findings in the field of behavioral finance. Although the psychological tendencies of investors have been well documented, most treatments resemble a grab bag of different characteristics without any unifying theme. I provide both a unifying theme, a memorable way to categorize the various findings, and a coherent way to apply them to the task of portfolio construction for the individual investor. I answer the key questions that investors should be asking themselves but too frequently don’t, such as what is the relationship between the stock market and the economy, whether one should buy individual stocks or funds, and how risk should be controlled, just to mention a few.
How long did it take to write?
There are two answers to that question. The first answer is that it took 30 years. That is how long I have been wrestling with this problem, gradually learning what is true, what is knowable, what to ignore, and how an investor should make decisions in a complex environment where uncertainty reigns. The actual writing took much less time, about a year to write and a half year to edit and refine. But if I hadn’t been thinking, experimenting, testing, teaching, and developing new ideas for many years, a book like this could never have been written.
What are the some of the most common investing errors? What causes them and why don’t we learn how to correct these mistakes?
Too many investors do not understand the difference between investing and gambling. They essentially gamble with their money. Many think this is how it is supposed to work; others gamble without realizing how random their outcomes will turn out. Still others delegate the decision, frequently to an industry professional who gambles on their behalf. This relationship can be especially risky, since the professional realizes a guaranteed return from the investor by collecting periodic fees, whereas the investor bears all the risk. Both of these processes are fundamentally flawed.
Most people do not think about the process they use to make investing decisions. They spend far more time researching an investment as opposed to examining how they make an investment decision. If you have a sound process, you can achieve good results. If you are unaware of what your process even is, you are prone to making poor decisions, especially at critical market junctures, which can cost you dearly.
There are many other reasons investors make mistakes. One of the classes I teach is “40 common investment mistakes and how to avoid them.” The book describes most of these, many of which arise because people have a tendency to make investment decisions using intuitive processes that work well in other aspects of their lives. Unfortunately, the financial landscape operates differently and relying on intuition usual leads to trouble.
Are you available for speaking engagements?
Yes. Contact me at richwillis@cognitiveinvesting.com. One of my favorite talks is “Why do investors keep making the same mistakes?
What’s the next step in the evolution of Cognitive Investing?
Stay tuned to this site. I am passionate about educating people about the benefits of Cognitive Investing and plan on additional ways to accomplish this. I am just getting started.
Cognitive Investing 