This is a follow on essay to the two blog articles, “How much time does it take to be a cognitive investor,” parts one and two.  If you have not read those articles, I recommend reading them first.

The short answer to how much expertise is required to be a cognitive investor is, “less than you might imagine.”  There is a close analogy to the answer how much time it takes.  As long as one focuses on the relevant elements that can really make a difference and does not get distracted by studying topics that have little bearing on investment results, the amount of expertise is easily within the grasp of almost anyone capable of graduating from college.

The required expertise falls into four general categories: finance, mathematics, psychology, and process. Read the rest of this entry »

In part one, we answered the question of how much time it takes, assuming you already have a cognitive investing portfolio.  In part two we will discuss how much time it can take to learn the process of becoming a cognitive investor and converting an existing portfolio to one that adheres to the cognitive investing methodology.

The short and simple answer is, “it depends.”  A more complex answer is that it can depend on how different your existing portfolio management process is from a cognitive investing process, how different your portfolio is from a cognitive investor’s portfolio, and how much needs to be learned and unlearned to make a successful transition.  Examining some hypothetical scenarios will illuminate the issues encountered by different types of investors as they make the transition. Read the rest of this entry »

I have heard many investors lament, “I don’t have time to invest my money intelligently.”  Inherent in this statement is an assumption: successful investing requires a large amount of time.  They think it requires time to keep current with the latest market action, time to analyze companies, time to investigate various investment techniques, and time to learn about investing.

The truth is that is doesn’t take nearly as much time as one might assume, as long as the time is spent effectively.  Vast amounts of time are wasted by multitudes of investors who attempt to do the impossible.  They try to discern the future direction for various markets and securities or seek out someone who has a clear crystal ball.  They carefully listen to bullish and bearish arguments about the short-term future market moves and assess which viewpoint has more validity.  They continually seek out more data and opinions to clarify the situation.  This is a fruitless task.  No matter what the situation, there will always be a roughly equal number of plausible arguments about markets going in one direction or its opposite.  Read the rest of this entry »

This is the last essay in this series. In part one of this series, we examined whether investing is a game.  In part two of this series we examined the question of whether investing is a negative-, zero-, or positive-sum game.  In part three we focused on how much of the investing game is luck or skill.  In this segment, we will examine the question of whether it makes sense to have someone more skilled play the game on our behalf.  If you have not read the prior essays, please read them first, in order.

There are numerous ways to have someone else “play the investment game” on our behalf.  We can pay a full-service broker to choose stocks and other securities for us to buy and sell.  We can purchase an actively-managed mutual fund and have a professional money manager choose a group of stocks or bonds for us.  We can pay an investment advisor or portfolio manager to do the choosing.  We can subscribe to a newsletter produced by the guru of the day and buy and sell the stocks he recommends.  In all of these cases, we incur expenses.  From a very broad perspective, these expenses are a zero-sum game.  Whatever we pay, someone else collects.  But for the investor, this is clearly a drag on performance.  The key question is, can the “wisdom” imparted by the finance professional compensate for its cost? Read the rest of this entry »

In part one of this series, we examined whether investing is a game.  If you have not read that essay (https://cognitiveinvesting.com/2011/11/17/is-investing-a-game/#more-216), I suggest reading that first.  In part two of this series we examined the question of whether investing is a negative-, zero-, or positive-sum game?  I encourage you to read that essay (https://cognitiveinvesting.com/2011/12/14/is-investing-a-game-part-2/#more-231) also.  The question we now turn to is whether investing is a game of luck or skill.  How much is luck and how much is skill?

If I buy a stock and after a year it is higher, is that due to skill or luck?  If it is lower, is it due to bad luck or lack of skill?  One of the most common answers is to attribute all good outcomes to skill and poor outcomes to luck.  That way our egos stay intact.  It also saves us from having to make a true assessment of whether we are truly skilled at choosing investments.

But to get to the truth of the matter we need to risk deflating our ego and determine whether our decisions really are better or worse than average.  Read the rest of this entry »

In part one of this series, we examined whether investing is a game.  If you have not read that essay (https://cognitiveinvesting.com/2011/11/17/is-investing-a-game/#more-216), I suggest you read that first.  Once we established that investing is a game, it is instructive to determine whether the game has more winners or more losers.  Said another way, is investing a negative, zero, or positive-sum game?  Read the rest of this entry »