Adam M. Grossman

AT THE 2016 SUMMER Olympics in Rio de Janeiro, South Africa’s Chad Le Clos challenged Michael Phelps for the gold medal in the 200-meter butterfly. A famous image emerged from that event: Throughout the semifinal, Le Clos repeatedly looked over at Phelps as he struggled to keep up. Meanwhile, Phelps just kept looking forward. The result: Phelps ultimately won the gold, while Le Clos trailed in fourth place.
I believe there’s a parallel between what we saw in that race and what we see in the investment world.

STATISTICIAN GEORGE E.P. Box once made this observation: “All models are wrong,” he said, “but some are useful.” This certainly applies to finance, where many of the concepts are imperfect but can nonetheless still be useful. Below are four such examples.
Market valuation. Are stocks overpriced? It’s a question without an easy answer. Even academics who have studied the topic can never be entirely sure. Consider the cyclically adjusted price-earnings (CAPE) ratio.

LAST WEEK, I MENTIONED the 17th century Dutch tulip bubble. There’s a lot we can learn from history. Current events, however, can teach us just as much. Below are three valuable lessons I see in today’s market.
Myopia. Open any finance textbook, and you’ll find that most of its ideas are built on the notion of “present value.” This simply means an investment should be worth the sum of its future cash flows.

BITCOIN HIT A NEW high last week, topping $112,000. Over the past 12 months, it’s climbed an impressive 55%.
What’s driving this gain, and what should you make of it? I believe there are three key factors. Two are new. One is not.
The first factor was a policy change last year. The federal government approved the launch of new exchange-traded funds (ETFs) that offer easier and more direct access to bitcoin. Following this rule change,

IF THE NAME LIZ TRUSS sounds vaguely familiar, there’s a reason: Truss was once the prime minister of the U.K.—but for just 45 days.
How did Truss lose public confidence so quickly? The bond market forced her out. Shortly after taking office in the fall of 2022, Truss proposed substantial tax cuts for both corporations and individuals. That would have been a popular move, except that her budget didn’t include any offsetting spending cuts.

WHEN HUMBLEDOLLAR’S editor was The Wall Street Journal’s longtime personal-finance columnist and his children were little, he often joked that he had a special incentive to see them succeed financially.
“It would be a tad embarrassing,” Jonathan wrote, if his children “grew up to be financial ne’er-do-wells.” For that reason, he used his own home as a laboratory of sorts, testing strategies to help set his children on the right financial path.

IT’S BEEN QUITE A YEAR for gold investors. While the stock market has struggled, gold hit a new all-time high, topping $3,500 per ounce just a few weeks ago.  Year-to-date, gold has gained nearly 30%, while the S&P 500 is in negative territory. This has certainly grabbed people’s attention—but does gold make sense for your portfolio?
To answer this question, let’s start by looking at the arguments favoring gold. Supporters typically point to two key attributes,

ABOUT 10 YEARS AGO, Steve Edmundson, manager of the Nevada state pension, became a folk hero in the investment world when The Wall Street Journal profiled him in an article titled, “What Does Nevada’s $35 Billion Fund Manager Do All Day? Nothing.”
It was an exaggeration to say he did “nothing,” but Edmundson definitely did things differently. Since the 1980s, the trend among pension and endowment managers had been to follow in the footsteps of Yale University’s David Swensen.

FRENCH HISTORIAN Alexis de Tocqueville toured the U.S. in the 1830s and chronicled his observations in a book titled Democracy in America. What mainly impressed him was Americans’ focus on trade and commerce.
They have a “purely practical” mindset, he wrote, and concluded that “the position of the American is quite exceptional.” In the years since, others have picked up on this concept of “American exceptionalism.”
Despite recent political and economic crosscurrents,

IT’S BEEN AN UNUSUAL year—to say the least—for investment markets. After rising earlier in the year, U.S. stocks and bonds have dropped in recent weeks. Market leaders like Apple and Nvidia have been among the hardest hit. The U.S. dollar has also dropped, helping boost the value of international shares, and gold has continued to hit new all-time highs, despite inflation cooling.
What can we learn from all this? I see seven lessons.
1.

YOU MAY BE FAMILIAR with Peter Lynch. In the 1970s and ‘80s, he was one of the most visible figures in the investment world. As manager of Fidelity Magellan Fund, he achieved the best track record, by far, among his peers. He shared his wisdom in a series of popular books for individual investors.
Among the ideas for which Lynch is best known is the notion of “diworsification.” As its name suggests, Lynch argued that diversification simply for the sake of diversification isn’t always a good thing.

WHEN STEWART MOTT graduated college in 1961, he received $6 million from his father, an auto industry entrepreneur who was one of the founders of General Motors. On top of the $6 million, a family trust began paying Mott an annual stipend of $850,000.
That allowed Mott to spend his adult life pursuing a variety of eccentric endeavors. He funded research on extrasensory perception. Inside his Manhattan apartment, he built a 10,000-square-foot garden, along with a chicken coop.

OSCAR WILDE ONCE made this observation: “Education is an admirable thing, but it is well to remember from time to time that nothing that is worth knowing can be taught.” In other words, the only way to truly learn something is through experience.
When it comes to investing, this is easier said than done because learning through experience can be expensive. As Warren Buffett once quipped, “It is good to learn from your mistakes.

IN 1774, AMSTERDAM businessman Abraham van Ketwich created a new type of investment. After raising money from a group of individuals, van Ketwich built a portfolio of bonds. He deposited the bonds in a metal box in his office, which three people then secured using three different locks.
Van Ketwich’s fund could be considered the world’s first index fund. How so? For starters, the bonds purchased were broadly diversified across industries and geography. Second,

IN THE ANCIENT WORLD, before the invention of the printing press, a strategy for remembering information was to build a so-called memory palace. The idea was to associate words with images. Even today, this is how participants in memory competitions can achieve feats like reciting a thousand digits of pi.
Similarly, when it comes to personal finance, I’ve found that certain images can help illustrate important concepts. These are the ones I rely on the most:
1.