Adam M. Grossman

AS I NOTED LAST WEEK, investing can be maddening. But it isn’t just investing. Many other personal-finance questions can also drive us crazy. Why is that?

One reason: The stakes are often high, so mistakes can be costly. A second reason: By definition, all data are historical, but all decisions are about the future. To the extent that the future doesn’t look like the past, we have a problem.

Those two factors are very real.

INVESTING CAN BE maddening. Stocks that look like they’re going up can end up falling, while investments that look like they’re headed for the dustbin can suddenly bounce back. This leaves investors in a difficult position—because the right thing to do often feels wrong.
Investing requires us, quite often, to act contrary to our own intuition. Here are four examples.
1. Don’t equate price with quality. When consumers walk into a retail store,

AS YOU MIGHT GUESS, my favorite Seinfeld episode is “The Stock Tip.” It starts with a conversation between George and Jerry.

“My friend Simons knows this guy Wilkenson,” George says. “He made a fortune in the stock market. Now he’s got this new thing.” George goes on to explain that Wilkenson has millions invested in a company called Centrax.

He urges Jerry to invest along with him, though the details are thin.

ARISTOTLE WROTE THAT, “It is a part of probability that many improbable things will happen.” Investors certainly understand this. For better or worse, we know that the market has frequent ups and downs. On average, the S&P 500 has dropped 10% or more approximately every 18 months, and it’s dropped more than 20% about every four years.
Unfortunately for investors, another fundamental truism also applies: We dislike losses disproportionately more than we like gains.

“MARGIN OF SAFETY” is a concept with deep roots in finance, going back at least as far as Benjamin Graham’s Security Analysis, first published in 1934. The idea: Investors should never be too confident in any analysis and should leave the door open to the possibility that their analysis might be right but not precisely right.
Suppose you’re interested in buying Microsoft stock. And suppose that, after analyzing it,

I REALLY WISH THERE was a topic to discuss today other than the grotesque war being perpetrated against Ukraine. But unfortunately, there isn’t. This situation has prompted numerous questions from investors. Below are the three questions I’ve heard most over the past week.

1. What’s the financial impact of these events? Since Russia invaded Ukraine, global stock markets have bounced around with no discernable pattern (other than the Russian market, which has—not surprisingly—been a disaster).

I WROTE ABOUT the perils of timing the market last Sunday. This week, I’ll address its close cousin: stock-picking.
These days, many people accept that stock-picking isn’t a great idea. Evidence shows that both professional and individual investors fare poorly, on average, when they choose individual stocks. But why exactly is that? How is it that indexes—which are simply lists of stocks—so frequently outpace the results of professional portfolio managers?
There’s more than one answer to this question.

SOMEONE ASKED ME last week about a popular and frequently cited market statistic. It goes like this: The U.S. stock market has historically delivered an average annual return of 10%. But if an investor had missed just the five best days over the past 30 years, that return would have been cut to 8.6%. If the investor had missed the 15 best days, the return would have been reduced even further, to 6.5%. Missing the best 25 days out of that 30-year period would have chopped an investor’s return in half—to just 4.9%.

HARRY MARKOWITZ WAS a graduate student in economics at the University of Chicago. It was 1954, and he had just finished defending his thesis. Most of the committee accepted his work. But Milton Friedman, an economist with a national reputation and easily the most influential member of the economics faculty, had a problem. While he found no errors in Markowitz’s work, the problem was that it contained no economics. Markowitz’s thesis was about investments and,

I’D LIKE TO START with a seemingly simple question: If you purchased an investment for $19,000 and later sold it for $287,000, would there be a gain or a loss? If you answered that there would be a gain, I’d agree with you. Specifically, it appears the gain would be $268,000. But what if there was no gain and the investment was actually sold at a loss? Could that be the case?

DOES IT MAKE SENSE to heed the advice of experts? This doesn’t seem like a hard question. I certainly listen to my doctor and to many others with specialized expertise. As a society, we all rely on experts—from civil engineers to airline pilots to firefighters—for our health and safety.
At the same time, however, human judgment seems to be riddled with flaws. Consider these examples:

After reading his senior thesis, Michael Lewis’s advisor at Princeton University gave him this advice: Whatever you do,

I DESCRIBED A SET of ideas last year that I called truisms of financial planning. They’re concepts I’ve found helpful in navigating the world of personal finance. Below are seven more.

1. Jeff Bezos is a bad role model. So are Bill Gates, Elon Musk and pretty much every other billionaire. Of course, they’re all great geniuses, so why would I say that? The problem is how they made their money. In each case,

I’LL ACKNOWLEDGE THAT today’s topic isn’t the most upbeat. I want to talk about risk—and, specifically, some of the underappreciated risks related to retirement.

In thinking about risk, the hardest part—in my view—is that it defies a single definition. Because of that, there’s no uniform yardstick for measuring it and thus no single strategy for managing it. As Howard Marks states in his book The Most Important Thing, “Much of risk is subjective,

JUST HOURS INTO the new year, I received an email from a concerned investor. His worry: the state of the market—the S&P 500, in particular. With hundreds of constituent companies, the S&P index has the veneer of broad diversification. But scratch the surface, and it seems to carry more risk than investors might like. The issue: It’s top heavy.

As a group, the top 10 companies in the S&P 500 account for more than 30% of its overall value.

LOOKING BACK OVER the past two years, one word comes to mind: extreme. It’s been a period of extremes in the market and the economy. Many have benefitted, but we’ve also seen excesses that aren’t necessarily healthy—from the rise in NFTs to the craze in SPACs to the boom in day trading. That’s why, as you look ahead to the coming year, the theme I recommend is moderation.