Summary: The 5 Mistakes Every Investor Makes and How to Avoid Them

Review and Analysis of Mallouk's Book

BusinessNews Publishing

• Publisher: Must Read Summaries
• Year: 2016
• eBook ISBN: 9782511036112
• Topic: Business
• Subtopic: Stocks
• Index: Business

The must-read summary of Peter Mallouk's book: `The 5 Mistakes Every Investor Makes and How to Avoid Them: Getting Investing Right`.

This complete summary of the ideas from Peter Mallouk's book `The 5 Mistakes Every Investor Makes and How to Avoid Them` states that not many investors get a huge return on their investments. According to Mallouk, the reason for this is because investors make five mistakes that stop them from investing in the right things.

The five mistakes are:
1. Trying to time the market
2. Active trading of stocks
3. Believing financial media will help you make money
4. Not recognising your biases
5. Getting a financial adviser

By recognising these mistakes and applying the ten features that make a good investor, you can avoid these pitfalls and start getting better returns.

Added-value of this summary:
• Save time
• Recognise the common mistakes
• Apply the ten features of a good investor

To learn more, read the summary of “The 5 Mistakes Every Investor Makes and How to Avoid Them” and start investing in the right things!

Summary of The 5 Mistakes Every Investor Makes And How To Avoid Them (Peter Mallouk)

1. It's possible to make money by timing the market

It can't be done over and over without any mistakes. Instead of trying to time the market advantageously, invest for the long run. Make stocks and bonds your long-term wealth investment vehicles. That definitely works.

Just about everyone thinks they can make money by timing the market in one way or another. Therefore, they say things like:

• “Yes, well I have some cash at the moment but I'll just wait for the market to cool off before I invest.”
• “I've just been paid my bonus and I want to invest in the stock market as soon as there is a pullback.”

So what's wrong with that? Quite a bit actually. Specifically:

1. When you say “ market”, what precisely do you mean? The price of an individual stock? The Dow Jones Industrial Average? The S&P 500? International stocks? All of these markets rise and fall all the time so talking about the “market” like it is one integrated entity is nonsensical.
2. If you read the opinions of the investment gurus in a publication like The Wall Street Journal, you'll find none of them can predict short-term market movements unerringly day after day. At best, they rave about when they got it right once or twice and then conveniently forget to mention the five or six times they got it wrong. Do you honestly want to trust your financial future to someone who is shooting in the dark and hoping to get lucky?
3. The world of finance is full of advisors who know they can't time the market but who make a living out of selling you advice that suggests they can. Every investor wants to hear a pitch which suggests they can participate in upside growth while also avoiding the pullbacks. It's a great sales pitch but honestly it's snake oil. The easiest way to get on TV is to sell market timing expertise and that's what lots of them try and do.

The simple fact is you can be confident about the long term direction of the markets but have no idea what will happen every day. Stock markets are inherently and inescapably volatile because there are so many factors which influence them. Among those factors are things like investor confidence and market sentiment which are really quite random. You have to get used to the fact the markets will bounce around from day to day and get on with investing for the long term.

Keep in mind everyone tries to time the market at one time or another. It's exceptionally hard to do and keep doing. The markets are more efficient and quicker to respond than you might like to acknowledge at first. If you look carefully, everyone gets it wrong:

• Average investors or “the masses” are notorious for mistiming market peaks and bottoms. If you're investing with the masses, all you can guarantee is you will be late to the party.
• The media get it wrong over and over again. If you follow the media's suggestions, you're pretty much guaranteed to lose money. You also have the situation where different media make contrasting predictions – what do you do then?
• Economists have shown repeatedly they cannot predict the future direction of the economy. There are just too many variables, many of which are still unknown.
• The financial world is full of tens of thousands of investment managers who are paid to time the market for their clients. At any one time, some of these managers will be on lucky hot streaks but none have ever managed to time the market unerringly. Why pay someone else to gamble with your hard-earned cash?
• There are also thousands of investment newsletters which are out there. Studies have shown comprehensively more than 75 percent of these newsletters will generate negative returns over 10 years or longer.
• You might have a buddy who claims to be able to time the market. Invariably, these kinds of people rave about the single time they got it right and then conveniently forget to mention the multiple times they got it wrong. Are you willing to risk your entire financial future on the strength of your buddy's gut?

The evidence is overwhelming. You can't time the market unerringly for an extended period of time. You might get lucky for a while but sooner rather than later your luck will run out. Corrections will happen, and from time to time bear markets...

Table of contents

• Cover
• Title Page
• Book Presentation
• Summary
• About the Summary Publisher
• Copyright