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A_Wealth_of_Common_Sense.md

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Summary:

1. Less is more:

  • Cut away the fat from your portfolio and process.
  • Get rid of anything you don't understand or don't have a good reason for holding.

2. Focus on what you can control:

  • Write down each step in your process and focus only on those areas that are within your control.

3. The best investment process is the one you are willing and able to stick with through any market cycle:

  • Look back on some of the worst investment decisions you've made. And figure out how to structure your process so you never make the same mistakes again in the future.

4. Emotional intelligence and an understanding of behavioral biases are much more important than the level of your IQ:

  • From your list of mistakes from above, figure out which behavioral biases contributed to each.
  • Next, work on automating good decisions up front through a sound, systematic investment process.

5. You're not the next Warren Buffet, but that's okay:

  • Look in the mirror. Do you see Warren Buffett? If not, don't try for the same type of performance that Buffett has earned over the years.
  • Instead, take his long-term outlook to heart and focus on improving your emotional intelligence.

6. Stock picking is sexier, but asset allocation is much more important for your overall performance and risk tolerance:

  • Try to match your current asset allocation between stocks, bonds, cash and other assets, with your risk profile and time horizon.

7. Get rich patiently and never be in a hurry:

  • Figure out what "long-term" means for you and your specific goals. Determine the particular time horizon for each goal and keep that in mind when making investment decisions.

8. You cannot expect to make money in the stock market without losing money on occasion:

  • Before the next market crash (not after) determine how much you can stand to lose both financially and psychologically.
  • Never have more money in stocks than you can stand to lose. It will only lead to poor decisions at the wrong time.

9. Simplicity, discipline, patience, and a focus on the long-run are generally lacking in the financial industry:

  • Create an investment plan in writing, that covers all of your goals and desires and force yourself to think and act for the long-term by avoiding short-term behavior.

10. Wealth means nothing if there's no meaning attached to it:

  • Donating even small amounts puts people in a better mood. Figure out how your money can make you happier and find ways to enjoy it.