Article Category: Psychology

Basic Probability Theory

Probability Theory

The unfortunate reality is that nothing in this world is certain. In fact, the only thing in life that is certain ... is that nothing is certain. This is especially true when we talk about money and investing. Since we can't deal with certainties, we're forced to deal with probabilities. Therefore, probabilities become the lens through which we must view all things investment related.


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Posted in: Behavioral Finance Educational Psychology Risk

Your Money is Your Second Business

Your Money is Your Second Business

Have you ever wanted to be a business owner? Well, congrats ... you already are. The minute you have even a few thousand dollars to your name, you're officially a professional money manager running your own investment firm. Of course, you probably don't see it that way, but that's because you haven't been enlightened yet. No one has ever spelled it out for you before. Well ... it's time to fix that.


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Posted in: Dividends Educational Expenses Motivation Psychology Retirement

How to Predict Future Stock Market Returns

How to Predict Future Stock Market Returns

Every year, top Wall Street analysts put their thinking caps on and try to forecast the upcoming year's market return. The result of their analysis usually comes in the form of "price targets" which indicate where major indexes such as the S&P 500 are likely to be at year end. While price targets have little value themselves, what is valuable to investors is having a framework in which to view future returns.


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Posted in: Asset Allocation Dividends Earnings Educational Psychology Stocks

Lessons From a Textbook Correction

If you've ever caravanned with others on a drive or hike, then you know that sometimes different parties move at different speeds. The inevitable result is that the lead party has to slow down, or stop and wait for the others to catch up.

If you happen to be climbing Mount Everest, or trekking across the Pacific Coast Trail, then these "pauses" to regroup can be a lifesaver. They allow everyone to check in and verify that all is well before the climb continues.


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Posted in: Corrections Dow Theory Economy Psychology

From Bullish to Neutral, Thanks Quants

Dow Theory considers daily action in the stock market to be nothing more than noise, and that presupposition may be gaining in importance. I've been hanging on to the chart below, waiting for an opportune time to present it, and I think that time is now.

This chart, using data from Aite Group and Goldman Sachs, claims to show the share of trading that is done by algorithms. As you can see, the majority of equity market trades (around 65%) are executed by computers based on preset logic.


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Posted in: Dow Theory Gold Psychology Recessions

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