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8 Fascinating Reads

By Morgan Housel - Apr 12, 2013 at 11:58AM

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Good reads, short quotes.

Happy Friday! There are more good news articles, commentaries, and analyst reports on the Web every week than anyone could read in a month. Here are eight fascinating ones I read this week.

Nothing but net
Dilbert creator Scott Adams quips on why investing is harder than it looks:

When I watch LeBron James jump from the free-throw line, rotate 360 degrees in the air, and dunk a basketball, I always say to myself "Now I know how to do that, too!" It's the same feeling I get from watching Warren Buffett invest. I mean, how hard could it be? As far as I can tell, all you do is make folksy pronouncements and neglect trimming your eyebrows for decades. Mr. Buffett says the market is inefficient and he has opportunities and information not available to the average person, but I haven't been average since LeBron taught me to dunk so that's not an issue for me.

This is your brain on life
Psychology Today lists 50 cognitive biases we all fall for. Here are some of my favorite:

10. Entitlement beliefs.
Believing the same rules that apply to others should not apply to you. For example, believing you shouldn't need to do an internship even if that is the normal path to employment in your industry.

19. Basing future decisions on "sunk costs."
e.g., investing more money in a business that is losing money because you've invested so much already.

31. Focusing on the amount saved rather than the amount spent.
e.g., Focusing on the amount of a discount rather than on whether you'd buy the item that day at the sale price if it wasn't listed as on sale.

33. Failure to consider alternative explanations.
Coming up with one explanation for why something has happened/happens and failing to consider alternative, more likely explanations.

Lack of luster
George Soros talks about gold, quoted by Business Insider:

Q: What is your view on gold? 

A: That's a complicated question. It has disappointed the public, because it is meant to be the ultimate safe haven. But when the euro was close to collapsing in the last year, actually gold went down, because if people needed to sell something, they could sell gold. Therefore, they sold gold. So gold went down together with everything else. 

Gold was destroyed as a safe haven, proved to be unsafe. Because of the disappointment, most people are reducing their holdings of gold. But the central banks will continue to buy them, so I don't expect gold to go down. If you have the prospect of a crisis, you will have occasional flurries or jumps. So gold is very volatile on a day-to-day basis, no trend on a longer-term basis.

Closed for business
Mark Zuckerberg writes about the nation's poor immigration policy:

Earlier this year I started teaching a class on entrepreneurship at an after-school program in my community. The middle-school students put together business plans, made their products and even got an opportunity to sell them.

One day I asked my students what they thought about going to college. One of my top aspiring entrepreneurs told me he wasn't sure that he'd be able to go to college because he's undocumented. His family is from Mexico, and they moved here when he was a baby. Many students in my community are in the same situation; they moved to the United States so early in their lives that they have no memories of living anywhere else.

These students are smart and hardworking, and they should be part of our future.

Oh, Canada
The Wall Street Journal writes about Canada's curious lack of banking crises:

Since 1790, the United States has suffered 16 banking crises. Canada has experienced zero -- not even during the Great Depression.

It turns out Canada can thank the French for their stable system, according to a paper by Columbia University's Charles Calomiris, presented at the Atlanta Fed's 2013 Financial Markets Conference.

When it became a British colony, the majority of Canada's population was of French origin -- and the French inhabitants hated the British government.

So to keep the colony firmly within the Empire, British policymakers steered toward a government structure that would limit the power of the French-majority while also giving Canada more and more self-government. The eventual result was a highly centralized federal government which controlled economic policy making and had built-in buffers for banker interests against populist forces, the paper argues.

Financial trauma
More doctors are in a financial bind, writes CNNMoney:

As many doctors struggle to keep their practices financially sound, some are buckling under money woes and being pushed into bankruptcy.

Chapter 11 bankruptcy filings by physician practices have spiked recently, noted Bobby Guy, co-chair of the American Bankruptcy Institute's health care committee, who tracks bankruptcy trends tied to distressed businesses.

A new paper by Brad Barber and Terrance Odean of UC Davis and UC Berkeley highlights why so many investors lose. Their summary:

This research documents that individual investors (1) underperform standard benchmarks (e.g., a low cost index fund), (2) sell winning investments while holding losing investments (the "disposition effect"), (3) are heavily influenced by limited attention and past return performance in their purchase decisions, (4) engage in naïve reinforcement learning by repeating past behaviors that coincided with pleasure while avoiding past behaviors that generated pain, and (5) tend to hold undiversified stock portfolios. These behaviors deleteriously affect the financial wellbeing of individual investors.

Stocks for the long run
Value investor Mohnish Pabrai gave a great talk on compounding. Here are his slides:

Enjoy your weekend. 

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