The Only 5 Things You Need to Know About Investing
I own one finance textbook, and I occasionally open it to remind myself how little I know about finance. It's packed with formulas on complex option pricing, the Gaussian copula function, and a chapter titled, "Assessment of Confidence Limits of Selected Values of Complex-Valued Models." I have literally no idea what that means.
Should it bother me that there's so much about finance I don't know? I don't think so. As John Reed writes in his book "Succeeding":
When you first start to study a field, it seems like you have to memorize a zillion things. You don't. What you need is to identify the core principles -- generally three to twelve of them -- that govern the field. The million things you thought you had to memorize are simply various combinations of the core principles.
Evolution tells you a lot about biology. A handful of cognitive biases explain most of psychology. Likewise, there are a few core principles that explain most of what we need to know about investing.
Here are five that come to mind.
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Motley Fool contributor Morgan Housel has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.
