20/20 Money: See the Markets Clearly and Invest Better Than the Pros

Introduction xiii

Chapter 1 Investing Is a Science 1

Apollo's Arrow Shot Crooked 2

Dionysus—More Than Just a Good Vintner 3

Use the Method, Not the Dogma 5

Careful with Categories 13

Could Math Be Wrong? 15

Reduction: Why You Can't Quantify Everything 19

Chapter 2 Investing Is a Discipline 27

Discipline, Discipline, Discipline 29

Sagacity: Seeing Isn't Believing 41

Understanding and Being Curious 48

Chapter 3 Human Behavior 51

Brain Basics 53

Brains on the Market 64

My, What a Terrible Memory You Have! 71

Bad Behavioral Finance 76

Behavioral Miscellany 79

Chapter 4 Sentiment and the Media 83

Sentiment Basics 85

News and the Media 90

What's Their Motive? 98

Tips and Tricks to Navigate the Media 100

Metaphors We Invest by 106

Chapter 5 How Stock Markets Really Work 113

Capitalism by Any Other Name 114

It's Complicated . . . A Crash Course in CEAS 118

The New Golden Rule 130

Oldest and Still the Best: Supply and Demand 139

Chapter 6 Forecasting, Part 1—The Principle of Probability 147

Forecasting Is Strange Alchemy 148

Types of Predictions 150

Probability Theory, or How Markets Are Nothing Like Coin Tosses 154

The Biggest Problem of Them All 163

Investing Lessons from Probability 165

Looking Ahead . . . 170

Chapter 7 Forecasting, Part 2 —Recognizing Patterns 173

A Pattern by Any Other Name 174

Stock Market Patterns 175

Patterns Through the Noise 179

It's a Game of Relative Expectations 181

Back to the Future: Using History to Find Patterns 187

Three Big Drivers 191

An Optimistic Note on Future Patterns 195

Chapter 8 Practical Portfolio Management 197

The Virtues of Heuristics 198

Goal Setting 199

Personal Goals 201

Portfolio Goals 205

The Top-Down Philosophy 210

Miscellaneous Heuristics 223

Chapter 9 The Nature of Risk and Navigating Markets in Troubled Times 229

Risk and Uncertainty 231

Financial Risk, or What Happens When You Assume 233

In Troubled Times 239

Parting Thoughts 253

Notes 255

Selected Bibliography and Further Reading 259

About the Author 269

Index 271