Highlights of Chapter 1 – The Mindless Investor
In the introductory chapter of The Mindless Investor, Tyler Bollhorn sets up several important ideas and goes through some common pitfalls of most self-directed investors. Here are three key points from chapter 1.
Key Point #1: Most Stocks Don’t Beat the Market
The first and most important theme of the first chapter is about overcoming being average. According to Tyler, realizing that most of the stocks don’t beat the market most of the time is essential to getting beyond average returns. Getting away from being average means doing things that may seem to go against the “common wisdom”. It is exactly that conventional wisdom, however, that Tyler puts forward as the enemy to most individual traders. Despite what many think, smaller traders have several advantages compared to the larger participants. The key is to understand how to use their size appropriately.
Key Point #2: Don’t Get Emotionally Attached
A second important theme of this chapter is being in the right frame of mind to be a successful trader. Successful traders are those who don’t get emotionally attached to the stocks they trade, they simply focus on what matters most – whether they have managed their risk and whether the stock is performing as it should. Learning how to win and lose correctly are critical skills. They start with understanding that winners have to be allowed to run, and that losing is part of trading.