Advice from Daniel Kahneman investors may find useful:
Distrust data. "Rather than leaping to conclusions based on scant data, look at as many numbers as possible. Don’t rely just on recent performance; look at several time periods. It doesn’t take many observations to think you’ve spotted a trend when it‘s probably not a trend at all."
Anchors aweigh. "When pundits like Goldman Sachs’ Abby Joseph Cohen predict where the Dow is heading, it often moves magnetically in their direction. But don’t anchor your expectations to the tea leaves of the so-called experts. At best, they’re making educated guesses; at worst, they’re manipulating you to make money for their own companies."
Use mad money. "If you can’t resist the temptation to trade stocks, put the bulk of your portfolio in a broad stock-index fund; then take a little to ‘play the market’ yourself. This way, you keep your hunches on the fringe, where they belong. It’s like going to the casino with only $200. It helps protect you from regret."
Fly on autopilot. "Irrational mood swings lead people to trade too much as they veer erratically between glee and dismay. All of us would be better investors if we just made fewer decisions."
Look within. "Most financial advice, especially on TV and the internet, suggests that investing is an endless race to beat the market. Every day brings a breathless stream of bulletins about who's ahead or behind. But investing isn’t about beating others at their game. It’s about controlling yourself at your own game."
Kahneman doesn’t believe individual investors can beat the market. When asked on one occasion what general advice he could offer investors, he replied: "The main mistake people make is they churn their accounts too much … they delude themselves that they can beat the market."
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