The Mindless Investor Chapter 7 – Don’t Be Average

Chapter 7 of The Mindless Investor focuses on the idea that aiming to be average is only going to get you average results.  In order to outperform the market, individual investors have to be willing to use tools and strategies that are different from “conventional” approaches.  It is important to remember that trading involves one party being right and one party being wrong.  To help shift the odds of being right in their favour, investors must be prepared to challenge traditional ideas of risk management and portfolio selection and adapt their approach to the modern market.

Key Point #1: You can’t outperform the market if you do what everyone else is doing

Mindless Investor Ch.7 - Outperform the Market

Being “normal” unfortunately is not something worth gloating about when it comes to investing.  By using strategies and approaches to the market that everyone else is using, the chances of outperforming the market diminish.  To get ahead of the pack, you have to be willing to use tools and strategies that help give you an edge.

Key Point #2: Everyone can’t be right at the same time

The Mindless Investor Ch.7 - Everyone Can't be Right

Every trade has two sides, but only one can be right at any given time.  Even though you might be confident in your decision to buy or sell, remember there is always another side to your trade. A good internal check is to ask why someone would want to sell when you’re buying or vice versa.

Key Point #3: Traditional methods of investing and managing risk don’t always work

The Mindless Investor Ch. 7 - Traditional methods of investing don't always work

Using traditional approaches to identifying investing/trading opportunities as well as traditional strategies to manage risk have proven themselves to be more susceptible to losses than “conventional” wisdom would have you believe, especially over the past 10 years.  According to The Mindless Investor, just because approaches to investing and managing risk are widely used, it doesn’t necessarily make them “safer” than other approaches.

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