122 Things Everyone Should

Know About Investing and

the Economy
The basics.
Morgan Housel

A year ago I started writing what I hoped would be a book

called 500 Things you Need to know About Investing. I
wanted to outline my favorite quotes, stats, and lessons
about investing.

I failed. I quickly realized the idea was long on ambition,

short on planning.

But I made it to 122, and figured it would be better in

article form. Here it is.

1. Saying "I'll be greedy when others are fearful" is easier

than actually doing it.

2. When most people say they want to be a millionaire,

what they really mean is "I want to spend $1 million,"
which is literally the opposite of being a millionaire.

3. "Some stuff happened" should replace 99% of

references to "it's a perfect storm."
4. Daniel Kahneman's book Thinking Fast and
Slow begins, "The premise of this book is that it is easier
to recognize other people's mistakes than your own." This
should be every market commentator's motto.

5. Blogger Jesse Livermore writes, "My main life lesson

from investing: self-interest is the most powerful force on
earth, and can get people to embrace and defend almost
anything."

6. As Erik Falkenstein says: "In expert tennis, 80% of the

points are won, while in amateur tennis, 80% are lost. The
same is true for wrestling, chess, and investing: Beginners
should focus on avoiding mistakes, experts on making
great moves."

7. There is a difference between, "He predicted the crash

of 2008," and "He predicted crashes, one of which
happened to occur in 2008." It's important to know the
difference when praising investors.

8. Investor Dean Williams once wrote, "Confidence in a

forecast rises with the amount of information that goes
into it. But the accuracy of the forecast stays the same."

9. Wealth is relative. As comedian Chris Rock said, "If Bill

Gates woke up with Oprah's money he'd jump out the
window."

10. Only 7% of Americans know stocks rose 32% last

year, according to Gallup. One-third believe the market
either fell or stayed the same. Everyone is aware when
markets fall; bull markets can go unnoticed.

11. Dean Williams once noted that "Expertise is great, but

it has a bad side effect: It tends to create the inability to
accept new ideas." Some of the world's best investors
have no formal backgrounds in finance -- which helps
them tremendously.

12. The Financial Times wrote, "In 2008 the three most
admired personalities in sport were probably Tiger Woods,
Lance Armstrong and Oscar Pistorius." The same falls
from grace happen in investing. Chose your role models
carefully.

13. Investor Ralph Wagoner once explained how markets

work, recalled by Bill Bernstein: "He likens the market to
an excitable dog on a very long leash in New York City,
darting randomly in every direction. The dog's owner is
walking from Columbus Circle, through Central Park, to
the Metropolitan Museum. At any one moment, there is no
predicting which way the pooch will lurch. But in the long
run, you know he's heading northeast at an average
speed of three miles per hour. What is astonishing is that
almost all of the market players, big and small, seem to
have their eye on the dog, and not the owner."

14. Investor Nick Murray once said, "Timing the market is

a fool's game, whereas time in the market is your greatest
natural advantage." Remember this the next time you're
compelled to cash out.

15. Bill Seidman once said, "You never know what the
American public is going to do, but you know that they will
do it all at once." Change is as rapid as it is unpredictable.

16. Napoleon's definition of a military genius was, "the

man who can do the average thing when all those around
him are going crazy." Same goes in investing.

17. Blogger Jesse Livermore writes,"Most people, whether

bull or bear, when they are right, are right for the wrong
reason, in my opinion."

18. Investors anchor to the idea that a fair price for a stock
must be more than they paid for it. It's one of the most
common, and dangerous, biases that exists. "People do
not get what they want or what they expect from the
markets; they get what they deserve," writes Bill Bonner.

19. Jason Zweig writes, "The advice that sounds the best
in the short run is always the most dangerous in the long
run."

20. Billionaire investor Ray Dalio once said, "The more you
think you know, the more closed-minded you'll be."
Repeat this line to yourself the next time you're certain of
something.

21. During recessions, elections, and Federal Reserve

policy meetings, people become unshakably certain about
things they know very little about.

22. "Buy and hold only works if you do both when markets
crash. It's much easier to both buy and hold when
markets are rising," says Ben Carlson.

23. Several studies have shown that people prefer a

pundit who is confident to one who is accurate. Pundits
are happy to oblige.

24. According to J.P. Morgan, 40% of stocks have

suffered "catastrophic losses" since 1980, meaning they
fell at least 70% and never recovered.

25. John Reed once wrote, "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."
Keep that in mind when getting frustrated over
complicated financial formulas.

26. James Grant says, "Successful investing is about

having people agree with you ... later."

27. Scott Adams writes, "A person with a flexible schedule

and average resources will be happier than a rich person
who has everything except a flexible schedule. Step one in
your search for happiness is to continually work toward
having control of your schedule."
28. According to Vanguard, 72% of mutual funds
benchmarked to the S&P 500 underperformed the index
over a 20-year period ending in 2010. The phrase
"professional investor" is a loose one.

29. "If your investment horizon is long enough and your

position sizing is appropriate, you simply don't argue with
idiocy, you bet against it," writes Bruce Chadwick.

30. The phrase "double-dip recession" was mentioned

10.8 million times in 2010 and 2011, according to Google.
It never came. There were virtually no mentions of
"financial collapse" in 2006 and 2007. It did come. A
similar story can be told virtually every year.

31. According to Bloomberg, the 50 stocks in the S&P

500 that Wall Street rated the lowest at the end of 2011
outperformed the overall index by 7 percentage points
over the following year.

32. "The big money is not in the buying or the selling, but
in the sitting," said Jesse Livermore.

33. Investors want to believe in someone. Forecasters

want to earn a living. One of those groups is going to
be disappointed. I think you know which.

34. In a poll of 1,000 American adults, asked, "How many

millions are in a trillion?" 79% gave an incorrect answer or
didn't know. Keep this in mind when debating large
financial problems.
35. As last year's Berkshire Hathaway shareholder
meeting, Warren Buffett said he has owned 400 to 500
stocks during his career, and made most of his money on
10 of them. This is common: a large portion of investing
success often comes from a tiny proportion of
investments.

36. Wall Street consistently expects earnings to beat

expectations. It also loves oxymorons.

37. The S&P 500 gained 27% in 2009 -- a phenomenal

year. Yet 66% of investors thought it fell that year,
according to a survey by Franklin Templeton. Perception
and reality can be miles apart.

38. As Nate Silver writes, "When a possibility is unfamiliar

to us, we do not even think about it." The biggest risk is
always something that no one is talking about, thinking
about, or preparing for. That's what makes it risky.

39. The next recession is never like the last one.

40. Since 1871, the market has spent 40% of all years
either rising or falling more than 20%. Roaring booms and
crushing busts are perfectly normal.

41. As the saying goes, "Save a little bit of money each

month, and at the end of the year you'll be surprised at
how little you still have."

42. John Maynard Keynes once wrote, "It is safer to be a

speculator than an investor in the sense that a speculator
is one who runs risks of which he is aware and an investor
is one who runs risks of which he is unaware."

43. "History doesn't crawl; it leaps," writes Nassim Taleb.

Events that change the world -- presidential
assassinations, terrorist attacks, medical breakthroughs,
bankruptcies -- can happen overnight.

44. Our memories of financial history seem to extend

about a decade back. "Time heals all wounds," the saying
goes. It also erases many important lessons.

45. You are under no obligation to read or watch financial

news. If you do, you are under no obligation to take any of
it seriously.

46. The most boring companies -- toothpaste, food, bolts

-- can make some of the best long-term investments. The
most innovative, some of the worst.

47. In a 2011 Gallup poll, 34% of Americans said gold was

the best long-term investment, while 17% said stocks.
Since then, stocks are up 87%, gold is down 35%.

48. According to economist Burton Malkiel, 57 equity

mutual funds underperformed the S&P 500 from 1970 to
2012. The shocking part of that statistic is that 57 funds
could stay in business for four decades while posting poor
returns. Hope often triumphs over reality.
49. Most economic news that we think is important
doesn't matter in the long run. Derek Thompson of The
Atlantic once wrote, "I've written hundreds of articles
about the economy in the last two years. But I think I can
reduce those thousands of words to one sentence. Things
got better, slowly."

50. A broad index of U.S. stocks increased 2,000-fold

between 1928 and 2013, but lost at least 20% of its value
20 times during that period. People would be less scared
of volatility if they knew how common it was.

51. The "evidence is unequivocal," Daniel Kahneman

writes, "there's a great deal more luck than skill in people
getting very rich."

52. There is a strong correlation between knowledge and

humility. The best investors realize how little they know.

53. Not a single person in the world knows what the

market will do in the short run.

54. Most people would be better off if they stopped

obsessing about Congress, the Federal Reserve, and the
president, and focused on their own financial
mismanagement.

55. In hindsight, everyone saw the financial crisis coming.

In reality, it was a fringe view before mid-2007. The next
crisis will be the same (they all work like that).
56. There were 272 automobile companies in 1909.
Through consolidation and failure, three emerged on top,
two of which went bankrupt. Spotting a promising trend
and a winning investment are two different things.

57. The more someone is on TV, the less likely his or her
predictions are to come true. (University of California,
Berkeley psychologist Phil Tetlock has data on this).

58. Maggie Mahar once wrote that "men resist

randomness, markets resist prophecy." Those six words
explain most people's bad experiences in the stock
market.

59. "We're all just guessing, but some of us have fancier

math," writes Josh Brown.

60. When you think you have a great idea, go out of your
way to talk with someone who disagrees with it. At worst,
you continue to disagree with them. More often, you'll
gain valuable perspective. Fight confirmation bias like the
plague.

61. In 1923, nine of the most successful U.S. businessmen

met in Chicago. Josh Brown writes:

Within 25 years, all of these great men had met a

horrific end to their careers or their lives:

The president of the largest steel company, Charles

Schwab, died a bankrupt man; the president of the
 largest utility company, Samuel Insull, died penniless;
the president of the largest gas company, Howard
Hobson, suffered a mental breakdown, ending up in an
insane asylum; the president of the New York Stock
Exchange, Richard Whitney, had just been released
from prison; the bank president, Leon Fraser, had
taken his own life; the wheat speculator, Arthur Cutten,
died penniless; the head of the world's greatest
monopoly, Ivar Krueger the 'match king' also had taken
his life; and the member of President Harding's
cabinet, Albert Fall, had just been given a pardon from
prison so that he could die at home.

62. Try to learn as many investing mistakes as possible

vicariously through others. Other people have made every
mistake in the book. You can learn more from studying the
investing failures than the investing greats.

63. Bill Bonner says there are two ways to think about
what money buys. There's the standard of living, which
can be measured in dollars, and there's the quality of your
life, which can't be measured at all.

64. If you're going to try to predict the future -- whether

it's where the market is heading, or what the economy is
going to do, or whether you'll be promoted -- think in
terms of probabilities, not certainties. Death and taxes, as
they say, are the only exceptions to this rule.

65. Focus on not getting beat by the market before you

think about trying to beat it.

66. Polls show Americans for the last 25 years have said
the economy is in a state of decline. Pessimism in the face
of advancement is the norm.

67. Finance would be better if it was taught by the

psychology and history departments at universities.

68. According to economist Tim Duy, "As long as people

have babies, capital depreciates, technology evolves, and
tastes and preferences change, there is a powerful
underlying impetus for growth that is almost certain to
reveal itself in any reasonably well-managed economy."

69. Study successful investors, and you'll notice a

common denominator: they are masters of
psychology. They can't control the market, but they have
complete control over the gray matter between their ears.

70. In finance textbooks, "risk" is defined as short-term

volatility. In the real world, risk is earning low returns,
which is often caused by trying to avoid short-term
volatility.

71. Remember what Nassim Taleb says about randomness

in markets: "If you roll dice, you know that the odds are
one in six that the dice will come up on a particular side.
So you can calculate the risk. But, in the stock market,
such computations are bull -- you don't even know how
many sides the dice have!"
72. The S&P 500 gained 27% in 1998. But just five stocks
-- Dell, Lucent, Microsoft, Pfizer, and Wal-Mart --
accounted for more than half the gain. There can be huge
concentration even in a diverse portfolio.

73. The odds that at least one well-known company is

insolvent and hiding behind fraudulent accounting are
pretty high.

74. The book Where Are the Customers' Yachts? was

written in 1940, and most people still haven't figured out
that brokers don't have their best interest at heart.

75. Cognitive psychologists have a theory called

"backfiring." When presented with information that goes
against your viewpoints, you not only reject challengers,
but double down on your view. Voters often view the
candidate they support more favorably after the candidate
is attacked by the other party. In investing, shareholders
of companies facing heavy criticism often become die-
hard supporters for reasons totally unrelated to the
company's performance.

76. "In the financial world, good ideas become bad ideas
through a competitive process of 'can you top this?'" Jim
Grant once said. A smart investment leveraged up with
debt becomes a bad investment very quickly.

77. Remember what Wharton professor Jeremy Siegel

says: "You have never lost money in stocks over any 20-
year period, but you have wiped out half your portfolio in
bonds [after inflation]. So which is the riskier asset?"

78. Warren Buffett's best returns were achieved when

markets were much less competitive. It's doubtful anyone
will ever match his 50-year record.

79. Twenty-five hedge fund managers took home $21.2

billion in 2013 for delivering an average performance of
9.1%, versus the 32.4% you could have made in an index
fund. It's a great business to work in -- not so much to
invest in.

80. The United States is the only major economy in which

the working-age population is growing at a reasonable
rate. This might be the most important economic variable
of the next half-century.

81. Most investors have no idea how they actually

perform. Markus Glaser and Martin Weber of the
University of Mannheim asked investors how they thought
they did in the market, and then looked at their brokerage
statements. "The correlation between self ratings and
actual performance is not distinguishable from zero," they
concluded.

82. Harvard professor and former Treasury Secretary

Larry Summers says that "virtually everything I taught" in
economics was called into question by the financial crisis.

83. Asked about the economy's performance after the

financial crisis, Charlie Munger said, "If you're not
confused, I don't think you understand."

84. There is virtually no correlation between what the

economy is doing and stock market returns. According to
Vanguard, rainfall is actually a better predictor of future
stock returns than GDP growth. (Both explain slightly
more than nothing.)

85. You can control your portfolio allocation, your own

education, who you listen to, what you read, what
evidence you pay attention to, and how you respond to
certain events. You cannot control what the Fed does,
laws Congress sets, the next jobs report, or whether a
company will beat earnings estimates. Focus on the
former; try to ignore the latter.

86. Companies that focus on their stock price will

eventually lose their customers. Companies that focus on
their customers will eventually boost their stock price.
This is simple, but forgotten by countless managers.

87. Investment bank Dresdner Kleinwort looked at

analysts' predictions of interest rates, and compared that
with what interest rates actually did in hindsight. It found
an almost perfect lag. "Analysts are terribly good at telling
us what has just happened but of little use in telling us
what is going to happen in the future," the bank wrote. It's
common to confuse the rearview mirror for the
windshield.

88. Success is a lousy teacher," Bill Gates once said. "It

seduces smart people into thinking they can't lose."

89. Investor Seth Klarman says, "Macro worries are like

sports talk radio. Everyone has a good opinion which
probably means that none of them are good."

90. Several academic studies have shown that those who

trade the most earn the lowest returns. Remember
Pascal's wisdom: "All man's miseries derive from not
being able to sit in a quiet room alone."

91. The best company in the world run by the smartest

management can be a terrible investment if purchased at
the wrong price.

92. There will be seven to 10 recessions over the next 50

years. Don't act surprised when they come.

93. No investment points are awarded for difficulty or

complexity. Simple strategies can lead to outstanding
returns.

94. The president has much less influence over the

economy than people think.

95. However much money you think you'll need for

retirement, double it. Now you're closer to reality.

96. For many, a house is a large liability masquerading as

a safe asset.

97. The single best three-year period to own stocks was

during the Great Depression. Not far behind was the
three-year period starting in 2009, when the economy
struggled in utter ruin. The biggest returns begin when
most people think the biggest losses are inevitable.

98. Remember what Buffett says about progress: "First

come the innovators, then come the imitators, then come
the idiots."

99. And what Mark Twain says about truth: "A lie can
travel halfway around the world while truth is putting on its
shoes."

100. And what Marty Whitman says about information:

"Rarely do more than three or four variables really count.
Everything else is noise."

101. Among Americans aged 18 to 64, the average

number of doctor visits decreased from 4.8 in 2001 to 3.9
in 2010. This is partly because of the weak economy, and
partly because of the growing cost of medicine, but it has
an important takeaway: You can never extrapolate
behavior -- even for something as vital as seeing a doctor
-- indefinitely. Behaviors change.

102. Since last July, elderly Chinese can sue their children
who don't visit often enough, according to Bloomberg.
Dealing with an aging population calls for drastic
measures.

103. Someone once asked Warren Buffett how to become

a better investor. He pointed to a stack of annual reports.
"Read 500 pages like this every day," he said. "That's how
knowledge works. It builds up, like compound interest. All
of you can do it, but I guarantee not many of you will do
it."

104. If Americans had as many babies from 2007 to 2014

as they did from 2000 to 2007, there would be 2.3 million
more kids today. That will affect the economy for decades
to come.

105. The Congressional Budget Office's 2003 prediction

of federal debt in the year 2013 was off by $10 trillion.
Forecasting is hard. But we still line up for it.

106. According to The Wall Street Journal, in 2010, "for

every 1% decrease in shareholder return, the average CEO
was paid 0.02% more."

107. Since 1994, stock market returns are flat if the three
days before the Federal Reserve announces interest rate
policy are removed, according to a study by the Federal
Reserve.

108. In 1989, the CEOs of the seven largest U.S. banks

earned an average of 100 times what a typical household
made. By 2007, more than 500 times. By 2008, several of
those banks no longer existed.

109. Two things make an economy grow: population

growth and productivity growth. Everything else is a
function of one of those two drivers.

110. The single most important investment question you

need to ask yourself is, "How long am I investing for?"
How you answer it can change your perspective on
everything.

111. "Do nothing" are the two most powerful -- and

underused -- words in investing. The urge to act has
transferred an inconceivable amount of wealth from
investors to brokers.

112. Apple increased more than 6,000% from 2002 to

2012, but declined on 48% of all trading days. It is never a
straight path up.

113. It's easy to mistake luck for success. J. Paul

Getty said, the key to success is: 1) rise early, 2) work
hard, 3) strike oil.

114. Dan Gardner writes, "No one can foresee the

consequences of trivia and accident, and for that reason
alone, the future will forever be filled with surprises."

115. I once asked Daniel Kahneman about a key to making

better decisions. "You should talk to people who disagree
with you and you should talk to people who are not in the
same emotional situation you are," he said. Try this before
making your next investment decision.

116. No one on the Forbes 400 list of richest Americans

can be described as a "perma-bear." A natural sense of
optimism not only healthy, but vital.

117. Economist Alfred Cowles dug through forecasts a

popular analyst who "had gained a reputation for
successful forecasting" made in The Wall Street Journal in
the early 1900s. Among 90 predictions made over a 30-
year period, exactly 45 were right and 45 were wrong.
This is more common than you think.

118. Since 1900, the S&P 500 has returned about 6.5%
per year, but the average difference between any year's
highest close and lowest close is 23%. Remember this the
next time someone tries to explain why the market is up or
down by a few percentage points. They are basically
trying to explain why summer came after spring.

119. How long you stay invested for will likely be the single
most important factor determining how well you do at
investing.

120. A money manager's amount of experience doesn't

tell you much. You can underperform the market for an
entire career. Many have.

121. A hedge fund once described its edge by stating,

"We don't own one Apple share. Every hedge fund owns
Apple." This type of simple, contrarian thinking is worth its
weight in gold in investing.

122. Take two investors. One is an MIT rocket scientist

who aced his SATs and can recite pi out to 50 decimal
places. He trades several times a week, tapping his
intellect in an attempt to outsmart the market by jumping
in and out when he's determined it's right. The other is a
country bumpkin who didn't attend college. He saves and
invests every month in a low-cost index fund come hell or
high water. He doesn't care about beating the market. He
just wants it to be his faithful companion. Who's going to
do better in the long run? I'd bet on the latter all day long.
"Investing is not a game where the guy with the 160 IQ
beats the guy with a 130 IQ," Warren Buffett says.
Successful investors know their limitations, keep cool, and
act with discipline. You can't measure that.

For more:

Nobody has any idea what's going on

A brief reminder of how fast things change
Why I'm an optimist

Check back every Tuesday and Friday for Morgan

Housel's columns.