Notes from the book

Second-level thinking

Successful investing requires thoughtful attention to many separate aspects, all at the same time.
There’s no surefire recipe for investment success.
“Experience is what you got when you didn’t get what you wanted.”
In short, being right may be a necessary condition for investment success, but it won’t be sufficient.
First-level thinkers look for simple formulas and easy answers. Second-level thinkers know that success in investing is the antithesis of simple.
To outperform the average investor, you have to be able to outthink the consensus.
Mutual funds are rated relative to each other. The ratings don’t say anything about their having beaten an objective standard such as a market index.

if riskier investments could be counted on to produce higher returns, they wouldn’t be riskier.
Inefficient markets do not necessarily give their participants generous returns.
For every person who gets a good buy in an inefficient market, someone else sells too cheap.
Something else to keep in mind: just because efficiencies exist today doesn’t mean they’ll remain forever.
Inefficiency is a necessary condition for superior investing.
Abstention on the part of those who won’t venture in creates opportunities for those who will.

The random walk hypothesis says a stock’s past price movements are of absolutely no help in predicting future movements. In other words, it’s a random process, like tossing a coin. We all know that even if a coin has come up heads ten times in a row, the probability of heads on the next throw is still fifty-fifty.
Momentum investing might enable you to participate in a bull market that continues upward, but I see a lot of drawbacks. One is based on economist Herb Stein’s wry observation that “if something cannot go on forever, it will stop.”