Big Money Thinks Small: Biases, Blind Spots, and Smarter Investing (Columbia Business School Publishing)

Stock market bubbles occur when traders latch onto a compelling initial premise and extend the logic too far. Speculators take rising prices as proof that they were correct. Their error becomes apparent to them only in the fullness of time. People avoid reason until they have tried everything else. If you fancy that there will be clear signs as to

On average, cheap stocks have beaten the market despite actual earnings gains that lagged the market, hinting that expectations were too low. But don’t go looking for lousy outlooks alone. As a category, money-losing companies have generally lagged the market, suggesting that expectations weren’t low enough.

We tend to weight information based on its availability (ease of recall), because our System 1 thinks What You See Is All There Is. This WYSIATI means that it’s the recent, dramatic, unexpected, and personally relevant images that jump to mind. What doesn’t come to mind is historical, statistical, theoretical, and average. Even with work, a stock’s

Almost by definition, the biggest mispricing will involve a glaring, hideous defect that popular opinion thinks cannot be overcome.

Successful people simplify their lives by focusing on the facts and actions that matter most. If you don’t, you will find yourself either on a hamster wheel or bogged down in trivia. The trickiest part is staying open to new and contradictory information that affects your goals, while cutting out the clutter. One test for noise is to ask whether a

This book is about succeeding in investing by avoiding mistakes. The organizing framework of this book, in five parts, is that we will reap pleasing investment rewards if we (1) make decisions rationally, (2) invest in what we know, (3) work with honest and trustworthy managers, (4) avoid businesses prone to obsolescence and financial ruin, and (5)

The facts I seek often look like stale background information; they have been, and will continue to be, true for a long time. I’m searching for important facts with a long shelf life; for example, a description of a company’s competitive position or how management has historically used its cash flow. You’ll rarely hear these topics on Fox News or C

For investors, nirvana is a profitable, growing enterprise that is certain to endure. Financial leverage does not destroy companies, but it does create vulnerability. Look for businesses that respect the matching principles: Match borrowings with safe (not risky) assets, and match long-term assets with long-term (not short-term) debt. Businesses th

It’s never easy to maintain first-rate offerings or keep costs at rock bottom, but I give better odds to the quality strategy as long as the managers are product people. The exception is where costs can be slashed by cutting out an element that customers do not value.