Page 118 - Psychology of Money - Timeless Lessons on Wealth, Greed, and Happiness-Harriman House Limited (2020)

There’s a well-documented “home bias,” where people prefer to invest in
companies from the country they live in while ignoring the other 95%+ of
COBACOBA
the planet. It’s not rational, until you consider that investing is effectively

giving money to strangers. If familiarity helps you take the leap of faith
required to remain backing those strangers, it’s reasonable.

Day trading and picking individual stocks is not rational for most investors
—the odds are heavily against your success. But they’re both reasonable in
small amounts if they scratch an itch hard enough to leave the rest of your
more diversified investments alone. Investor Josh Brown, who advocates
and mostly owns diversified funds, once explained why he also owns a
smattering of individual stocks: “I’m not buying individual stocks because I

think I’m going to generate alpha [outperformance]. I just love stocks and
have ever since I was 20 years old. And it’s my money, I get to do
whatever.” Quite reasonable.

Most forecasts about where the economy and the stock market are heading
next are terrible, but making forecasts is reasonable. It’s hard to wake up in
the morning telling yourself you have no clue what the future holds, even if
it’s true. Acting on investment forecasts is dangerous. But I get why people

try to predict what will happen next year. It’s human nature. It’s reasonable.

Jack Bogle, the late founder of Vanguard, spent his career on a crusade to
promote low-cost passive index investing. Many thought it interesting that
his son found a career as an active, high-fee hedge fund and mutual fund
manager. Bogle—the man who said high-fee funds violate “the humble
rules of arithmetic”—invested some of his own money in his son’s funds.
What’s the explanation?

“We do some things for family reasons,” Bogle told The Wall Street

Journal. “If it’s not consistent, well, life isn’t always consistent.”³⁹

Indeed, it rarely is.