Investment Mistakes Even Smart Investors Make – Part 1 of 3

As a high school teacher, I’ve done plenty of reading on educational theory. 

How do kids learn, and how can you make it stick?  If given free reign, I’d like to teach a humanities class with Larry Swedroe and RC Balaban’s latest book, Investment Mistakes Even Smart Investors Make as my core text.

With it, I believe I could blend lessons in psychology, history, literature, mathematics, marketing/business, the stock market and investing.  Best of all, the lessons would all have applicable benefits to the kids, years after they leave the classroom. 

Sound like a tall order? 

I don’t think it is.  And I believe any teacher could do it.

School subjects have been taught in isolation for far too long.  We teach history, isolated from English, isolated from math.  Little crossover occurs in the world of academia, and (although I’m embarrassed to admit it) much of what we teach in schools isn’t practical.

With a full year course devoted to a multi-disciplined approach, this book could serve a cross curricular purpose that I doubt even the authors dreamed possible.

Swedroe and Balaban’s work takes readers through 77 mistakes that investors often make with their money.

Psychology and Biology—without Freud

As a college student, I took two psychology classes, hoping to learn what motivated people, how to influence others and simply, what made us tick.  But I learned nothing practical. 

Using Swedroe and Balaban’s book as a launching pad, we could make psychology real–even profitable, and we wouldn’t have to teach it in isolation.

As Swedroe and Balaban point out in their book’s first lesson, people tend to be overconfident when making investment decisions, yet there’s a slight difference between the sexes: Women investors typically outperform male investors.  And married male investors typically outperform single male investors.

Why?

Simply, men are overconfident and more volatile when it comes to making decisions.  They trade more frequently, and have a higher likelihood of imploding their investment accounts… and their cars, on the open road.

This leads nicely to biology, and testosterone. 

What is testosterone and what are the behavioural side effects of it when injected into athletes?  How do testosterone levels affect men and women differently, behaviourally and biologically?  With a single lesson/project we can grab the budding biologist, the aspiring athlete, the psychologist, and the kid who has just decided that he or she wants to make bucket loads of money. 

These are questions that students could research and present projects on, based on their areas of interest.  And in each case, they would link it to behavioural finance:  how psychology affects investment decisions. 

You don’t have to be a high school student to benefit from Investment Mistakes Even Smart Investors Make.  This is one of the richest, most focused money books I’ve ever read.

And I plan to write two more articles about it, linking its merit to a broader educational platform.

If you haven’t read this book yet, order it through Amazon.  Filled with incredible details and academic evidence, it’s something every investor can benefit from.

If you’ve read my book, Millionaire Teacher, please read Swedroe and Balaban’s book next.  These gentlemen take the same themes to another level.  Its depth will impress you.

 

—–Balaban and Swedroe both work for the Buckingham Family of Financial Services; you can also read Larry’s blog at CBS MoneyWatch. 

 





Andrew Hallam

I’m a financial columnist for Canada’s national paper, The Globe and Mail, as well as for AssetBuilder, a financial service firm based in Texas. I’m also the author of Millionaire Teacher: The Nine Rules of Wealth You Should Have Learned in School (2nd Ed. Wiley 2017) and The Global Expatriate’s Guide To Investing: From Millionaire Teacher to Millionaire Expat (Wiley 2015). My mission is to educate, motivate and inspire people on basic retirement planning and best practices for investing, using evidence-based strategies. I’m happy to comment on your questions. However, please read the Terms of Use, Privacy Policy and the Comments Policy.

You may also like...

6 Responses

  1. Men should swallow their ego and get in touch with their dormant feminine side. 🙂 There's even a book from Motley Fool with a bold title "Warren Buffet invests like a girl, and why you should, too". Waiting for your part 2, Andrew 🙂

  2. Mark says:

    Hi Andrew,

    I just started reading Balaban and Swedroe's book this weekend. It sure reinforces what you teach in yours!

    I'd like to ask for your advice regarding my daughter's situation, which may be pertinent for other readers as well. We live in Ontario and Sarah is 26 years old. She graduated from University last year and, fortunately, is just about to make her last payment on her student loans. We had a long discussion yesterday about investing her money, now that she will be debt-free. She figures that she will be able to save about $1000/month to invest at this point, but may need the money to put towards a house in 3 or 4 years. Would a TFSA be an appropriate place for her to start since it provides flexibility in terms of withdrawing the money?, If so, would you recommend that she follow the formula of 25% each of bonds, Canadian stock market ETF, US stock market ETF, and World stock market ETF (25% each because of her age)? Or is this not really appropriate for her situation, considering that she may need this money in 3 or 4 years and we might have a stretch where the markets perform poorly over the next few years?

    Thanks for the time that you put into this blog, and your opinion would be greatly appreciated!

    • Thanks Mark,

      A TFSA would be a great option for your daughter's money right now. Perhaps she could go with a TD e-Series Canadian bond index. Considering that she might want that money in 4 years, she could follow the rule of thumb about money and the stock market: never put a dime into the markets that you might be needing before a 5 year time period. I'm glad you like Swedroe and Balaban's book. They've certainly done a lot of research. If you liked my book, and you have time, I would love it if you could put a short review (doesn't have to be long) on Amazon. Here's the link, if you have time: http://www.amazon.ca/Millionaire-Teacher-Wealth-S

      And thanks for visiting my site. If you have other questions, feel free to ask.

      Cheers!

      Andrew

  3. Eliza says:

    Hi Andrew, I'd like to ask, do you recommend married couple to have joint or individual when it comes to opening an account for investment? We always do 50/50 share on savings and expenses.

    If we are going to do individual account but with same amount of investment and same index funds, does that means that gain/loss are the same? If yes, then it's better to have joint account, right? At the same time, we can invest in different index funds using one joint account. Please advice. Thanks.

  4. Hi Eliza,

    I think it comes down to your personal preference. I don't know of an advantage or disadvantage, money-wise, if the taxable implications are the same. Having separate accounts can make things easier after an accident or a divorce though. If your partner dies, and you need money right away, it's nice to know that you can access that money during a time of grief, so make sure you have access to his account and that he has access to yours.

  5. Barry says:

    Hi Andrew

    Have you completed parts 2 and 3 yet ?

Leave a Reply