Notes

Introduction

1 Dan Gardner, Future Babble: Why Expert Predictions Are Next to Worthless, and You Can Do Better, New York: Dutton, 2011.

2 Peter Cohan, “Five Reasons Why Investing Is Dead,” Forbes.com, December 5, 2011, http://www.forbes.com/sites/petercohan/2011/12/05/five-reasons-why-investing-is-dead/.

3 Nathan Hale, “Why You’re Not as Unique as You Think You Are,” CBS Moneywatch, June 4, 2011, http://www.cbsnews.com/8301-505123_162-37640645/why-youre-not-as-unique-as-you-think-you-are/.

4 Barry Ritholtz, “On Investing: The Many Hats of Great Investors,” Washington Post, May 21, 2011, http://www.washingtonpost.com/business/on-investing-the-many-hats-of-great-investors/2011/05/17/AFN02c8G_story.html.

5 Robert Hagstrom, Investing: The Last Liberal Art, Texere: Independence, KY, 2002.

6 Michael J. Mauboussin, More Than You Know, New York: Columbia University Press, 2006, p. 207.

7 William J. Bernstein, The Investor’s Manifesto, 2010, Hoboken, NJ: John Wiley & Sons, p. xv.

8 “Primum non nocere,” Wikipedia, http://en.wikipedia.org/wiki/Primum_non_nocere.

Chapter 1

1 Merriam-Webster.com, http://www.merriam-webster.com/dictionary/risk.

2 This is a gross simplification of the CAPM, where the risk of any individual security is actually measured by the degree to which it covaries with the market portfolio.

3 Those interested in reading further about the history of risk and the academic construction of risk should check out three books by the late Peter L. Bernstein. These include Against the Gods, Hoboken, NJ: John Wiley & Sons, 1996; Capital Ideas, New York: Free Press, 1992; and Capital Ideas Evolving, Hoboken, NJ: John Wiley & Sons, 1997. An excellent recent addition to the literature is Justin Fox, The Myth of the Rational Market, New York: HarperCollins, 2009.

4 Anti Ilmanen, Expected Returns: An Investor’s Guide to Harvesting Market Rewards, Hoboken, NJ: John Wiley & Sons, 2011, pp. 3–4.

5 James Montier, “The Seven Immutable Laws of Investing,” GMO White Paper, March 2011, http://www.gmo.com/America/default.htm.

6 Seth A. Klarman, Margin of Safety, New York: HarperCollins, 1992.

7 Howard Marks, The Most Important Thing: Uncommon Sense for the Thoughtful Investor, New York: Columbia Business School Publishing, 2011, p. 66.

8 Amir Barnea, Henrik Cronqvist, and Stephan Siegel, “Nature or Nurture: What Determines Investor Behavior?” (February 3, 2010). Fourth Singapore International Conference on Finance 2010 Paper, available at SSRN, http://ssrn.com/abstract=1467088.

9 FDIC website, http://www.fdic.gov/deposit/deposits/insured/basics.html.

10 Eddy Elfenbein, “Happy 115th Birthday Dow Jones Industrial Average,” Crossing Wall Street, May 26, 2011, http://www.crossingwallstreet.com/archives/2011/05/happy-115th-birthday-dow-jones-industrial-average.html.

11 The definitive history of Enron’s rise and fall is Bethany McLean and Peter Elkind’s The Smartest Guys in the Room, New York: Portfolio, 2003.

12 The lack of a risk-free asset poses a problem for modern asset pricing theory. See Aswath Damodaran, “Into the Abyss: What If Nothing Is Risk-Free?,” New York University, July 2010, http://www.stern.nyu.edu/~adamodar/pdfiles/papers/nothingisriskfree.pdf.

13 Carl Richards, “Investors Are Still Behaving Badly,” Bucks Blog, August 5, 2011, http://bucks.blogs.nytimes.com/2010/08/05/investors-are-still-behaving-badly/.

14 Philip Z. Maymin and Gregg S. Fisher, “Past Performance Is Indicative of Future Beliefs,” Risk and Decision Analysis, vol. 2, no. 3, 2011, pp. 145–150.

15 Danny Yagan, “Why Do Households Chase Stock Market Returns? Long-Term Extrapolation, Not Market Timing,” Harvard University, 2010, http://www.people.fas.harvard.edu/~yagan/papers/Chasing_Returns.pdf.

16 S&P/Case-Shiller Home Indices, September 27, 2011, http://www.standardandpoors.com/indices/articles/en/us/?articleType=PDF&assetID=1245321043147.

17 Barry Ritholtz, “The Bubble in Bubbles (Reflexive Version),” May 30, 2011, http://www.ritholtz.com/blog/2011/05/the-bubble-in-bubbles-reflexive-version/.

18 The classic text on bubbles is Charles Kindleberger, Manias, Panics and Crashes, 4th ed., Hoboken, NJ: John Wiley & Sons, 2000.

19 John H. Cochrane, “Why Identifying a Bubble Is So Much Trouble,” Bloomberg, September 22, 2011, http://www.bloomberg.com/news/2011-09-22/why-identifying-a-bubble-is-so-much-trouble-john-h-cochrane.html.

20 “News You Can (Almost) Use,” The Economist, July 20, 2011, http://www.economist.com/blogs/johnson/2011/07/journalistic-language.

21 Meir Statman, What Investors Really Want, New York: McGraw-Hill, 2011, p. 69.

22 Daniel Gross, Pop! Why Bubbles Are Great for the Economy, New York: HarperCollins, 2007.

23 Stephen P. Utkus, “Market Bubbles and Investor Psychology,” Vanguard Group, February 2011, https://institutional.vanguard.com/VGApp/iip/site/institutional/researchcommentary/article/InvResmktbubbles.

24 Jason Zweig, “Why Spotting Bubbles Is Harder Than It Looks,” Wall Street Journal, November 5, 2011, http://online.wsj.com/article/SB10001424052970204621904577017960729384948.html.

25 Merriam-Webster.com, http://www.merriam-webster.com/dictionary/panic?show=1&t=1317931214.

26 Bob Ivry, Bradley Keoun, and Phil Kuntz, “Secret Fed Loans Gave Banks $13 Billion,” Bloomberg.com, November 27, 2011, http://www.bloomberg.com/news/2011-11-28/secret-fed-loans-undisclosed-to-congress-gave-banks-13-billion-in-income.html.

27 Mebane Faber, “When Things Go on Sale, People Run out of the Store,” World Beta, March 12, 2001, http://www.mebanefaber.com/2011/03/12/when-things-go-on-sale-people-run-out-of-the-store/.

28 Guy Kaplanski and Haim Levy, “Sentiment and Stock Prices: The Case of Aviation Disasters,” Journal of Financial Economics, vol. 95, no. 2, February 2010, pp. 174–201, available at SSRN, http://ssrn.com/abstract=1084533.

29 Peter L. Bernstein, Against the Gods: The Remarkable Story of Risk, Hoboken, NJ: John Wiley & Sons, 1996, p. 220.

30 Marks, The Most Important Thing, p. 44.

31 Nassim Nicholas Taleb, Fooled by Randomness, New York: Random House, 2005, p. 192.

32 Edward Glaeser, “What Happened to Argentina?,” Economix, October 6, 2009, http://economix.blogs.nytimes.com/2009/10/06/what-happened-to-argentina/.

33 Felix Salmon, “Recipe for Disaster: The Formula That Killed Wall Street,” Wired Magazine, February 23, 2009, http://www.wired.com/techbiz/it/magazine/17-03/wp_quant.

34 Mike Shell, “The Essence of Investment Management Is the Management of Risks,” Asymmetric Investment Returns, June 2, 2011, http://www.asymmetricinvestmentreturns.com/asymmetric-investment-returns/the-essence-of-investment-management-is-the-management-of-risks/.

Chapter 2

1 Claude B. Erb, Campbell R. Harvey, and Tadas E. Viskanta, “Inflation and World Equity Selection,” Financial Analysts Journal, vol. 51, no. 6, November/December 1995, pp. 28–42.

2 Michelle L. Barnes, Zvi Bodie, Robert K. Triest, and J. Christina Wang, “A TIPS Scorecard: Are They Accomplishing Their Objectives?” Financial Analysts Journal, vol. 66, no. 5, September/October 2010, pp. 68–84.

3 Warren E. Buffett, “How Inflation Swindles the Equity Investor, Fortune, May 1977, http://features.blogs.fortune.cnn.com/2011/06/12/warren-buffett-how-inflation-swindles-the-equity-investor-fortune-1977/.

4 Aswath Damodaran, “Equity Risk Premiums (ERP): Determinants, Estimation and Implications—A Post-Crisis Update,” October 22, 2009, available at SSRN, http://ssrn.com/abstract=1492717.

5 Pablo Fernandez, Javier Aguirreamalloa, and Luis Corres Avendaño, “US Market Risk Premium Used in 2011 by Professors, Analysts and Companies: A Survey with 5.731 Answers,” April 8, 2011, available at SSRN, http://ssrn.com/abstract=1805852.

6 There are some doubts about these survey results. See Eric Falkenstein, “Equity Premium Survey Doesn’t Register My Vote,” Falkenblog, June 6, 2011, http://falkenblog.blogspot.com/2011/06/equity-premium-survey-doesnt-register.html.

7 Pablo Fernandez, “The Equity Premium in 150 Textbooks,” November 16, 2010, available at SSRN, http://ssrn.com/abstract=1473225.

8 Elroy Dimson, Paul Marsh, and Mike Staunton, Credit Suisse Global Investment Returns Yearbook 2011, p. 51.

9 Ibid., p. 52.

10 Jason Zweig, “Does Stock Market Data Really Go Back 200 Years?” Wall Street Journal, July 11, 2009, http://online.wsj.com/article/SB124725925791924871.html.

11 Eric Falkenstein, Finding Alpha, Hoboken, NJ: John Wiley & Sons, 2009.

12 Eric Falkenstein, “Is the Equity Risk Premium Actually Zero?,” Falkenblog, July 13, 2009, http://falkenblog.blogspot.com/2009/07/is-equity-risk-premium-actually-zero.html.

13 Ilia D. Dichev, “What Are Stock Investors’ Actual Historical Returns? Evidence from Dollar-Weighted Returns,” American Economic Review, vol. 97, no. 1, pp. 386–401, 2007.

14 David Merkel, “The Equity Premium Is No Longer a Puzzle,” The Aleph Blog, July 15, 2009, http://alephblog.com/2009/07/15/the-equity-premium-is-no-longer-a-puzzle/.

15 Howard Marks, The Most Important Thing, New York: Columbia Business School Publishing, 2011, p. 107.

16 Dimson, Marsh, and Staunton, Credit Suisse Global Investment Returns Yearbook 2011, p. 8.

17 James Montier, “A Value Investor’s Perspective on Tail Risk Protection: An Ode to the Joy of Cash,” GMO White Paper, June 2011, http://www.gmo.com/America/default.htm.

18 James P. O’Shaugnessey, What Works on Wall Street (Fourth Edition), New York: McGraw-Hill, 2011, p. 443.

19 Anti Ilmanen, Expected Returns, Hoboken, NJ: John Wiley & Sons, 2011, p. 301.

20 Clifford S. Asness, Tobias J. Moskowitz, and Lasse Heje Pedersen, “Value and Momentum Everywhere,” AFA 2010 Atlanta Meetings Paper, March 6, 2009, available at SSRN, http://ssrn.com/abstract=1363476.

21 Mebane T. Faber and Eric W. Richardson, The Ivy Portfolio, Hoboken, NJ: John Wiley & Sons, 2008.

22 Michael W. Covel, Trend Following: Learn to Make Millions in Up or Down Markets, Upper Saddle River, NJ: FT Press, 2009.

23 Ilmanen, Expected Returns, p. 295.

24 “Trading against the Trend Followers,” FT.com, June 26, 2011, http://www.ft.com/intl/cms/s/0/11867b3a-9b3f-11e0-a254-00144feabdc0.html.

25 Werner F. M. De Bondt and Richard Thaler, “Does the Stock Market Overreact?,” Journal of Finance, vol. XL, no. 3, July 1985, pp.793–805.

26 Jay R. Ritter, “Equilibrium in the Initial Public Offering Market,” Annual Review of Financial Economics, vol. 3, 2011, forthcoming, http://bear.warrington.ufl.edu/ritter/AnnualReviewofFinancialEcon_July22011.pdf.

27 Katy Burne and Kellie Geressy-Nilsen, “Investors Peg Some Triple-A Corporate Debt as Safer Than Treasurys,” Wall Street Journal, July 19, 2011, http://online.wsj.com/article/SB10001424052702303795304576456092212511916.html.

28 Eugene F. Fama and Kenneth R. French, “The Anatomy of Value and Growth Stock Returns,” Financial Analysts Journal, vol. 63, no. 6, November/December 2007, pp. 44–54.

29 David Swensen, Pioneering Portfolio Management: An Unconventional Approach to Institutional Investment, New York: Free Press, 2000, p. 95.

30 Ibid., p. 98.

31 Marks, The Most Important Thing, p. 105.

32 Asness, Moskowitz, and Pedersen, “Value and Momentum Everywhere.”

33 David Blitz, “Strategic Allocation to Premiums in the Equity Market,” October 25, 2011, available at SSRN, http://ssrn.com/abstract=1949008.

Chapter 3

1 Charles Roxburgh, Susan Lund, and John Piotrowski, “Mapping Global Capital Markets 2011,” McKinsey Global Institute, August 2011, http://www.mckinsey.com/Insights/MGI/Research/Financial_Markets/Mapping_global_capital_markets_2011.

2 Bradford Cornell, “Economic Growth and Equity Investing,” Financial Analysts Journal, vol. 66, no. 1, January/February 2010, pp. 54–65.

3 Peter Bernstein and Robert Arnott, “Earnings Growth: The Two Percent Dilution,” Financial Analysts Journal, vol. 59, no. 5, September/October 2003, pp. 47–55.

4 Jay Ritter, “Economic Growth and Equity Returns,” Pacific-Basin Finance Journal, vol. 13, 2005, p. 501.

5 Ibid., p. 494.

6 See Vitaliy N. Katsenelson, The Little Book of Sideways Markets: How to Make Money in Markets That Go Nowhere, Hoboken, NJ: John Wiley & Sons, 2010.

7 Elroy Dimson, Paul Marsh, and Mike Staunton, Credit Suisse Global Investment Returns Yearbook 2010, p. 17.

8 Malcolm Baker, Brendan Bradley, and Jeffrey Wurgler, “Benchmarks as Limits to Arbitrage: Understand the Low-Volatility Anomaly,” Financial Analysts Journal, vol. 67, no. 1, January/February 2011.

9 Andrea Frazzini and Lasse Heje Pedersen, “Betting against Beta,” NBER Working Paper Series, vol. w16601, December 2010, available at SSRN, http://ssrn.com/abstract=1723048.

10 Eric Falkenstein, “Low Volatility and Beta 1.0 Portfolios,” Falkenblog, September 21, 2010, http://falkenblog.blogspot.com/2010/09/low-volatility-and-beta-10-portfolios.html.

11 Gregory V. Milano, “Is Cash Still King?” CFO, February 4, 2011, http://www.cfo.com/article.cfm/14554467.

12 Dimson, Marsh, and Staunton, Credit Suisse Global Investment Returns Yearbook 2010.

13 Ibid., p. 21.

14 Robert D. Arnott and Clifford S. Asness, “Surprise! Higher Dividends = Higher Earnings Growth,” Financial Analysts Journal, vol. 59, no. 1, January/February 2003, pp. 70–87.

15 Owain ap Gwilym, James Seaton, Karina Suddason, and Stephen Thomas, “International Evidence on the Payout Ratio, Earnings, Dividends, and Returns,” Financial Analysts Journal, vol. 62, no. 1, January/February 2006, pp. 36–53.

16 Ping Zhou and William Ruland, “Dividend Payout and Future Earnings Growth,” Financial Analysts Journal, vol. 62, no. 3, May/June 2006, pp. 58–69.

17 Michael W Covel, Trend Following, updated ed., Upper Saddle River, NJ: FT Press, 2009, p. 331.

18 Ibid., p. 332.

19 Eric Crittenden and Cole Wilcox, “Trending Stocks Drive the Stock Market,” Blackstar Funds, 2007, http://michaelcovel.com/pdfs/TrendingStocksDriveTheMarket.pdf.

20 Michael Mauboussin, More Than You Know: Finding Financial Wisdom in Unconventional Places, New York: Columbia University Press, 2006, pp. 178–179.

21 Joshua Brown, “Shorting Is a Blood Sport,” The Reformed Broker, August 15, 2011, http://www.thereformedbroker.com/2011/08/15/shorting-is-a-blood-sport/.

22 Eddy Elfenbein, “Will They Ever Learn?” Crossing Wall Street, August 11, 2011, http://www.crossingwallstreet.com/archives/2011/08/will-they-ever-learn.html.

23 Bill Alpert, “Even Short-Sellers Burned by Chinese Shares,” Barron’s, June 18, 2011, http://online.barrons.com/article/SB50001424053111904113704576383892664177456.html.

24 David Swensen, Pioneering Portfolio Management: An Unconventional Approach to Institutional Management, New York: Free Press, 2000, pp. 214–215.

25 Ekkehart Boehmer, Zsuzsa R. Huszar, and Bradford D. Jordan, “The Good News in Short Interest,” Journal of Financial Economics, vol. 96, no. 1, 2010, p. 81.

Chapter 4

1 David Swensen, Pioneering Portfolio Management: An Unconventional Approach to Institutional Investment, New York: Free Press, 2000, p. 171.

2 Cornell Eddings, “Say What? In 30-Year Race, Bonds Beat Stocks,” Bloomberg.com, October 31, 2011, http://www.bloomberg.com/news/2011-10-31/bonds-beating-u-s-stocks-over-30-years-for-first-time-since-19th-century.html.

3 Charles Roxburgh, Susan Lund, and John Piotrowski, “Mapping Global Capital Markets 2011,” McKinsey Global Institute, August 2011, http://www.mckinsey.com/Insights/MGI/Research/Financial_Markets/Mapping_global_capital_markets_2011.

4 Arturo Estella and Mary R. Trubin, “The Yield Curve as a Leading Indicator: Some Practical Issues,” Federal Reserve Bank of New York, Current Issues in Economics and Finance, vol. 12, no. 5, July/August 2006, http://www.newyorkfed.org/research/current_issues/ci12-5.html.

5 Cullen Roche, “Yield Curves Don’t Lie,” Pragmatic Capitalism, June 24, 2011, http://pragcap.com/yield-curves-dont-lie.

6 Glenn D. Rudebusch and John C. Williams, “Forecasting Recessions: The Puzzle of the Enduring Power of the Yield Curve,” Federal Reserve Bank of San Francisco, July 2008, http://www.frbsf.org/publications/economics/papers/2007/wp07-16bk.pdf.

7 Kavan Kucko and Menzie David Chinn, “The Predictive Power of the Yield Curve across Countries and Time,” January 11, 2010. La Follette School of Public Affairs Working Paper no. 2010-002, available at SSRN, http://ssrn.com/abstract=1536211.

8 Simon Gilchrist and Egon Zakrajsek, “Credit Spreads and Business Cycle Fluctuations,” NBER Working Paper Series, vol. w17021, May 2011, available at SSRN. http://ssrn.com/abstract=1833158.

9 Bruce G. Resnick and Gary L. Shoesmith, “Using the Yield Curve to Time the Stock Market,” Financial Analysts Journal, vol. 58, no. 3, May/June 2002, pp. 82–90.

10 Norman Fosback, Stock Market Logic: A Sophisticated Approach to Profits on Wall Street, Chicago: Dearborn Financial Publishing, 1991.

11 Scott B. Beyer, Gerald R. Jensen, and Robert R. Johnson, “Don’t Worry about the Election,” Journal of Portfolio Management, vol. 30, no. 4, Summer 2004, pp. 101–109.

12 Ben S. Bernanke and Kenneth N. Kuttner, “What Explains the Stock Market’s Reaction to Federal Reserve Policy?,” Board of Governors of the Federal Reserve System, Finance and Economics Discussion Series 2004-16, http://www.federalreserve.gov/pubs/feds/2004/200416/200416pap.pdf.

13 Ben S. Bernanke, “Remarks by Governor Bernanke: Monetary Policy and the Stock Market: Some Empirical Results,” speech given at the Fall 2003 Banking and Finance Lecture, Widener University, Chester, PA, October 2, 2003, http://www.federalreserve.gov/boarddocs/speeches/2003/20031002/default.htm.

14 Elroy Dimson, Paul Marsh, and Mike Staunton, Credit Suisse Global Investment Returns Yearbook 2011, p. 50.

15 Jonnelle Marte, “Beyond the Money Market,” Wall Street Journal, July 2, 2011, http://online.wsj.com/article/SB10001424052702303763404576418172992611898.html.

16 Eric G. Falkenstein, “Risk and Return in General: Theory and Evidence,” June 15, 2009, p. 133, available at SSRN, http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1420356.

17 James Montier, “A Value Investor’s Perspective on Tail Risk Protection: An Ode to the Joy of Cash,” GMO White Paper, June 2011, p. 2, http://www.gmo.com/America/default.htm.

18 Meir Statman, What Investors Really Want: Discover What Drives Investor Behavior and Make Smarter Financial Decisions, New York: McGraw-Hill, 2011, pp. 144−145.

19 Ibid., p. 145.

20 David Merkel, “On Bonds in Retail Accounts,” The Aleph Blog, January 25, 2011, http://alephblog.com/2011/01/25/on-bonds-in-retail-accounts/.

21 Russel Kinnel, “New Bond Funds Act Like Bonds Only Better,” Morningstar.com, June 27, 2011, http://news.morningstar.com/articlenet/article.aspx?id=385213.

22 Kenneth L. Judd, Felix E. Kubler, and Karl H. Schmedders, “Bond Ladders and Optimal Portfolios,” (June 17, 2009). Swiss Finance Institute Research Paper No. 08-32, available at SSRN, http://ssrn.com/abstract=1289257.

23 More information can be found at http://www.treasurydirect.gov/.

24 Floyd Norris, “At Schwab, Unkept Promise to Investors,” New York Times, January 13, 2011, http://www.nytimes.com/2011/01/14/business/14norris.html.

25 Andrea Frazzini and Lasse Heje Pedersen, “Betting against Beta,” NBER Working Paper Series, vol. w16601, December 2010, available at SSRN, http://ssrn.com/abstract=1723048.

26 Dimson, Marsh, and Staunton, Credit Suisse Global Investment Returns Yearbook 2011, p. 9.

27 Falkenstein, “Risk and Return in General: Theory and Evidence.”

28 Dimson, Marsh, and Staunton, Credit Suisse Global Investment Returns Yearbook 2011, p. 9.

29 Samuel Lee, “Does Lower Risk Mean Higher Returns?,” Morningstar.com, June 27, 2011, http://news.morningstar.com/articlenet/article.aspx?id=385320.

Chapter 5

1 Peter L. Bernstein, Capital Ideas: The Improbable Origins of Modern Wall Street, New York: Free Press, 1992, p. 49.

2 Jason Zweig, Your Money & Your Brain, New York: Simon & Schuster, 2007, p. 211.

3 Meir Statman, What Investors Really Want, New York: McGraw-Hill, 2011, pp. 108–110.

4 Roger G. Ibbotson, “The Importance of Asset Allocation,” Financial Analysts Journal, vol. 66, no. 2, March/April 2010, pp. 18–20.

5 A worthwhile read in this regard is: William Bernstein, The Investor’s Manifesto, Hoboken, NJ: John Wiley & Sons, 2009.

6 Joseph Davis and Daniel Piquet, “Recessions and Balanced Portfolio Returns,” Vanguard Group, October 2011, https://personal.vanguard.com/pdf/icrrbp.pdf.

7 Kelly Greene, “ ‘Target Date’ Doesn’t Equal ‘Guaranteed’ ” Total Return, November 7, 2011, http://blogs.wsj.com/totalreturn/2011/11/07/target-date-doesnt-equal-guaranteed/.

8 Scott Willenbrock, “Diversification Return, Portfolio Rebalancing and the Commodity Return Puzzle,” Financial Analysts Journal, vol. 67, no. 4, July/August 2011, pp. 42–49.

9 Hubert Dichtl, Wolfgang Drobetz, and Martin Wambach, “Testing Rebalancing Strategies for Stock-Bond Portfolios: Where Is the Value Added of a Rebalancing Strategy?” September 15, 2011, available at SSRN, http://ssrn.com/abstract=1927764.

10 Ben Jacobsen and Sven Bouman, “The Halloween Indicator, ‘Sell in May and Go Away’: Another Puzzle,” July 1, 2001, available at SSRN, http://ssrn.com/abstract=76248.

11 Mark J. Kamstra, Lisa A. Kramer, Maurice D. Levi, and Russ R. Wermers, “Seasonal Asset Allocation: Evidence from Mutual Fund Flows,” August 1, 2011, available at SSRN, http://ssrn.com/abstract=1907904.

12 For more on using seasonality in portfolio rebalancing, see Charles Rotblut, “Use April Strength to Rebalance?,” Pragmatic Capitalism, April 2, 2011, http://pragcap.com/use-april-strength-to-rebalance.

13 David Swensen, Pioneering Portfolio Management: An Unconventional Approach to Institutional Investment, New York: Free Press, 2000, p. 138.

14 The definitive books on Lehman Brothers and LTCM are, respectively, Lawrence G. McDonald and Patrick Robinson, A Colossal Failure of Common Sense: The Inside Story of the Collapse of Lehman Brothers, New York: Crown Business, 2009, and Roger Lowenstein, When Genius Failed: The Rise and Fall of Long-Term Capital Management, New York: Random House, 2000.

15 David Merkel, “The Costs of Illiquidity,” The Aleph Blog, July 13, 2011, http://alephblog.com/2011/07/13/the-costs-of-illiquidity/.

16 A compelling version of this story can be found in Harry Markopolos, No One Would Listen: A True Financial Thriller, Hoboken, NJ: John Wiley & Sons, 2010.

Chapter 6

1 Barry Ritholtz, “How Hard Is It to Become the Michael Jordan of Trading?,” The Big Picture, July 14, 2011, http://www.ritholtz.com/blog/2011/07/how-hard-is-it-to-become-the-michael-jordan-of-trading/.

2 Mike Bellafiore, “The Failure Rate of a Proprietary Trader,” SMB Training, January 29, 2010, http://www.smbtraining.com/blog/the-failure-rate-of-a-proprietary-trader.

3 Performance figures for the Legg Mason Capital Management Value Trust—C Shares via Morningstar.com, http://quote.morningstar.com/fund/f.aspx?t=LMVTX. See also Allan Sloan, “Bill Miller Had a Great Run. But Did His Investors?” Fortune.com, December 7, 2011, http://finance.fortune.cnn.com/2011/12/07/bill-miller-legg-mason-returns/.

4 Warren Buffett, “Shareholder Letter to Berkshire Hathaway Shareholders,” 2010, http://www.berkshirehathaway.com/letters/2010ltr.pdf.

5 Wesley R. Gray, “Mission Impossible: Beating the Market over Long Periods of Time,” Turnkey Analyst, June 30, 2011, http://turnkeyanalyst.com/2011/06/mission-impossible-beating-the-market-over-long-periods-of-time/.

6 Jonah Lehrer, “Why Do Some People Learn Faster?” The Frontal Cortex, October 4, 2011, http://www.wired.com/wiredscience/2011/10/why-do-some-people-learn-faster-2/.

7 Kristi Oloffson and Stephen Gandel, “High-Frequency Trading Grows, Shrouded in Secrecy,” Time, August 5, 2009, http://www.time.com/time/business/article/0,8599,1914724,00.html.

8 Adam Warner, “Kristin Did It,” Daily Options Report, July 28, 2009, http://dailyoptionsreport.com/2009/07/28/kristin-did-it/.

9 Themis Trading, “SOES Bandits Revisited,” July 23, 2010, http://blog.themistrading.com/?p=1189.

10 Charles Kirk, “How to Trade While Away,” The Kirk Report, June 29, 2011, http://www.kirkreport.com/2011/06/29/how-to-trade-while-away/.

11 Richard Knox, “The Teen Brain: It’s Just Not Grown Up Yet,” NPR.org, March 1, 2010, http://www.npr.org/templates/story/story.php?storyId=124119468.

12 Atul Gawande, “ ‘Airline Pilot’ Protocols in Finance,” Financial Times, January 16, 2010, http://www.ft.com/intl/cms/s/2/86d97610-00ab-11df-ae8d-00144feabdc0.html; see also Gawande, The Checklist Manifesto: How to Get Things Right, New York: Profile Books, 2010.

13 “CNBC’s Million Dollar Challenge,” PRNewswire, August 22, 2011, http://www.prnewswire.com/news-releases/cnbcs-million-dollar-portfolio-challenge-128175463.html.

14 Amit Seru, Tyler Shumway, and Noah Stoffman, “Learning by Trading,” Review of Financial Studies, vol. 23, no. 2, February 2010, pp. 705–739.

15 Juhani T. Linnainmaa, “Why Do (Some) Households Trade So Much?” Review of Financial Studies, 2011, vol. 24, issue 5, pp. 1630–1666.

16 Michael Martin, The Inner Voice of Trading, Upper Saddle River, NJ: FT Press, 2011, p. 33.

17 Geir Kirkebøen, Erik Vasaasen, and Karl Halvor Teigen, “Revisions and Regret: The Cost of Changing Your Mind,” Journal of Behavioral Decision Making, 2011, forthcoming, http://onlinelibrary.wiley.com/doi/10.1002/bdm.756/abstract.

18 Tim Harford, Adapt: Why Success Always Starts with Failure, New York: Farrar, Straus and Giroux, 2011.

19 Jack D. Schwager, Market Wizards: Interviews with Top Traders, New York: NYIF Corp., 1989, p. 439.

Chapter 7

1 Don Phillips, “You Say You Want a Revolution?” Morningstar Advisor, August 4, 2011, http://www.morningstar.com/advisor/t/45786557/you-say-you-want-a-revolution.htm.

2 Matt Hougan, “The Cheapest ETF Portfolio Gets Cheaper,” IndexUniverse, February 17, 2011, http://www.indexuniverse.com/sections/blog/8821-the-cheapest-etf-portfolio-gets-cheaper.html.

3 Abraham Bailin, “Tax-Loss Harvesing: A Tactical Strategy to Add Incremental Value,” Morningstar.com, November 2, 2011, http://news.morningstar.com/articlenet/article.aspx?id=439379.

4 Matt Hougan, “How Long Can You Hold Leveraged ETFs?,” Journal of Indexes, March/April 2009, http://www.indexuniverse.com/publications/journalofindexes/joi-articles/5421-how-long-can-you-hold-leveraged-etfs.html.

5 James Hamilton, “Changing Behavior of Crude Futures Prices, “ Econbrowser, September 21, 2011, http://www.econbrowser.com/archives/2011/09/changing_behavi.html.

6 Dennis Hudachek, “The Complete Guide to ETF Taxation,” IndexUniverse.com, November 3, 2011, http://www.indexuniverse.com/sections/white-papers/10172-the-complete-guide-to-etf-taxation.html.

7 McKinsey & Company, “The Second Act Begins for ETFs,” August 2011, p. 4, http://www.mckinsey.com/App_Media/Reports/Financial_Services/ETF_SecondActFINAL.pdf.

8 Phillips, “You Say You Want a Revolution?”

9 Ibid.

10 McKinsey & Company, “The Second Act Begins for ETFs,” p. 5.

11 Ibid., p. 10.

12 Liam Pleven and Carolyn Cui, “Behind Gold’s New Glister: Miner’s Big Bet on a Fund,” Wall Street Journal, November 25, 2010, http://online.wsj.com/article/SB10001424052748703628204575618602535514506.html.

13 Howard Simons, “ETFs Change Corporate Bond Behavior,” Minyanville.com, June 9, 2010, http://www.minyanville.com/businessmarkets/articles/bonds-corporate-bonds-etfs-credit-default/6/9/2010/id/28617.

14 McKinsey & Company, “The Second Act Begins for ETFs,” p. 19.

15 Olivier Ludwig, “Pimco Total Return ETF to Cost 0.55%,” IndexUniverse.com, July 7, 2011, http://www.indexuniverse.com/sections/features/9521-pimco-total-return-etf-to-cost-055.html.

16 Jackie Noblett, “Eaton Vance Takes the Wraps Off Its Active ETF Patent,” Financial Times, August 16, 2011, http://www.ft.com/intl/cms/s/0/fc24d7a8-c809-11e0-9501-00144feabdc0.html.

17 David F. Swensen, “The Mutual Fund Merry-Go-Round,” New York Times, August 13, 2011, http://www.nytimes.com/2011/08/14/opinion/sunday/the-mutual-fund-merry-go-round.html.

18 Phillips, “You Say You Want a Revolution?”

19 David Merkel, “The Good ETF,” The Aleph Blog, October 9, 2009, http://alephblog.com/2009/10/09/the-good-etf/.

Chapter 8

1 Ron Lieber, “Resisting the Urge to Run Away from Home,” New York Times, August 5, 2011, http://www.nytimes.com/2011/08/06/your-money/stocks-and-bonds/resisting-the-urge-to-run-away-from-home.html.

2 Gur Huberman, “Familiarity Breeds Investment,” Review of Financial Studies, vol. 14, no. 3, Fall 2001, pp. 659–680.

3 Jason Zweig, Your Money & Your Brain: How the New Science of Neuroeconomics Can Help Make You Rich, New York: Simon & Schuster, 2007, p. 95.

4 Claude B. Erb, Campbell R. Harvey, and Tadas E. Viskanta, “Forecasting International Equity Correlations,” Financial Analysts Journal, vol. 50, no. 6, November/December 1994, pp. 32–45.

5 Chun-hung Chen, Tom Goodwin, and Wenling Lin, “What Matters in International Equity Diversification?” July 23, 2011, available at SSRN, http://ssrn.com/abstract=1894346.

6 Fareed Zakaria, “The Debt Deal’s Failure,” Time, August 15, 2011, p. 32.

7 Justin Fox, “The End of American (Economic) Exceptionalism,” Harvard Business Review, August 8, 2011, http://blogs.hbr.org/fox/2011/08/the-end-of-american-economic-e-1.html.

8 Clifford S. Asness, Roni Israelov, and John M. Liew, “International Diversification Works (Eventually),” Financial Analysts Journal, vol. 67, no. 3, May/June 2011, pp. 24–38.

9 Ibid., p. 34.

10 James Picerno, “What a Year … What a Decade!” The Capital Spectator, January 3, 2011, http://www.capitalspectator.com/archives/2011/01/what_a_yearwhat.html.

11 “Are Emerging Markets the Next Developed Markets?” Blackrock Investment Institute, August 2011, https://www2.blackrock.com/webcore/litService/search/getDocument.seam?contentId=1111146576&Source=SEARCH&Venue=PUB_INS.

12 Cynthia Lin, “Emerging Trend: Seeking Safe Havens beyond Treasurys,” Wall Street Journal, August 29, 2011, http://online.wsj.com/article/SB10001424053111904875404576532852868190550.html.

13 John Authers, The Fearful Rise of Markets: Global Bubbles, Synchronized Meltdowns, and How to Prevent Them in the Future, Upper Saddle River, NJ: FT Press, 2010.

14 Lawrence Speidell, Frontier Market Equity Investing: Finding the Winners of the Future, The Research Foundation of CFA Institute, 2011, Charlottesville, VA, pp. 48–50.

15 Ben R. Marshall, Nhut H. Nguyen, and Visaltanachoti Nuttawat, “Frontier Market Diversification and Transaction Costs,” October 11, 2011, available at SSRN, http://ssrn.com/abstract=1942592.

16 Christopher Philips, Roger Aliaga-Diaz, Joseph Davis, and Francis Kinniry, “Individual Country or Broad-Market Exposure?” Journal of Indexes, September/October 2011, pp. 18–21.

17 Michael R. King and Dagfinn Rime, “The $4 Trillion Question: What Explains FX Growth since the 2007 Survey?” BIS Quarterly Review, December 2010, p. 27, http://www.bis.org/publ/qtrpdf/r_qt1012e.pdf.

18 Ibid., p. 39.

19 Nathaniel Popper, “Foreign Currency Trading Is Easy—an Easy Way to Lose Money,” Los Angeles Times, April 3, 2011, http://articles.latimes.com/2011/apr/03/business/la-fi-amateur-currency-trading-20110403.

20 Joshua Brown, “Inside the Currency Boiler Rooms,” The Reformed Broker, April 9, 2011, http://www.thereformedbroker.com/2011/04/09/inside-the-currency-boiler-rooms/.

21 Momtchil Pojarliev and Richard M. Levin, “Do Professional Currency Managers Beat the Benchmark?” Financial Analysts Journal, vol. 64, no. 5, September/October 2008, pp. 18–31.

22 Kuntara Pukthuanthong-Le and Lee R. Thomas, III, “Weak-Form Efficiency in Currency Markets,” Financial Analysts Journal, vol. 64, no. 3, May/June 2008, pp. 31–51.

Chapter 9

1 John C. Bogle, “The Lessons of History—Endowment and Foundation Investing Today,” September 12, 2011, http://johncbogle.com/wordpress/wp-content/uploads/2011/09/NMS-9-12-12.pdf.

2 Amy Or, “Investors Show Taste for Hedge Funds,” Wall Street Journal, July 20, 2011, http://online.wsj.com/article/SB10001424052702303795304576455763504575614.html.

3 Roger G. Ibbotson, Peng Chen, and Kevin X. Zhu, “The ABCs of Hedge Funds: Alphas, Betas and Costs,” Financial Analysts Journal, vol. 67, no. 1, January/February 2011, pp. 15–25.

4 Mark Gongloff, “Hedge Funds Kiss Their Alpha Goodbye,” MarketBeat, November 21, 2011, http://blogs.wsj.com/marketbeat/2011/11/21/hedge-funds-kiss-their-alpha-goodbye/.

5 Ilia D. Dichev and Gwen Yu, “Higher Risk, Lower Returns: What Hedge Fund Investors Really Earn,” July 1, 2009, Journal of Financial Economics, forthcoming, available at SSRN, http://ssrn.com/abstract=1354070.

6 Whitney Tilson, “Notes from the 2004 Berkshire Hathaway Annual Shareholders Meeting,” May 1, 2004, http://tilsonfunds.com/brkmtg04notes.doc.

7 Carol J. Loomis, “Buffett’s Big Bet,” Fortune, June 4, 2008, http://money.cnn.com/2008/06/04/news/newsmakers/buffett_bet.fortune/.

8 “Many Unhappy Returns,” The Economist, August 20, 2011, http://www.economist.com/node/21526326.

9 Doug Friedenberg, “Introducing the New 2 and 20 Index Funds,” All About Alpha, November 27, 2011, http://allaboutalpha.com/blog/2011/11/27/introducing-the-new-2-and-20-index-funds/.

10 Mebane T. Faber and Eric W. Richardson, The Ivy Portfolio, Hoboken, N.J: John Wiley & Sons, 2009.

11 Christopher Faille, “What the Dickens Do Investors Want?” All About Alpha, September 1, 2011, http://allaboutalpha.com/blog/2011/09/01/what-the-dickens-do-investors-want/.

12 Robert S. Harris, Tim Jenkinson, and Steven N. Kaplan, “Private Equity Performance: What Do We Know?” September 22, 2011, Fama-Miller Working Paper; Chicago Booth Research Paper No. 11-44; Darden Business School Working Paper No. 1932316, available at SSRN, http://ssrn.com/abstract=1932316.

13 Francesco Franzoni, Eric Nowak, and Ludovic Phalippou, “Private Equity Performance and Liquidity Risk,” Journal of Finance, 2011, forthcoming.

14 Steven N. Kaplan and Antoinette Schoar, “Private Equity Performance: Returns, Persistence and Capital,” NBER Working Paper Series, vol. w9807, June 2003, available at SSRN, http://ssrn.com/abstract=420321.

15 David F. Swensen, Unconventional Success: A Fundamental Approach to Personal Investment, New York: Free Press, 2005, p. 147.

16 Options Clearing Corporation, Annual Volume and Open Interest Statistics, September 8, 2011, http://www.theocc.com/webapps/historical-volume-query.

17 Jared Woodard, “What Options Are Good For,” Condor Options, September 8, 2011, http://www.condoroptions.com/index.php/options-education/what-options-are-good-for/.

18 Robert Litterman, “Who Should Hedge Tail Risk?” Financial Analysts Journal, vol. 67, no. 3, May/June 2011, pp. 6–11.

19 Jared Woodard, Options and the Volatility Risk Premium, Upper Saddle River, NJ: FT Press, 2011, p. 5.

20 Gary B. Gorton, and K. Geert Rouwenhorst, “Facts and Fantasies about Commodity Futures,” Financial Analysts Journal, vol. 62, no. 2, March/April 2006, pp. 47–68; Claude B. Erb, and Campbell R. Harvey, “The Strategic and Tactical Value of Commodity Futures,” Financial Analysts Journal, vol. 62, no. 2, March/April 2006, pp. 69–97.

21 “Back to the Futures,” The Economist, September 17, 2011, http://www.economist.com/node/21529073.

22 Joelle Miffre, “Long-Short Commodity Investing: Implications for Portfolio Risk and Market Regulation,” August 31, 2011, available at SSRN, http://ssrn.com/abstract=1920454.

23 Azam Ahmed, “Sluggish Market Stalls Funds That Thrive on Direction,” Dealbook, July 14, 2011, http://dealbook.nytimes.com/2011/07/14/sluggish-market-stalls-funds-that-thrive-on-direction/.

24 Kathryn M. Kaminski, “In Search of Crisis Alpha: A Short Guide to Investing in Managed Futures,” CME Group, September 2011, http://www.cmegroup.com/education/featured-reports/in-search-of-crisis-alpha.html.

25 Geetesh Bhardwaj, Gary B. Gorton, and K. Geert Rouwenhorst, “Fooling Some of the People All of the Time: The Inefficient Performance and Persistence of Commodity Trading Advisors,” October 6, 2008, Yale ICF Working Paper no. 08-21, available at SSRN, http://ssrn.com/abstract=1279594.

26 Bradford Case, Yawei Yang, and Yildiray Yildirim, “Dynamic Correlations among Asset Classes: REIT and Stock Returns,” February 5, 2011, Journal of Real Estate Finance and Economics, forthcoming, available at SSRN, http://ssrn.com/abstract=1755592.

27 Mary Pilon, Liam Pleven, and Jason Zweig, “Gold Even Reigns on Stock Market,” Wall Street Journal, August 23, 2011, http://online.wsj.com/article/SB10001424053111904279004576524890803937206.html.

28 Dennis Jacboe, “Americans Choose Gold as the Best Long-Term Investment,” Gallup, August 25, 2011, http://www.gallup.com/poll/149195/Americans-Choose-Gold-Best-Long-Term-Investment.aspx.

29 Chanyaporn Chanjaroen, Nicholas Larkin, and Debarati Roy, “Bullion Vaults Run Out of Space on Gold Rally,” Bloomberg, September 21, 2011, http://www.bloomberg.com/news/2011-09-21/bullion-vaults-running-out-of-space-as-gold-rally-accelerates-commodities.html.

30 Nicholas Larkin, “Gold Rises as Growth, Debt Concerns Boost Demand, Bloomberg, September 5, 2011, http://www.bloomberg.com/news/2011-09-05/gold-climbs-a-3rd-day-as-u-s-europe-economic-concerns-drive-haven-demand.html.

31 Jacob Goldstein and David Kestenbaum, “A Chemist Explains Why Gold Beat Out Lithium, Osmium, Einsteinium …” Planet Money, November 19, 2010, http://www.npr.org/blogs/money/2011/02/15/131430755/a-chemist-explains-why-gold-beat-out-lithium-osmium-einsteinium.

32 Eddy Elfenbein, “A Possible Model for Gold,” Crossing Wall Street, October 6, 2010, http://www.crossingwallstreet.com/archives/2010/10/a-model-to-explain-the-price-of-gold.html.

33 Peter L. Bernstein, The Power of Gold: The History of an Obsession, Hoboken, NJ: John Wiley & Sons, 2000, p. 5.

Chapter 10

1 Barry Ritholtz, “Apprenticed Investor: The Folly of Forecasting,” TheStreet.com, July 7, 2005, http://www.thestreet.com/story/10226887/1.html.

2 Philip Tetlock, Expert Political Judgment: How Good Is It? How Can We Know? Princeton, NJ: Princeton University Press, 2005.

3 Transcript, “The Folly of Prediction,” Freakonomics Radio, June 24, 2011, http://freakonomicsradio.com/hour-long-special-the-folly-of-prediction.html.

4 Jerker Denrell and Christina Fang, “Predicting the Next Big Thing: Success as a Signal of Poor Judgment,” Management Science, vol. 56, no. 10, June 7, 2010, pp. 1653–1667, available at SSRN, http://ssrn.com/abstract=1621800.

5 James Montier, “Seven Sins of Fund Management,” November 18, 2005, available at SSRN, http://ssrn.com/abstract=881760.

6 Ignacio de la Torre, “Astrology and Economic Forecasts,” The Finance Professionals Post, July 13, 2011, http://post.nyssa.org/nyssa-news/2011/07/astrology-and-economic-forecasts.html.

7 Jason Zweig, Your Money & Your Brain: How the New Science of Neuroeconomics Can Help Make You Rich, New York: Simon & Schuster, 2007, pp. 65–67.

8 Steven D. Levitt and Thomas J. Miles, “The Role of Skill vs. Luck in Poker: Evidence from the World Series of Poker,” NBER Working Paper no. 17023, May 2011, http://www.nber.org/papers/w17023.

9 Eugene F. Fama and Kenneth R. French, “Luck versus Skill in Mutual Fund Performance,” Fama/French Forum, November 30, 2009, http://www.dimensional.com/famafrench/2009/11/luck-versus-skill-in-mutual-fund-performance-1.html.

10 Michael Mauboussin, “Untangling Skill and Luck,” Columbia Ideas at Work, May 25, 2011, http://www4.gsb.columbia.edu/ideasatwork/feature/7317814/Untangling+Skill+and+Luck.

11 Aswath Damodaran, “Luck versus Skill: How Can You Tell?,” Musings on Markets, March 12, 2011, http://aswathdamodaran.blogspot.com/2011/03/luck-versus-skill-how-can-you-tell.html.

12 Andrew Mauboussin and Samuel Arbesman, “Differentiating Skill and Luck in Financial Markets with Streaks,” February 3, 2011, available at SSRN, http://ssrn.com/abstract=1664031.

13 Michael Mauboussin, “Untangling Skill and Luck,” Mauboussin on Strategy, Legg Mason Capital Management, July 15, 2010, www.lmcm.com/goto.asp?LPObjID=868299.

14 Howard Marks, The Most Important Thing: Uncommon Sense for the Thoughtful Investor, New York: Columbia Business School Publishing, 2011, p. 138.

15 “Mental Model: Confirmation Bias,” Farnam Street, http://www.farnamstreetblog.com/mental-model-confirmation-bias/.

16 Meir Statman, What Investors Really Want, New York: McGraw-Hill, 2011, p. 32.

17 Michael J. Mauboussin, Think Twice: Harnessing the Power of Counterintuition, Boston: Harvard Business Press, 2009, p. 28.

18 Eli Pariser, The Filter Bubble: What the Internet Is Hiding from You, New York: Penguin Press, 2011, p. 88.

19 Hugo Mercier, “The Argumentative Theory,” Edge.org, May 3, 2011, http://www.edge.org/documents/archive/edge342.html.

20 “Women in Fund Management,” The National Council for Research on Women, 2009, http://www.ncrw.org/sites/ncrw.org/files/WIFM%20Report.pdf, p. 7.

21 Stefan Ruenzi and Alexandra Niessen-Ruenzi, “Sex Matters: Gender and Prejudice in the Mutual Fund Industry,” October 13, 2011, Paris, December 2011 Finance Meeting EUROFIDAI–AFFI, available at SSRN, http://ssrn.com/abstract=1943576.

22 Alexandra Niessen and Stefan Ruenzi, “Sex Matters: Gender Differences in a Professional Setting,” Working paper, February 2007, http://www.cfr-cologne.de/download/workingpaper/cfr-06-01.pdf.

23 Brad M. Barber and Terrance Odean, “Boys Will Be Boys: Gender, Overconfidence and Common Stock Investment,” Quarterly Journal of Economics, February 2001, pp. 261–292.

24 “Women in Fund Management,” p. 11.

25 Ibid., p. 12.

26 Jason Palmer, “Trader’s Raging Hormones Cause Stock Market Swings,” New Scientist, April 14, 2008, http://www.newscientist.com/article/dn13664-traders-raging-hormones-cause-stock-market-swings.html.

27 Ibid.

28 LouAnn Lofton, Warren Buffett Invests like a Girl, and Why You Should Too: 8 Essential Principles Every Investor Needs to Create a Profitable Portfolio, New York: HarperBusiness, 2011, http://www.forbes.com/2011/06/21/warren-buffett-invests-like-a-girl-book-excerpt.html.

29 Jason Zweig, “For Mother’s Day, Give Her Reins to the Portfolio,” Wall Street Journal, May 9, 2009, http://online.wsj.com/article/SB124181915279001967.html.

30 Annamaria Lusardi and Olivia S. Mitchell, “The Outlook for Financial Literacy,” Pension Research Council WP 2010-25, October 20, 2010, available at SSRN, http://ssrn.com/abstract=1695139.

31 Lauren E. Willis, “Against Financial-Literacy Education,” Iowa Law Review, vol. 94, November 2008, p. 272.

32 Stephanie Overman, “Do You Actually Know What’s In Your Retirement Fund?” Fortune, October 18, 2011, http://management.fortune.cnn.com/2011/10/18/do-you-actually-know-whats-in-your-retirement-fund/.

33 Philip Z. Maymin and Gregg S. Fisher, “Preventing Emotional Investing: An Added Value of an Investment Advisor,” Journal of Wealth Management, Spring 2011, p. 35.

34 Ibid., p. 43.

35 Charles D. Ellis, “The Winner’s Game,” Financial Analysts Journal, vol. 67, no. 4, July/August 2011, p. 6.

36 “Asking the Right and Wrong Questions,” Dan Ariely, August 30, 2011, http://danariely.com/2011/08/30/asking-the-right-and-wrong-questions/.

37 Utpal Bhattacharya, Andreas Hackethal, Simon Kaesler, Benjamin Loos, and Steffen Meyer, “Is Unbiased Financial Advice to Retail Investors Sufficient? Answers from a Large Field Study,” September 23, 2011, available at SSRN, http://ssrn.com/abstract=1669015.

Chapter 11

1 Annamaria Lusardi, “Americans’ Financial Capability,” NBER Working Paper Series, vol. w17103, June 2011, available at SSRN, http://ssrn.com/abstract=1857806.

2 Annamaria Lusardi and Olivia S. Mitchell, “Financial Literacy around the World: An Overview,” NBER Working Paper Series, vol. w17107, June 2011, available at SSRN, http://ssrn.com/abstract=1857810.

3 Lauren E. Willis, “Against Financial-Literacy Education,” Iowa Law Review. vol. 94, November 2008, pp. 197–284.

4 Fischer Black, “Noise,” Journal of Finance, vol. XLI, no. 3, July 1986, p. 534.

5 Carl Richards, “When Television Feeds the Urge to Trade,” Bucks Blog, June 6, 2011, http://bucks.blogs.nytimes.com/2011/06/06/when-television-feeds-the-urge-to-trade/.

6 “Money in Motion,” CNBC, http://www.cnbc.com/id/41157529/.

7 Felix Salmon, “Market Reports Are Hurting America,” Reuters, October 10, 2011, http://blogs.reuters.com/felix-salmon/2011/10/10/market-reports-are-hurting-america/.

8 Nassim Nicholas Taleb, Fooled by Randomness, New York: Random House, 2005, p. 60.

9 Mark Gongloff, “Stop Reading the News,” MarketBeat, May 26, 2011, http://blogs.wsj.com/marketbeat/2011/05/26/stop-reading-the-news-dylan-grice/.

10 Vitaliy Katsenelson, “A Few Simple Rules for Money Managers to Improve Performance,” Institutional Investor, October 3, 2011, http://www.institutionalinvestor.com/Article/2911282/Search/A-Few-Simple-Rules-For-Money-Managers-to-Improve.html.

11 Rolf Dobelli, “Avoid News: Toward a Healthy News Diet,” 2010, p. 6, http://dobelli.com/wp-content/uploads/2010/08/Avoid_News_Part1_TEXT.pdf.

12 Ibid., p. 5.

13 My blog Abnormal Returns has been aggregating financial news and opinion since its inception. You can therefore take these views with a big grain of salt.

14 Peter Steiner, “On the Internet, No One Knows You Are a Dog,” New Yorker, July 5, 1993, http://www.cartoonbank.com/1993/on-the-internet-nobody-knows-youre-a-dog/invt/106197/.

15 Sturgeon’s Law, Wikipedia, http://en.wikipedia.org/wiki/Sturgeon’s_Law.

16 Milton Friedman, “The Methodology of Positive Economics,” Essays in Positive Economics, Chicago: University of Chicago Press, 1966, p. 4.

17 Katie Benner, “Hedge Fund Confab Delivers Small Ideas, Not Fireworks,” Fortune, May 26, 2011, http://finance.fortune.cnn.com/2011/05/26/hedge-fund-confab-delivers-small-ideas-not-fireworks/.

18 Joshua Brown, “Oh No! They’re Talking Their Books!” The Reformed Broker, June 5, 2011, http://www.thereformedbroker.com/2011/06/05/oh-no-theyre-talking-their-books/.

19 James Altucher, “How to Save the World from Mutually Assured Destruction (MAD),” The Altucher Confidential, April 5, 2011, http://www.jamesaltucher.com/2011/04/how-to-save-the-world-from-mutual-assured-destruction-mad/.

20 Wesley R. Gray and Andrew E. Kern, “Talking Your Book: Social Networks and Price Discovery,” February 22, 2011, available at SSRN, http://ssrn.com/abstract=1767452.

21 Mebane T. Faber and Eric W. Richardson, The Ivy Portfolio, Hoboken, NJ: John Wiley & Sons, 2008, pp. 171–186.

22 Jeff Matthews, “Budding Buffetts: Where to Begin?” CNNMoney.com, November 14, 2008, http://money.cnn.com/2008/11/14/news/newsmakers/buffett_excerpt.fortune/index.htm.

23 There are two great biographies of Buffett: Snowball by Alice Schroder, New York: Random House, 2008, and Buffett: Making of an American Capitalist by Roger Lowenstein, New York: Random House, 1995.

24 Michael J. Mauboussin, More Than You Know: Finding Financial Wisdom in Unconventional Places, New York: Columbia University Press, 2006, p. 209.

25 Andrew Haldane, “Patience and Finance,” Bank of England, September 2, 2010, http://www.bankofengland.co.uk/publications/speeches/2010/speech445.pdf.

26 Andrew Haldane and Richard Davies, “The Short Long,” Bank of England, May 2011, p. 4, http://www.bankofengland.co.uk/publications/speeches/2011/speech495.pdf.

27 Andrew Ang and Knut N. Kjaer, “Investing for the Long Run,” November 11, 2011, available at SSRN, http://ssrn.com/abstract=1958258.

28 Merriam-Webster.com, http://www.merriam-webster.com/dictionary/consilience.

Chapter 12

1 Carl Richards, “Why It Shouldn’t Have Been a Lost Decade for Investors,” Bucks Blog, August 31, 2011, http://bucks.blogs.nytimes.com/2011/08/31/why-it-shouldnt-have-been-a-lost-decade-for-investors/.

2 James Picerno, “What a Year … What a Decade!” Capital Spectator, January 3, 2011, http://www.capitalspectator.com/archives/2011/01/what_a_yearwhat.html.

3 Floyd Norris, “Volatile, but Nearly Running in Place,” New York Times, November 4, 2011, http://www.nytimes.com/2011/11/05/business/economy/market-volatility-aplenty-and-a-change-may-be-afoot.html.

4 Jason Zweig, “Too Flustered to Trade: A Portrait of the Angry Investor,” Wall Street Journal, August 20, 2011, http://online.wsj.com/article/SB10001424053111904070604576518584290614602.html.

5 Andrew Haldane, “Risk Off,” Bank of England, August 18, 2011, p. 6, http://www.bankofengland.co.uk/publications/speeches/2011/speech513.pdf.

6 Satyajit Das, Extreme Money: Masters of the Universe and the Cult of Risk, Upper Saddle River, NJ: FT Press, 2011.

7 Zheng Liu and Mark M. Spiegel, “Boomer Retirement: Headwinds for U.S. Equity Markets?” FRBSF Economic Letter, no. 26, August 22, 2011, http://www.frbsf.org/publications/economics/letter/2011/el2011-26.html.

8 John Ameriks, “Maybe a Lost Decade for Stocks, but Not for Investors,” Vanguard Blog, September 28, 2011, http://www.vanguardblog.com/2011.09.28/maybe-a-lost-decade-for-stocks-but-not-for-investors.html.

9 Russel Kinnel, “How Expense Ratios and Star Ratings Predict Success,” Morningstar, August 10, 2010, http://advisor.morningstar.com/articles/fcarticle.asp?docId=20016.

10 Lisa Gansky, “Do More, Own Less: A Grand Theory of the Sharing Economy,” The Atlantic, August 25, 2011, http://www.theatlantic.com/business/archive/2011/08/do-more-own-less-a-grand-theory-of-the-sharing-economy/244141/.

11 Derek Thompson, “How Steve Case and His Company Are Driving the Sharing Economy,” The Atlantic, November 9, 2011, http://www.theatlantic.com/business/archive/2011/11/how-steve-case-and-his-company-are-driving-the-sharing-economy/247997/.

12 Veronica Dagher, “Tax-Wise Funds vs. ETFs,” Wall Street Journal, December 5, 2011, http://online.wsj.com/article/SB10001424052970203499704576625343248337576.html.

13 Wesley R. Gray, “Taxes Are More Important Than Alpha,” Turnkey Analyst, July 9, 2011, http://turnkeyanalyst.com/2011/07/taxes-are-more-important-than-alpha/.

14 Jason Zweig, “Look before You Leap: Tax-Loss Harvesting Can Backfire,” Wall Street Journal, December 11, 2010, http://online.wsj.com/article/SB10001424052748703727804576011482935521922.html.

15 Christine Benz, “What Goes Where? The Art of Asset Location,” Morningstar.com, March 14, 2011, http://news.morningstar.com/articlenet/article.aspx?id=373565.

16 EZLaw Wills and Estate Planning Omnibus Survey, July 19, 2011, http://blog.ezlaw.com/?p=387.

17 John Tierney, “Do You Suffer from Decision Fatigue?” New York Times, August 17, 2011, http://www.nytimes.com/2011/08/21/magazine/do-you-suffer-from-decision-fatigue.html.

18 Ibid.

19 Robert Epstein, “Fight the Frazzled Mind,” Scientific American, August 22, 2011, http://www.scientificamerican.com/article.cfm?id=fight-the-frazzled-mind.

20 Umair Haque, “The Best Investment You Can Make,” Harvard Business Review, June 24, 2011, http://blogs.hbr.org/haque/2011/06/the_best_investment_you_can_ma.html.

21 Ibid.

22 Tali Sharot, “The Optimism Bias,” Time, May 28, 2011, http://www.time.com/time/health/article/0,8599,2074067,00.html.

23 Ibid.

Conclusion

1 Mark Hulbert, “Market Undergoing a Huge Change,” Marketwatch.com, September 30, 2011, http://www.marketwatch.com/story/market-undergoing-huge-change-2011-09-30.

2 Carl Richards, “To Those Who Have Lost Faith in Investing,” Bucks Blog, August 15, 2011, http://bucks.blogs.nytimes.com/2011/08/15/to-those-who-have-lost-faith-in-investing/.

3 Ben Steverman, “Five Questions: Jack Bogle, Vanguard Index Pioneer,” Bloomberg, September 27, 2011, http://www.bloomberg.com/news/2011-09-19/five-questions-for-jack-bogle-vanguard-index-fund-pioneer.html.

4 David Merkel, “Advice to a Friend, Again,” The Aleph Blog, September 22, 2011, http://alephblog.com/2011/09/22/advice-to-a-friend-again/.