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A Wealth of Common Sense: Why Simplicity Trumps Complexity in Any Investment Plan



"The content of this book lives up to the title. Ben Carlson has mastered the art of exposing the few big topics that matter most to investors, leaving out the complicated—but often unnecessary—topics found in other investment books. Any investor, from a beginner to a professional, can learn a tremendous amount from A Wealth of Common Sense."
—Morgan Housel, columnist for The Motley Fool and the Wall Street Journal

"Through hard work Ben Carlson has rapidly established himself as one of the nation's premier investment bloggers. In his new book, A Wealth of Common Sense, Carlson cements his position as a prudent and practical voice for the individual investor."
—Tadas Viskanta, founder and editor of Abnormal Returns and author of Abnormal Returns: Winning Strategies from the Frontlines of the Investment Blogosphere

"Ben Carlson seemingly came out of nowhere and took the financial commentariat by storm with his straightforward, insightful blog posts. True investing wisdom—born out of experience and success—cannot be faked; it must be earned. This is precisely the type of wisdom that comes oozing out of every chapter in A Wealth Of Common Sense."
—Downtown Josh Brown, author of the bestselling book Backstage Wall Street and The Reformed Broker blog, star of CNBC's The Halftime Report,


Cut through the confusion and noise and focus on what actually matters. A Wealth of Common Sense clears the air and gives you the insight you need to become a smarter, more successful investor.

Complexity is often used as a mechanism for talking investors into unnecessary purchases, when all most need is a deeper understanding of conventional options. This book explains which issues are important—and which are not.

Take a look inside for guidance on how to:

  • Keep up with—or beat—professional money managers
  • Exploit stock market volatility to your utmost advantage
  • Learn where advisors and consultants fit into a smart strategy
  • Build a portfolio that makes sense for your particular situation

BEN CARLSON, CFA, has spent his career managing institutional portfolios for endowments, foundations, and pension plans. He is also the creator and author of the blog A Wealth of Common Sense ( and is a Yahoo! Finance Contributor.

Introduction: Why Simplicity Is the New Sophistication xi

Chapter 1 The Individual Investor versus the Institutional Investor 1

Institutional versus Individual Investors 5

We’re All Human 9

Extra Zeroes 12

Long-Term Thinking 13

Key Takeaways from Chapter 1 16

Notes 16

Chapter 2 Negative Knowledge and the Traits Required to Be a Successful Investor 19

The Biggest Problem of All 25

Traits of a Successful Investor 27

Standing on the Shoulders of Giants 33

Key Takeaways from Chapter 2 38

Notes 38

Chapter 3 Defining Market and Portfolio Risk 41

Volatility: Risk or Opportunity? 48

Understanding Rule Number 1 of Investing 49

The Risk Tolerance Questionnaire 50

Risk versus Uncertainty 52

Risk Aversion 54

The Cycle of Fear and Greed 58

Key Takeaways from Chapter 3 60

Notes 60

Chapter 4 Market Myths and Market History 63

Myth 1: You Have to Time the Market to Earn Respectable Returns 66

Myth 2: You Have to Wait until Things Get Better Before You Invest 67

Myth 3: If Only You Can Time the Next Recession, You Can Time the Stock Market 68

Myth 4: There’s a Precise Pattern in Historical Market Cycles 70

Myth 5: Stocks and Bonds Always Move in Different Directions 71

Myth 6: You Need to Use Fancy Black Swan Hedges in a Time of Crisis 73

Myth 7: Stocks Are Riskier Than Bonds 74

Myth 7a: Bonds Are Riskier Than Stocks 75

Myth 8: The 2000s Were a Lost Decade for the Stock Market 76

Myth 9: New All-Time Highs in the Stock Market Mean It’s Going to Crash 77

Myth 10: A Yield on an Investment Makes It Safer 78

Myth 11: Commodities Are a Good Long-Term Investment 80

Myth 12: Housing Is a Good Long-Term Investment 81

Myth 13: Investing in the Stock Market Is Like Gambling at a Casino 82

Key Takeaways from Chapter 4 84

Notes 85

Chapter 5 Defining Your Investment Philosophy 87

Degrees of Active and Passive Management 90

The Benefits of Doing Nothing 94

Exercising Your Willpower 96

Simplicity Leads to Purity 98

Defining Yourself as an Investor 99

Key Takeaways from Chapter 5 100

Notes 101

Chapter 6 Behavior on Wall Street 103

Threading the Needle 107

So Never Invest in Active Funds? 112

The Most Important Thing 114

Key Takeaways from Chapter 6 115

Notes 116

Chapter 7 Asset Allocation 119

Asset Allocation Decisions 121

Why Diversification Matters 123

Mean Reversion and Rebalancing 131

Risk Factors, Value Investing, and the Power of Patience 135

The Value Premium 136

The Rise of Smart Beta 138

How to See It Through 143

Key Takeaways from Chapter 7 146

Notes 147

Chapter 8 A Comprehensive Investment Plan 149

Why Do You Need a Plan? 150

The Investment Policy Statement (IPS) 152

Lifecycle Investing 154

Beating the Market 158

Saving Money 159

Taxes and Asset Location 160

Key Takeaways from Chapter 8 161

Notes 161

Chapter 9 Financial Professionals 163

Vetting Your Sources of Financial Advice 166

Outsourcing to a Financial Professional 168

What a Financial Advisor Can Do for You 171

How to Be a Good Client 174

Benchmarking and Ongoing Maintenance 176

Alternatives 177

Key Takeaways from Chapter 9 178

Notes 178

Conclusion 179

Book List 186

Notes 187

About the Author 189

Index 191