Main Lesson of the Book: Before investing ask yourself three questions to verify if it’s a good idea.
This was a very interesting book in that it forcefully looks at the myths surrounding investing. Ken Fisher wants you as the reader to not just accept the things you hear as fact, but rather wants you to probe and test the limits of what you would deem investing reality. To do so he suggests you ask yourself the following three question:
- What do you believe that is actually false?
- What can you fathom that others find unfathomable?
- What is your brain doing to blindside you?
The only three questions that still count are tools you can use to make sure you look for possible wins in the world of investing. The first question really tackles the myths that are prevalent in the securities world. The world of stocks is based on supply and demand and thus it is based on people. Because it’s based on people the market tends to create its own stories on why things happen. But the problem with people is that they tend to look for patterns where there are none. These patterns that don’t really exist tend to then become myths. Question one asks you to challenge these myths. One of the myths this book tries to debunk is the concept of oil prices having a meaningful impact on the economy and thus the stock market. Ken Fisher forces us to look behind the social agreement of this statement and actually look at history if this is correct. The book clearly states through statistical information mining, that this myth is one that you should use as a basis for making investment decisions.
Question two is a rather hard one, because it requires you to think outside the box. And the box is there for a reason, it was made from your experiences and your life. To step out of the box means you will have to actually try and not think how you usually think. This is extremely hard because humans love to think as the group thinks, act as the group acts. But in the stock market this can actually kill your portfolio really quick. One key point that you should always take into consideration is that once something is in the news it is no longer a valid source of information that will help you answer question two. The stock market or as The Only Three Questions That Still Count calls it: The great humiliator is really quick with implementing the information known to the prices of the stocks. So once something is common knowledge, it very quickly be taken into account and no longer impact the stock. That’s why insider trading is illegal, because that will allow only a select few to benefit from the movement of the stock price.
The last question is without a doubt my favorite question. Ken Fisher uses the caveman theory to describe humanities illogical fear of the unknown and failing. So our brains are hot wired to seek stimuli and reject regret. This is what is called Loss Aversion. People would rather make sure they don’t lose then actually making sure they win. Because if you were to make 50% profit on one stock and the next day lose 30% of it, you would still be up 20% but your brain would focus more on the loss than on the end gain. Your brain knows this, so it will try to make you look at the world in a way that will minimize loss in every aspect. You have to break free from that way of thinking. The Only Three Questions That Still Count actually offers a possible solution to this way of thinking: Accumulate Regret Shun Pride. I personally love this concept because it forces us to accept our mistakes and not only that, learn from them. By learning from our mistakes, we can prevent making them again, and by understanding them we can look at the process on how we got there. A lot of people tend not to do that and simply believe that the mistake wasn’t their fault. Pride doesn’t allow them to admit that they were wrong, because if they were wrong, it’s 100% their own fault they lost money. And no one wants to be the reason they lost money.
Ken Fisher wants the reader to really understand that they will be wrong, they will make mistakes. No one can read the future, so it is impossible to be right all the time. The best way to learn this is by humbling yourself, and aim for being right MOST of the time instead of ALL of the time. This can be done by accumulating regret and shunning pride. By forcefully making your mind accept your own flaws and mistakes, you are constantly challenging yourself to be better, come up with new concepts and ideas, which in the long run will be nothing but beneficial.
Biases are another key element in tricking your brain into thinking it’s doing the right thing. Hindsight bias is a real problem because when looking back its super easy to find the mistake and it always looks obvious that things would have gone the way they did. Because when you look at the picture once it’s done, its easy to see the strokes that made it. But when you’re in the middle of the picture being made, you can’t see what is being painted just yet. So the book suggests one amazing thing and that is scaling. By scaling, you don’t look at the picture itself but instead look at the frame. By scaling you will start to see that things are a part of a whole and that whole is more important than the individual parts. Think globally. Some people tend to come up with these amazing concepts on why stocks move the way they do, but they tend to base it solely on the current market they are in. The beauty of this day and age is that information is available from all the world about anything and everything you want. If you come up with a theory on why money moves the way it moves, check your theory against other countries markets. If your theory is true, it should work in every part of the world and not just in your own country.
This was a very educational book. Some of the concept mentioned didn’t really apply to me personally because of the scale he was talking about. He actually says in the book that if you have less than $200k invested than most of this book wouldn’t apply to you. Ken also suggests using an index as your bench mark and then trying to beat it, or get similar results. If you lose against your benchmark, it means you’re betting the wrong way. The 3 questions can be applied to other aspects of life as well, and that is why I like them. I can without a doubt recommend this book.