There’s Enough Math in Finance Already. What’s Missing is Imagination

There’s Enough Math in Finance Already. What’s Missing is Imagination.

For some of us, it was Spock. For others, a humiliating performance as a pilgrim in the kindergarten musical.  For me, it was William Blake’s relentless (and beautiful) attacks on Reason. But everyone at some point encounters – and many of us swallow – the dangerous notion that creativity and calculation are irreconcilable enemies.

This perspective lives at the very heart of our school curricula from first grade through graduate school, as our talents are identified and we, complicit in the scheme, label ourselves ‘artistic’ or ‘sporty’ or ‘scientific.’ No doubt there are real, epigenetic differences in the way people think and see the world, but in epigenesis lies the key: Nature gives us talents, but nurture determines how we use them, and how mono or multidimensional our minds become.

Like many quants – the mathematicians whose equations shape high-stakes decision making on Wall Street – Emanuel Derman arrived on Wall Street with little knowledge of economic theory. Unlike many of his colleagues, though, he had a background in theoretical physics, a field in which imagination and mathematics are happy bedfellows. From 1990-2000, Derman led Goldman Sachs’ Quantitative Strategies group, presiding over the rise of mathematical modeling as the engine driving financial betting on Wall Street.

The nearly insurmountable challenge of mathematical modeling in finance, says Derman, author of the forthcoming Models.Behaving.Badly., is that you are trying to predict the future based the behavior of highly erratic variables – i.e. people. To forecast human behavior with some reasonable degree of accuracy, mathematical models need highly imaginative designers with a profound grasp of human psychology – oracles who can foresee shifts in the global financial landscape and predict people’s reactions to them. Such designers are rare indeed, if they exist at all.

Still, like weather forecasts, the best mathematical models can help us to make better decisions, so long as we keep in mind that their predictive power depends upon the creative vision of the people who designed them, and that it is always vulnerable to refutation by developments in the real world. In other words, so long as we control the tools, not the other way around.

What's the Significance?

Faulty financial models, and Wall Street's overreliance on them, certainly played a role in the collapse of 1998, whose ongoing repercussions are manifest in the demonstrations going on right now in New York City and nationwide. And there are other massive, underlying issues – greed, unequal distribution of opportunity – that bear significant responsibility and intense scrutiny, of course. But math is not to blame – it is a tool, like science, that when guided by imagination and human understanding can expand the scope of our vision. It can help us to peer, however dimly, into the future.

Math’s not to blame, but a religious reverence for mathematical objectivity might be. We are susceptible to a modern-day form of idol worship whereby the sophistication of our technology and data-crunching power sometimes dazzles us into forgetting that these are human creations, designed by people, for people. And when they are applied to human problems, we cannot afford to treat them as perfect, alien entities whose wisdom exceeds our own.

As the early Internet pioneer Jaron Lanier points out in his digital-age cautionary manifesto You Are Not a Gadget, “Software expresses ideas about everything from the nature of a musical note to the nature of personhood. Software is also subject to an exceptionally rigid process of “lock-in.”* Therefore, ideas (in the present era, when human affairs are increasingly software-driven) have become more subject to lock-in than in previous eras.”

If digitized ideas are uniquely vulnerable to lock-in, we need to be exceedingly careful and creative in crafting them. For example, the government-driven “school reform movement” that has swept public education nationwide since 2001’s No Child Left Behind Act, seeks to transform learning based on data-collection from standardized tests, themselves a highly imperfect model of learning. In many cases, school systems rely on data from these tests to make hiring and instructional decisions, to a degree entirely unwarranted by the tests’ current level of sophistication. The clarion call of this movement is the demand for “objective” learning. That’s what the tests are supposedly designed to measure. But learners aren’t really objective. Nor is thinking, which is what, in the end, schools are supposed to teach.

Computers, databases, and other models of reality aren’t going anywhere – the technology will continue to become more sophisticated and its role in our lives will continue to deepen. Now, therefore, is the time for us to recognize where machines can meet our needs and where they cannot – and to design them for human use rather than seeking to adapt ourselves to their shortcomings.

*The process whereby an idea or a model becomes the basis for subsequent development, so that its flaws cannot be remedied without dismantling the entire system that is built upon it.

July 11, 2020

Charlie Munger on Getting Rich, Wisdom, Focus, Fake Knowledge and More.

Charlie Munger on Getting Rich, Wisdom, Focus, Fake Knowledge and More.

“In the chronicles of American financial history,” writes David Clark in The Tao of Charlie Munger: A Compilation of Quotes from Berkshire Hathaway’s Vice Chairman on Life, Business, and the Pursuit of Wealth, “Charlie Munger will be seen as the proverbial enigma wrapped in a paradox—he is both a mystery and a contradiction at the same time.”

On one hand, Munger received an elite education and it shows: He went to Cal Tech to train as a meteorologist for the Second World War and then attended Harvard Law School and eventually opened his own law firm. That part of his success makes sense.
Yet here’s a man who never took a single course in economics, business, marketing, finance, psychology, or accounting, and managed to become one of the greatest, most admired, and most honorable businessmen of our age. He was noted by essentially all observers for the originality of his thoughts, especially about business and human behavior. You don’t learn that in law school, at Harvard or anywhere else.
Bill Gates said of him: “He is truly the broadest thinker I have ever encountered.” His business partner Warren Buffett put it another way: “He comes equipped for rationality… I would say that to try and typecast Charlie in terms of any other human that I can think of, no one would fit. He’s got his own mold.”
How does such an extreme result happen? How is such an original and unduly capable mind formed? In the case of Munger, it’s clearly a combination of unusual genetics and an unusual approach to learning and life.
While we can’t have his genetics, we can try to steal his approach to rationality. There’s almost no limit to the amount one could learn from studying the Munger mind, so let’s at least start with a rundown of some of his best ideas.


Wisdom and Circles of Competence.
“Knowing what you don’t know is more useful than being brilliant.”
“Acknowledging what you don’t know is the dawning of wisdom.”
Identify your circle of competence and use your knowledge, when possible, to stay away from things you don’t understand. There are no points for difficulty at work or in life.  Avoiding stupidity is easier than seeking brilliance.
Of course this principle relates to another of Munger’s sayings: “People are trying to be smart—all I am trying to do is not to be idiotic, but it’s harder than most people think.”
And this reminds me of perhaps my favorite Mungerism of all time, the very quote that sits right beside my desk:
“It is remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent.”

Divergence.
“Mimicking the herd invites regression to the mean.”
Here’s a simple axiom to live by: If you do what everyone else does, you’re going to get the same results that everyone else gets. This means that, taking out luck (good or bad), if you act average, you’re going to be average. If you want to move away from average, you must diverge. You must be different. And if you want to outperform others, you must be different and correct. As Munger would say, “How could it be otherwise?”

Know When to Fold ’Em.
“Life, in part, is like a poker game, wherein you have to learn to quit sometimes when holding a much-loved hand—you must learn to handle mistakes and new facts that change the odds.”
Mistakes are an opportunity to grow. How we handle adversity is up to us. This is how we become personally antifragile.

False Models.
Echoing Einstein, who said that “Not everything that counts can be counted, and not everything that can be counted counts,” Munger said this about his and Buffett’s shift to acquiring high-quality businesses for Berkshire Hathaway:
“Once we’d gotten over the hurdle of recognizing that a thing could be a bargain based on quantitative measures that would have horrified Graham, we started thinking about better businesses.”

Being Lazy.
“Sit on your ass. You’re paying less to brokers, you’re listening to less nonsense, and if it works, the tax system gives you an extra one, two, or three percentage points per annum.”
Time is a friend to a good business and the enemy of the poor business. It’s also the friend of knowledge and the enemy of the new and novel. As Seneca said, “Time discovers truth.”

Investing Is a Perimutuel System.
“You’re looking for a mispriced gamble,” says Munger. “That’s what investing is. And you have to know enough to know whether the gamble is mispriced. That’s value investing.”  At another time, he added: “You should remember that good ideas are rare— when the odds are greatly in your favor, bet heavily.”
May the odds forever be in your favor. Actually, learning properly is one way you can tilt the odds in your favor.

Focus.
When asked about his success, Munger says, “I succeeded because I have a long attention span.”
Long attention spans allow for a deep understanding of subjects. When combined with deliberate practice, focus allows you to increase your skills and get out of your rut. The Art of Focus is a divergent and correct strategy that can help you identify where the leverage points are and apply your efforts toward them.

Fake Knowledge.
“Smart people aren’t exempt from professional disasters from overconfidence.”
We’re so used to outsourcing our thinking to others that we’ve forgotten what it’s like to really understand something from all perspectives. We’ve forgotten just how much work that takes. The path of least resistance, however, is just a click away. Fake knowledge, which comes from reading headlines and skimming the news, seems harmless, but it’s not. It makes us overconfident. It’s better to remember a simple trick: anything you’re getting easily through Google or Twitter is likely to be widely known and should not be given undue weight.
However, Munger adds, “If people weren’t wrong so often, we wouldn’t be so rich.”

Sit Quietly.
Echoing Pascal, who said some version of “All of humanity’s problems stem from man’s inability to sit quietly in a room alone,” Munger adds an investing twist: “It’s waiting that helps you as an investor, and a lot of people just can’t stand to wait.”
The ability to be alone with your thoughts and turn ideas over and over, without giving in to Do Something syndrome, affects so many of us. A perfectly reasonable option is to hold your ground and await more information.

Deal With Reality.
“I think that one should recognize reality even when one doesn’t like it; indeed, especially when one doesn’t like it.”
Munger clearly learned from Joseph Tussman’s wisdom. This means facing harsh truths that you might prefer to ignore. It means meeting the world on the world’s terms, not according to how you wish it would be. If this causes temporary pain, so be it. “Your pain,” writes Kahil Gibran in The Prophet, “is the breaking of the shell that encloses your understanding.”

There Is No Free Lunch.
We like quick solutions that don’t require a lot of effort. We’re drawn to the modern equivalent of an old hustler selling an all-curing tonic. However, the world does not work that way. Munger expands:
“There isn’t a single formula. You need to know a lot about business and human nature and the numbers… It is unreasonable to expect that there is a magic system that will do it for you.”
Acquiring knowledge is hard work. It’s reading and adding to your knowledge so it compounds. It’s going deep and developing fluency, something Darwin knew well.

Maximization/Minimization.
“In business we often find that the winning system goes almost ridiculously far in maximizing and or minimizing one or a few variables—like the discount warehouses of Costco.”
When everything is a priority, nothing is a priority. Attempting to maximize competing variables is a recipe for disaster. Picking one variable and relentlessly focusing on it, which is an effective strategy, diverges from the norm. It’s hard to compete with businesses that have correctly identified the right variables to maximize or minimize. When you focus on one variable, you’ll increase the odds that you’re quick and nimble — and can respond to changes in the terrain.

Map and Terrain.
“At Berkshire there has never been a master plan. Anyone who wanted to do it, we fired because it takes on a life of its own and doesn’t cover new reality. We want people taking into account new information.”
Plans are maps that we become attached to. Once we’ve told everyone there is a plan and what that plan is, especially multi-year plans, we’re psychologically more likely to stick to it because coming out and changing it would be admitting we were wrong. This makes it harder for us to change our strategies when we need to, so we’re stacking the odds against ourselves. Detailed five-year plans (that will clearly be wrong) are as disastrous as overly general five-year plans (which can never be wrong).
Scrap the plan, isolate the key variables that you need to maximize and minimize, and follow the agile path blazed by Henry Singleton and followed by Buffett and Munger.

The Keys to Good Government.
There are three keys: honesty, effectiveness, and efficiency. Munger says:
“In a democracy, everyone takes turns. But if you really want a lot of wisdom, it’s better to concentrate decisions and process in one person. It’s no accident that Singapore has a much better record, given where it started, than the United States. There, power was concentrated in an enormously talented person, Lee Kuan Yew, who was the Warren Buffett of Singapore.”
Lee Kuan Yew put it this way: “With few exceptions, democracy has not brought good government to new developing countries. … What Asians value may not necessarily be what Americans or Europeans value. Westerners value the freedoms and liberties of the individual. As an Asian of Chinese cultural background, my values are for a government which is honest, effective, and efficient.”

One Step At a Time.
“Spend each day trying to be a little wiser than you were when you woke up. Discharge your duties faithfully and well. Slug it out one inch at a time, day by day. At the end of the day—if you live long enough—most people get what they deserve.”
An incremental approach to life reminds one of the nature of compounding. There will always be someone going faster than you, but you can learn from the Darwinian guide to overachieving your natural IQ. In order for this approach to be effective, you need a long axis of time as well as continuous incremental progress.

Getting Rich.
“The desire to get rich fast is pretty dangerous.”
Getting rich is a function of being happy with what you have, spending less than you make, and time.

Mental Models.
“Know the big ideas in the big disciplines and use them routinely—all of them, not just a few.”
Mental models are the big ideas from multiple disciplines. While most people agree that these are worth knowing, they often think they can identify which models will add the most value, and in so doing they miss something important. There is a reason that the “know-nothing” index fund almost always beats the investors who think they know. Understanding this idea in greater detail will change a lot of things, including how you read. Acquiring the big ideas — without selectivity — is the way to mimic a know-nothing index fund.

Know-it-alls.
“I try to get rid of people who always confidently answer questions about which they don’t have any real knowledge.”
Few things have made as much of a difference in my life as systemically removing (and when that’s not possible, reducing the importance of) people who think they know the answer to everything.

Stoic Resolve.
“There’s no way that you can live an adequate life without many mistakes. In fact, one trick in life is to get so you can handle mistakes. Failure to handle psychological denial is a common way for people to go broke.”
While we all make mistakes, it’s how we respond to failure that defines us.


Thinking.
“We all are learning, modifying, or destroying ideas all the time. Rapid destruction of your ideas when the time is right is one of the most valuable qualities you can acquire. You must force yourself to consider arguments on the other side.”
“It’s bad to have an opinion you’re proud of if you can’t state the arguments for the other side better than your opponents. This is a great mental discipline.”
Thinking is a lot of work. “My first thought,” William Deresiewicz said in one of my favorite speeches, “is never my best thought. My first thought is always someone else’s; it’s always what I’ve already heard about the subject, always the conventional wisdom.”

Choose Your Associates Wisely.
“Oh, it’s just so useful dealing with people you can trust and getting all the others the hell out of your life. It ought to be taught as a catechism. … [W]ise people want to avoid other people who are just total rat poison, and there are a lot of them.”

August 07, 2020

How to Start Investing

How to Start Investing.

It is never too soon to start investing. Investing is the smartest way to secure your financial future and to begin letting your money make more money for you. Investing is not just for people who have plenty of spare cash. On the contrary, anyone can (and should) invest. You can get started with just a little bit of money and a lot of know-how. By formulating a plan and familiarizing yourself with the tools available, you can quickly learn how to start investing.

Part 1 Getting Acquainted with Different Investment Vehicles.
1. Make sure you have a safety net. Holding some money in reserve is a good idea because (a) if you lose your investment you'll have something to fall back on, and (b) it will allow you to be a bolder investor, since you won't be worried about risking every penny you own.
Save between three and six months' worth of expenses. Call it your emergency fund, set aside for large, unexpected expenses (job loss, medical expenses, auto accident, etc.). This money should be in cash or some other form that's very conservative and immediately available.
Once you have an emergency fund established, you can start to save for your long-term goals, like buying a home, retirement, and college tuition.
If your employer offers a retirement plan, this is a great vehicle for saving, because it can save on your tax bill, and your employer may contribute money to match some of your own contributions, which amounts to "free" money for you.
If you don't have a retirement plan through your workplace, most employees are allowed to accumulate tax-deferred savings in a traditional IRA or a Roth IRA. If you are self-employed, you have options like a SEP-IRA or a "SIMPLE" IRA. Once you've determined the type of account(s) to set up, you can then choose specific investments to hold within them.
Get current on all your insurance policies. This includes auto, health, homeowner's/renter's, disability, and life insurance. With luck you'll never need insurance, but it's nice to have in the event of disaster.
2. Learn a little bit about stocks. This is what most people think of when they consider "investing." Put simply, a stock is a share in the ownership of a business, a publicly-held company. The stock itself is a claim on what the company owns — its assets and earnings.  When you buy stock in a company, you are making yourself part-owner. If the company does well, the value of the stock will probably go up, and the company may pay you a "dividend," a reward for your investment. If the company does poorly, however, the stock will probably lose value.
The value of stock comes from public perception of its worth. That means the stock price is driven by what people think it's worth, and the price at which a stock is purchased or sold is whatever the market will bear, even if the underlying value (as measured by certain fundamentals) might suggest otherwise.
A stock price goes up when more people want to buy that stock than sell it.  Stock prices go down when more people want to sell than buy. In order to sell stock, you have to find someone willing to buy at the listed price. In order to buy stock, you have to find someone selling their stock at a price you like.
The job of a stockbroker is to pair up buyers and sellers.
"Stocks" can mean a lot of different things. For example, penny stocks are stocks that trade at relatively low prices, sometimes just pennies.
Various stocks are bundled into what's called an index, like the Dow Jones Industrials, which is a list of 30 high-performing stocks. An index is a useful indicator of the performance of the whole market.
3. Familiarize yourself with bonds. Bonds are issuances of debt, similar to an IOU. When you buy a bond, you're essentially lending someone money.  The borrower ("issuer") agrees to pay back the money (the "principal") when the life ("term") of the loan has expired. The issuer also agrees to pay interest on the principal at a stated rate. The interest is the whole point of the investment. The term of the bond can range from months to years, at the end of which period the borrower pays back the principal in full.
Here's an example: You buy a five-year municipal bond for $10,000 with an interest rate of 2.35%. Thus, you lend the municipality $10,000. Each year the municipality pays you interest on your bond in the amount of of 2.35% of $10,000, or $235. After five years the municipality pays back your $10,000. So you've made back your principal plus a profit of $1175 in interest (5 x $235).
Generally the longer the term of the bond, the higher the interest rate. If you're lending your money for a year, you probably won't get a high interest rate, because one year is a relatively short period of risk. If you're going to lend your money and not expect it back for ten years, however, you will be compensated for the higher risk you're taking, and the interest rate will be higher. This illustrates an axiom in investing: The higher the risk, the higher the return.
4. Understand the commodities market. When you invest in something like a stock or a bond, you invest in the business represented by that security. The piece of paper you get is worthless, but what it promises is valuable. A commodity, on the other hand, is something of inherent value, something capable of satisfying a need or desire. Commodities include pork bellies (bacon), coffee beans, oil, natural gas, and potash, among many other items. The commodity itself is valuable, because people want and use it.
People often trade commodities by buying and selling "futures." A future is simply an agreement to buy or sell a commodity at a certain price sometime in the future.
Futures were originally used as a "hedging" technique by farmers. Here's a simple example of how it works: Farmer Joe grows avocados. The price of avocados, however, is typically volatile, meaning that it goes up and down a lot. At the beginning of the season, the wholesale price of avocados is $4 per bushel. If Farmer Joe has a bumper crop of avocados but the price of avocados drops to $2 per bushel in April at harvest, Farmer Joe may lose a lot of money.
Joe, in advance of harvest as insurance against such a loss, sells a futures contract to someone. The contract stipulates that the buyer of the contract agrees to buy all of Joe's avocados at $4 per bushel in April.
Now Joe has protection against a price drop. If the price of avocados goes up, he'll be fine because he can sell his avocados at the market price. If the price of avocados drops to $2, he can sell his avocados at $4 to the buyer of the contract and make more than other farmers who don't have a similar contract.
The buyer of a futures contract always hopes that the price of a commodity will go up beyond the futures price he paid. That way he can lock in a lower-than-market price. The seller hopes that the price of a commodity will go down. He can buy the commodity at low (market) prices and then sell it to the buyer at a higher-than-market price.
5. Know a bit about investing in property. Investing in real estate can be a risky but lucrative proposition. There are lots of ways you can invest in property. You can buy a house and become a landlord. You pocket the difference between what you pay on the mortgage and what the tenant pays you in rent. You can also flip homes. That means you buy a home in need of renovations, fix it up, and sell it as quickly as possible. Real estate can be a profitable vehicle for some, but it is not without substantial risk involving property maintenance and market value.
Other ways of gaining exposure to real estate include collateralized mortgage obligations (CMOs) and collateralized debt obligations (CDOs), which are mortgages that have been bundled into securitized instruments. These, however, are tools for sophisticated investors: their transparency and quality can vary greatly, as revealed during the 2008 downturn.
Some people think that home values are guaranteed to go up. History has shown otherwise: real estate values in most areas show very modest rates of return after accounting for costs such as maintenance, taxes and insurance. As with many investments, real estate values do invariably rise if given enough time. If your time horizon is short, however, property ownership is not a guaranteed money-maker.
Property acquisition and disposal can be a lengthy and unpredictable process and should be viewed as a long-term, higher-risk proposition. It is not the type of investment that is appropriate if your time horizon is short and is certainly not a guaranteed investment.
6. Learn about mutual funds and exchange-traded funds (ETFs). Mutual funds and ETFs are similar investment vehicles in that each is a collection of many stocks and/or bonds (hundreds or thousands in some cases). Holding an individual security is a concentrated way of investing – the potential for gain or loss is tied to a single company – whereas holding a fund is a way to spread the risk across many companies, sectors or regions. Doing so can dampen the upside potential but also serves to protect against the downside risk.
Commodities exposure is usually achieved by holding futures contracts or a fund of futures contracts. Real estate can be held directly (by owning a home or investment property) or in a real estate investment trust (REIT) or REIT fund, which holds interests in a number of residential or commercial properties.

Part 2 Mastering Investment Basics.
1. Buy undervalued assets ("buy low, sell high"). If you're talking about stocks and other assets, you want to buy when the price is low and sell when the price is high. If you buy 100 shares of stock on January 1st for $5 per share, and you sell those same shares on December 31st for $7.25, you just made $225. That may seem a paltry sum, but when you're talking about buying and selling hundreds or even thousands of shares, it can really add up.
How do you tell if a stock is undervalued? You need to look at a company closely — its earnings growth, profit margins, its P/E ratio, and its dividend yield — instead of looking at just one aspect and making a decision based on a single ratio or a momentary drop in the stock's price.
The price-to-earnings ratio is a common way of determining if a stock is undervalued. It simply divides a company's share price by its earnings. For example, if Company X is trading at $5 per share, with earnings of $1 per share, its price-to-earnings ratio is 5. That is to say, the company is trading at five times its earnings. The lower this figure, the more undervalued the company may be. Typical P/E ratios range between 15 and 20, although ratios outside that range are not uncommon. Use P/E ratios as only one of many indications of a stock's worth.
Always compare a company to its peers. For example, assume you want to buy Company X. You can look at Company X's projected earnings growth, profit margins, and price-to-earnings ratio. You would then compare these figures to those of Company X's closest competitors. If Company X has better profit margins, better projected earnings, and a lower price-to-earnings ratio, it may be a better buy.
Ask yourself some basic Question : s: What will the market be for this stock in the future? Will it look bleaker or better? What competitors does this company have, and what are their prospects? How will this company be able to earn money in the future? These should help you come to a better understanding of whether a company's stock is under- or over-valued.
2. Invest in companies that you understand. Perhaps you have some basic knowledge regarding some business or industry. Why not put that to use? Invest in companies or industries that you know, because you're more likely to understand revenue models and prospects for future success. Of course, never put all your eggs in one basket: investing in only one -- or a very few -- companies can be quite risky. However, wringing value out of a single industry (whose workings you understand) will increase your chances of being successful.
For example, you may hear plenty of positive news on a new technology stock. It is important to stay away until you understand the industry and how it works. The principle of investing in companies you understand was popularized by renowned investor Warren Buffett, who made billions of dollars sticking only with business models he understood and avoiding ones he did not.
3. Avoid buying on hope and selling on fear. It's very easy and too tempting to follow the crowd when investing. We often get caught up in what other people are doing and take it for granted that they know what they're talking about. Then we buy stocks just because other people buy them or sell them when other people do. Doing this is easy. Unfortunately, it's a good way to lose money. Invest in companies that you know and believe in — and tune out the hype — and you'll be fine.
When you buy a stock that everyone else has bought, you're buying something that's probably worth less than its price (which has probably risen in response to the recent demand). When the market corrects itself (drops), you could end up buying high and then selling low, just the opposite of what you want to do. Hoping that a stock will go up just because everyone else thinks it will is foolish.
When you sell a stock that everyone else is selling, you're selling something that may be worth more than its price (which likely has dropped because of all the selling). When the market corrects itself (rises), you've sold low and will have to buy high if you decide you want the stock back.
Fear of losses can prove to be a poor reason to dump a stock.
If you sell based on fear, you may protect yourself from further declines, but you may also miss out on a rebound. Just as you did not anticipate the decline, you will not be able to predict the rebound. Stocks have historically risen over long time frames, which is why holding on to them and not over-reacting to short-term swings is important.
4. Know the effect of interest rates on bonds. Bond prices and interest rates have an inverse relationship. When interest rates go up, bond prices go down. When interest rates go down, bond prices go up. Here's why:
Interest rates on bonds normally reflect the prevailing market interest rate. Say you buy a bond with an interest rate of 3%. If interest rates on other investments then go up to 4% and you're stuck with a bond paying 3%, not many people would be willing to buy your bond from you when they can buy another bond that pays them 4% interest. For this reason, you would have to lower the price of your bond in order to sell it. The opposite situation applies when bond market rates are falling.
5. Diversify. Diversifying your portfolio is one of the most important things that you can do, because it diminishes your risk. Think of it this way: If you were to invest $5 in each of 20 different companies, all of the companies would have to go out of business before you would lose all your money. If you invested the same $100 in just one company, only that company would have to fail for all your money to disappear. Thus, diversified investments "hedge" against each other and keep you from losing lots of money because of the poor performance of a few companies.
Diversify your portfolio not only with a good mix of stocks and bonds, but go further by buying shares in companies of different sizes in different industries and in different countries. Often when one class of investment performs poorly, another class performs nicely. It is very rare to see all asset classes declining at the same time.
Many believe a balanced or "moderate" portfolio is one made up of 60% stocks and 40% bonds. Thus, a more aggressive portfolio might have 80% stocks and 20% bonds, and a more conservative portfolio might have 70% bonds and 30% stocks. Some advisors will tell you that your portfolio's percentage of bonds should roughly match your age.
6. Invest for the long run.  Choosing good-quality investments can take time and effort. Not everyone can do the research and keep up with the dynamics of all the companies being considered. Many people instead employ a "buy and hold" approach of weathering the storms rather than attempting to predict and avoid market downturns. This approach works for most in the long term but requires patience and discipline. There are some, however, who choose to try their hand at being a day-trader, which involves holding stocks for a very short time (hours, even minutes). Doing so, however, does not often lead to success over the long term for the following reasons:
Brokerage fees add up. Every time you buy or sell a stock, a middleman known as a broker takes a cut for connecting you with another trader. These fees can really add up if you're making a lot of trades every day, cutting into your profit and magnifying your losses.
Many try to predict what the market will do and some will get lucky on occasion by making some good calls (and will claim it wasn't luck), but research shows that this tactic does not typically succeed over the long term.
The stock market rises over the long term. From 1871 to 2014, the S&P 500's compound annual growth rate was 9.77%, a rate of return many investors would find attractive. The challenge is to stay invested long-term while weathering the ups and downs in order to achieve this average: the standard deviation for this period was 19.60%, which means some years saw returns as high as 29.37% while other years experienced losses as large as 9.83%.  Set your sights on the long term, not the short. If you're worried about all the dips along the way, find a graphical representation of the stock market over the years and hang it somewhere you can see whenever the market is undergoing its inevitable–and temporary–declines.
7. Consider whether or not to short sell. This can be a "hedging" strategy, but it can also amplify your risk, so it's really suitable only for experienced investors. The basic concept is as follows: Instead of betting that the price of a security is going to increase, "shorting" is a bet that the price will drop. When you short a stock (or bond or currency), your broker actually lends you shares without your having to pay for them. Then you hope the stock's price goes down. If it does, you "cover," meaning you buy the actual shares at the current (lower) price and give them to the broker. The difference between the amount credited to you in the beginning and the amount you pay at the end is your profit.
Short selling can be dangerous, however, because it's not easy to predict a drop in price. If you use shorting for the purpose of speculation, be prepared to get burned sometimes. If the stock's price were to go up instead of down, you would be forced to buy the stock at a higher price than what was credited to you initially. If, on the other hand, you use shorting as a way to hedge your losses, it can actually be a good form of insurance.
This is an advanced investment strategy, and you should generally avoid it unless you are an experienced investor with extensive knowledge of markets. Remember that while a stock can only drop to zero, it can rise indefinitely, meaning that you could lose enormous sums of money through short-selling.

Part 3 Starting Out.
1. Choose where to open your account. There are different options available: you can go to a brokerage firm (sometimes also called a wirehouse or custodian) such as Fidelity, Charles Schwab or TD Ameritrade. You can open an account on the website of one of these institutions, or visit a local branch and choose to direct the investments on your own or pay to work with a staff advisor. You can also go directly to a fund company such as Vanguard, Fidelity, or T. Rowe Price and let them be your broker. They will offer you their own funds, of course, but many fund companies (such as the three just named) offer platforms on which you can buy the funds of other companies, too. See below for additional options in finding an advisor.
Always be mindful of fees and minimum-investment rules before opening an account. Brokers all charge fees per trade (ranging from $4.95 to $10 generally), and many require a minimum initial investment (ranging from $500 to much higher).
Online brokers with no minimum initial-investment requirement include Capital One Investing, TD Ameritrade, First Trade, TradeKing, and OptionsHouse.
If you want more help with your investing, there is a variety of ways to find financial advice: if you want someone who helps you in a non-sales environment, you can find an advisor in your area at one of the following sites: letsmakeaplan.org, www.napfa.org, and garrettplanningnetwork.com. You can also go to your local bank or financial institution. Many of these charge higher fees, however, and may require a large opening investment.
Some advisors (like Certified Financial Planners™) have the ability to give advice in a number of areas such as investments, taxes and retirement planning, while others can only act on a client's instructions but not give advice, It's also important to know that not all people who work at financial institutions are bound to the "fiduciary" duty of putting a client's interests first. Before starting to work with someone, ask about their training and expertise to make sure they are the right fit for you.
2. Invest in a Roth IRA as soon in your working career as possible. If you're earning taxable income and you're at least 18, you can establish a Roth IRA. This is a retirement account to which you can contribute up to an IRS-determined maximum each year (the latest limit is the lesser of $5,500 or the amount earned plus an additional $1,000 "catch up" contribution for those age 50 or older). This money gets invested and begins to grow. A Roth IRA can be a very effective way to save for retirement.
You don't get a tax deduction on the amount you contribute to a Roth, as you would if you contributed to a traditional IRA. However, any growth on top of the contribution is tax-free and can be withdrawn without penalty after you turn age 59½ (or earlier if you meet one of the exceptions to the age 59½ rule).
Investing as soon as possible in a Roth IRA is important. The earlier you begin investing, the more time your investment has to grow. If you invest just $20,000 in a Roth IRA before you're 30 years old and then stop adding any more money to it, by the time you're 72 you'll have a $1,280,000 investment (assuming a 10% rate of return). This example is merely illustrative. Don't stop investing at 30. Keep adding to your account. You will have a very comfortable retirement if you do.
How can a Roth IRA grow like this? By compound interest. The return on your investment, as well as reinvested interest, dividends and capital gains, are added to your original investment such that any given rate of return will produce a larger profit through accelerated growth. If you are earning an average compound annual rate of return of 7.2%, your money will double in ten years. (This is known as "the rule of 72.")
You can open a Roth IRA through most online brokers as well as through most banks. If you are using a self-directed online broker, you will simply select a Roth IRA as the type of account while you are registering.
3. Invest in your company's 401(k). A 401(k) is a retirement-savings vehicle into which an employee can direct portions of his or her paychecks and receive a tax deduction in the year of the contributions. Many employers will match a portion of these contributions, so the employee should contribute at least enough to trigger the employer match.
4. Consider investing mainly in stocks but also in bonds to diversify your portfolio. From 1925 to 2011, stocks outperformed bonds in every rolling 25-year period. While this may sound appealing from a return standpoint, it entails volatility, which can be worrisome. Add less-volatile bonds to your portfolio for the sake of stability and diversification. The older you get, the more appropriate it becomes to own bonds (a more conservative investment). Re-read the above discussion of diversification.
5. Start off investing a little money in mutual funds. An index fund is a mutual fund that invests in a specific list of companies of a particular size or economic sector. Such a fund performs similarly to its index, such as the S&P 500 index or the Barclays Aggregate Bond index.
Mutual funds come in different shapes and sizes. Some are actively managed, meaning there is a team of analysts and other experts employed by the fund company to research and understand a particular geographical region or economic sector. Because of this professional management, such funds generally cost more than index funds, which simply mimic an index and don't need much management. They can be bond-heavy, stock-heavy, or invest in stocks and bonds equally. They can buy and sell their securities actively, or they can be more passively managed (as in the case of index funds).
Mutual funds come with fees. There may be charges (or "loads") when you buy or sell shares of the fund. The fund's "expense ratio" is expressed as a percentage of total assets and pays for overhead and management expenses. Some funds charge a lower-percentage fee for larger investments. Expense ratios generally range from as low as 0.15% (or 15 basis points, abbreviated "BPS") for index funds to as high as 2% (200 BPS) for actively managed funds. There may also be a "12b-1" fee charged to offset a fund's marketing expenses.
The U.S. Securities and Exchange Commission states that no evidence exists that higher-fee mutual funds produce better returns than do lower-fee funds. In other words, deal with lower-fee funds.
Mutual funds can be purchased through nearly any brokerage service. Even better is to purchase directly from a mutual fund company. This avoids brokerage fees. Call or write the fund company or visit their website. Opening a fund account is simple and easy. See Invest in Mutual Funds.
6. Consider exchange-traded funds in addition to or instead of mutual funds. Exchange-traded funds (ETFs) are very similar to mutual funds in that they pool people's money and buy many investments. There are a few key differences.
ETFs can be traded on an exchange throughout the business day just like stocks, whereas mutual funds are bought and sold only at the end of each trading day.
ETFs are typically index funds and do not generate as much in the way of taxable capital gains to pass on to investors as compared with actively managed funds. ETFs and mutual funds are becoming less distinct from each other, and investors need not own both types of investment. If you like the idea of buying and selling fund shares during (rather than at the end of) the trading day, ETFs are a good choice for you.

Part 4 Making the Most of Your Money.
1. Consider using the services of a financial planner or advisor. Many planners and advisors require that their clients have an investment portfolio of at least a minimum value, sometimes $100,000 or more. This means it could be hard to find an advisor willing to work with you if your portfolio isn't well established. In that case, look for an advisor interested in helping smaller investors.
How do financial planners help? Planners are professionals whose job is to invest your money for you, ensure that your money is safe, and guide you in your financial decisions. They draw from a wealth of experience at allocating resources. Most importantly, they have a financial stake in your success: the more money you make under their tutelage, the more money they make.
2. Buck the herd instinct. The herd instinct, alluded to earlier, is the idea that just because a lot of other people are doing something, you should, too.  Many successful investors have made moves that the majority thought were unwise at the time.
That doesn't mean, however, that you should never seek investment advice from other people. Just be wise about choosing the people you listen to. Friends or family members with a successful background in investing can offer worthwhile advice, as can professional advisors who charge a flat fee (rather than a commission) for their help.
Invest in smart opportunities when other people are scared. In 2008 as the housing crisis hit, the stock market shed thousands of points in a matter of months. A smart investor who bought stocks as the market bottomed out enjoyed a strong return when stocks rebounded.
This reminds us to buy low and sell high. It takes courage to buy investments when they are becoming cheaper (in a falling market) and sell those investments when they are looking better and better (a rising market). It seems counter-intuitive, but it's how the world's most successful investors made their money.
3. Know the players in the game.  Which institutional investors think that your stock is going to drop in price and have therefore shorted it? What mutual fund managers have your stock in their fund, and what is their track record? While it helps to be independent as an investor, it's also helpful to know what respected professionals are doing.
There are websites which compile recent opinions on a stock from analysts and expert investors. For example, if you are considering a purchase of Tesla shares, you can search Tesla on Stockchase. It will give you all the recent expert opinions on the stock.
4. Re-examine your investment goals and strategies every so often. Your life and conditions in the market change all the time, so your investment strategy should change with them. Never be so committed to a stock or bond that you can't see it for what it's worth.
While money and prestige may be important, never lose track of the truly important, non-material things in life: your family, friends, health, and happiness.
For example, if you are very young and saving for retirement, it may be appropriate to have most of your portfolio invested in stocks or stock funds. This is because you would have a longer time horizon in which to recover from any big market crashes or declines, and you would be able to benefit from the long-term trend of markets moving higher.
If you are just about to retire, however, having much less of your portfolio in stocks, and a large portion in bonds and/or cash equivalents is wise. This is because you will need the money in the short-term, and as a result you do not want to risk losing the money in a stock market crash right before you need it.

Community Q&A
Question : I have low money, how I can get rich?
Answer : Expect it to take many years to get rich. Follow any or all of the steps outlined above.
Question : How do I find a broker to invest in the stock market?
Answer : There are several discount brokers online who charge a small fee for buying stock for you. There are also stockbrokers in most cities you can deal with in person. They charge a bit more, but they can offer you more personal service and help you choose stocks if you'd like.
Question : What if I have a stock in mind, but don't want a broker/brokerage firm? How do I actually purchase stock from that particular company, immediately?
Answer : Look online for the company's investor-relations department phone number. Call and ask if they offer direct stock purchases. If so, they will give you instructions for purchasing their stock. They may take a credit card, or you can write them a check.
Question : How do I start investing? Do I need an agent? Can Canadians invest in US Stocks?
Answer : Canadians -- and anyone else -- may invest in U.S. stocks. The typical way it's done is through a stockbroker. A good way to start investing is to consult with an experienced, fee-based financial advisor. A fee-based advisor does not make money by convincing you to make a particular investment.
Question : What is the difference between "ex-dividend date" and "record date"?
Answer : A "record date" is the date a dividend distribution is declared, the date at the close of which one must be the shareholder in order to receive the declared dividend. An "ex-dividend date" is typically two business days before the record date. When shares of a stock are sold near the record date of a dividend declaration, the ex-dividend date is the last day on which the seller is clearly entitled to the dividend payment.
Question : Is a financial planner really necesary?
Answer : Not if you can supply your own financial acumen and practical level-headedness. If you are not clueless about finances, or if you're personally acquainted with someone with considerable financial experience to share with you, there's no need to pay for advice. Having said that, however, the more money you want to place at risk, the more a fee-only advisor is worth hiring.
Question : How do I initiate an investment process after I open the account?
Answer : Your broker can explain the process to you. It's just a matter of telling the broker which investment(s) you want to buy. A full-service broker will help you make that decision if you'd like.
Question : I want to buy Exxon stocks right now online. What's the best way?
Answer : See Part 3 of Buy Stocks.
Question : If my company is closing, can I withdraw the 401k without any penalty?
Answer : Your 401k is probably "portable," meaning you can take it with you without penalty if you switch jobs. In your case, you shouldn't have any trouble removing the funds (assuming you plan to deposit them in another similar plan).
Question : Is it OK to connect my stock market account with my savings account?
Answer : Yes, that's a safe place to keep your money while you're not using it to buy stock.

Tips.
One of the most painless and efficient ways to invest is to dedicate a portion of each paycheck to regular contributions to an investment account. Doing so can provide some great advantages:
Dollar-cost averaging: by saving a steady amount every payday, you purchase more shares of an investment when the share price is lower and fewer shares when the price is higher. That keeps the average share price you pay relatively low.
A disciplined savings plan: having a portion withheld from your paycheck is a way of putting money away before you have a chance to spend it and can translate into a consistent habit of saving.
The "miracle" of compound interest: earning interest on previously earned interest is what Albert Einstein called "the eighth wonder of the world." Compounding is guaranteed to make your retirement years easier if you let it work its magic by leaving your money invested and untouched for as long as possible. Many years of compounding can bring astonishingly good results.

Warnings.

If you intend to hire a financial advisor, make sure s/he is a "fiduciary." That's a person who is legally bound to propose investments for you that will benefit you. An advisor who is not a fiduciary may propose investments that will mainly benefit the advisor (not you).
When looking for an advisor, choose one who charges you a flat fee for advice, not one who is paid a commission by the vendor of an investment product. A fee-based advisor will retain you as a happy client only if his/her advice works out well for you. A commission-based advisor's success is based on selling you a product, regardless of how well that product performs for you.

June 04, 2020

How Warren Buffett Makes Decisions – The Secret to His Investing Success.

How Warren Buffett Makes Decisions – The Secret to His Investing Success.

By Michael Lewis.

Warren Buffett is considered by many to be the most successful stock investor ever. Despite the occasional mistake, Buffett’s investing strategies are unrivaled. In 1956, at age 26, his net worth was estimated at $140,000. MarketWatch estimated his net worth at the end of 2016 to be $73.1 billion, an astounding compound annual growth rate of 24.5%. By contrast, the S&P 500 has grown at an average rate of 6.79% and most mutual funds have failed to equal the annual S&P 500 return consistently.

Buffett has achieved these returns while most of his competition failed. According to John Bogle, one of the founders and former Chairman of The Vanguard Group, “The evidence is compelling that equity fund returns lag the stock market by a substantial amount, largely accounted for by cost, and that fund investor returns lag fund returns by a substantial amount, largely accounted for by counterproductive market timing and fund selection.”

Since the evidence shows that Buffet has been an exceptional investor, market observers and psychologists have searched for an explanation to his success. Why has Warren Buffett achieved extraordinary gains compared to his peers? What is his secret?

A Long-Term Perspective. Why Some People Are More Successful Than Others.
Philosophers and scientists have long sought to determine why some people are more successful than others at building wealth. Their findings are varied and often contradictory.

For centuries, people believed their fate, including wealth and status, depended upon the capricious favor of pagan gods – more specifically, the favor of Tyche (Greek) or Fortuna (Roman). Expansion of the Judeo-Christian-Islamic religions and their concepts of “free will” led to the general belief that individuals could control their destiny through their actions, or lack thereof.

Modern science, specifically psychology and neuroscience, advanced a theory of biological determinants that control human decisions and actions. This theory suggests that free will might not be as “free” as previously thought. In other words, we may be predisposed to certain behaviors that affect the ways we process information and make decisions.

Evolutionary biologists and psychologists have developed a variety of different theories to explain human decision-making. Some claim that the ability to make superior decisions with favorable outcomes is the result of eons of natural selection, which favors individuals with exceptional genetics, such as those with high IQs.

Despite the perception that a high IQ is necessary for building wealth, study after study indicates that the link between super-intelligence and financial success is dubious at best:

Dr. Jay Zagorsky’s study in the Intelligence Journal found no strong relationship between total wealth and intelligence: “People don’t become rich just because they are smart.”
Mensa members rank in the top 2% of the brightest people on earth, but most are not rich and are “certainly not the top 1% financially,” according to an organization spokesperson. A study by Eleanor Laise of the Mensa Investment Club noted that the fund averaged 2.5% per annum for a 15-year period, while the S&P 500 averaged 15.3% during the same time. One member admitted that “we can screw up faster than anyone,” while another described their investment strategy as “buy low, sell lower.”
Buffett has never claimed to be a genius. When asked what he would teach the next generation of investors at the 2009 Berkshire Hathaway annual meeting, he replied, “In the investing business, if you have an IQ of 150, sell 30 points to someone else. You do not need to be a genius . . . It’s not a complicated game; you don’t need to understand math. It’s simple, but not easy.”

He later expanded the thought: “If calculus or algebra were required to be a great investor, I’d have to go back to delivering newspapers.”

Economists’ Rational Man.
Economists have historically based their models upon the presumption that humans make logical decisions. In other words, a person faced with a choice balances certainties against risks. The theory of expected value presumes that people facing choices will choose the one that has the largest combination of expected success (probability) and value (impact).

A rational person would always model the industrious ant in Aesop’s fable, not the insouciant grasshopper. The idea that people would make decisions contrary to their interests is inconceivable to economists.

To be fair, most economists recognize the flaws in their models. Swedish economist Lars Syll notes that “a theoretical model is nothing more than an argument that a set of conclusions follows from a fixed set of assumptions.”

Economists presume stable systems and simple assumptions, while the real world is in constant flux. Paraphrasing H.L Mencken’s famous quote, there is always a simple economic model [well-known solution] for every human problem. This notion is neat, plausible, and wrong.

Psychologists’ Natural Man.
According to Harvard professor Daniel Lieberman, humans are naturally inclined to seek the solutions that require the least expenditure of energy.

In the real world, we have difficulty deferring immediate gratification for future security, selecting investments best suited to our long-term goals and risk profile, and acting in our best financial interests. Psychological research suggests that the difficulty is rooted in our brains – how we think and make decisions.

Researchers Susan Fiske and Shelley Taylor postulate that humans are “cognitive misers,” preferring to do as little thinking as possible. The brain uses more energy than any other human organ, accounting for up to 20% of the body’s total intake.

When decisions involve issues more remote from our current state in distance or time, there is a tendency to defer making a choice. This impulse accounts for the failure of people to save in the present since the payoff is years in the future.

As far as we know, Mr. Buffett’ brain is similar to other investors and he experiences the same impulses and anxieties as others. While he experiences the tensions that arise in everyone when making decisions, he has learned to control impulses and make reasoned, rational decisions.

Our Two-Brain System.
The studies by Daniel Kahneman and Amos Tversky provide new insight into decision-making, perhaps the key to Buffett’s success. They theorize that each human uses two systems of mental processing (System 1 and System 2) that work together seamlessly most of the time. Khaneman’s book, “Thinking, Fast and Slow,” outlines these two systems.

System 1 – Think Fast.
System 1, also referred to as the “emotional brain,” developed as the limbic system in the brain of early humans. Sometimes called the “mammalian brain,” it includes the amygdala, the organ where emotions and memories arise.

Neuroscientist Paul MacLean hypothesized that the limbic system was one of the first steps in the evolution of the human brain, developed as part of its fight or flight circuitry. Through necessity, our primitive ancestors had to react quickly to danger when seconds could mean escape or death.

The emotional brain is always active, capable of making quick decisions with scant information and conscious effort. It continuously makes and remakes models – heuristic frames – of the world around it, relying on the senses and memories of past events.

For example, an experienced driver coordinates steering and speed of an automobile on an empty highway almost effortlessly, even casually. The driver can simultaneously carry on conversations with passengers or listen to the radio without losing control of the vehicle. The driver is relying on the decisions of System 1.

The emotional brain is also the source of intuition, that “inner voice” or gut feeling we sometimes get without being consciously aware of the underlying reasons for its occurrence. We rely primarily on this system for the hundreds of everyday decisions we make – what to wear, where to sit, identifying a friend. Paradoxically, System 1 is a source of creativity as well as habits.

System 2 – Think Slow.
System 2, also called the “logical brain,” is slower, more deliberate, and analytical, rationally balancing the benefits and costs of each choice using all the available information.

System 2 decisions take place in the latest evolutionary addition to the brain – the neocortex. It is believed to be the center of humans’ extraordinary cognitive activity. System 2 was slower to evolve in humans and requires more energy to exercise, indicating the old saw “Thinking is hard” is a fact.

Kahneman characterizes System 2 as “the conscious, reasoning self that has beliefs, makes choices, and decides what to think about and do.” It is in charge of decisions about the future, while System 1 is more active in the moment. While our emotional brain can generate complex patterns of ideas, it is also freewheeling, impulsive, and often inappropriate.

Fortunately, System 1 works well most of the time; its models of everyday situations are accurate, its short-term predictions are usually correct, and its initial reactions to challenges are swift and mostly appropriate.

System 2 is more controlled, rule-based, and analytical, continuously monitoring the quality of the answers provided by System 1. Our logical brain becomes active when it needs to override an automatic judgment of System 1.

For example, the earlier driver proceeding casually down the road is more focused when passing a semi-truck on a narrow two-lane road or in heavy traffic, actively processing the changing conditions and responding with deliberate actions. His or her mental effort is accompanied by detectable physical changes, such as tensed muscles, increased heart rate, and dilated pupils. In these circumstances, System 2 is in charge.

The logical brain normally functions in low-effort mode, always in reserve until System 1 encounters a problem it cannot solve or is required to act in a way that doesn’t come naturally. Solving for the product of 37 x 82 requires the deliberate processes of System 2, while the answer to a simple addition problem, such as the sum of 2 + 2, is a System 1 function. The answer is not calculated, but summoned from memory.

Neuropsychologists Abigail Baird and Jonathan Fugelsang’s 2004 study indicates that System 2 does not fully develop until adulthood. Their findings suggest the reason that adolescents are more likely to engage in risky behavior is because they lack the mental hardware to weigh decisions rationally. For most people, the two systems work together seamlessly, transitioning from one to the other as needed.

The Buffett Style.
The Oracle of Omaha’s key to investing is understanding and coordinating the two systems of decision-making. Buffett relies upon System 1 to intuitively seek out investments he finds attractive and understands.

When deciding on a possible investment, he recommends, “If you need a computer or a calculator to decide whether to invest, then don’t do it – invest in something that shouts at you – if it is not obvious, walk away . . . If you don’t know the business, the financials won’t help at all.”

Avoid the Traps of Thinking Fast.
Master investors like Buffett simplify their decisions by relying upon System 1, and it serves them well in most cases. However, they recognize that their emotional decision-making system is also prone to biases and errors, including:

Mental Framing.
Our brains, equipped with millions of sensory inputs, create interpretive mental “frames” or filters to make sense of data. These mental filters help us understand and respond to the events around us. Framing is a heuristic – a mental shortcut – that provides a quick, easy way to process information. Unfortunately, framing can also provide a limited, simplistic view of reality that can lead to flawed decisions.

The choices we make depend on our perspective, or the frames surrounding the problem. For example, research shows that people are likely to proceed with a decision if the outcome is presented with a 50% chance of success and decline if the consequence is expressed with a 50% chance of failure, even though the probability is the same in either case.

Most investors incorrectly frame stock investments by thinking of the stock market as a stream of electronic bits of data independent of the underlying businesses the data represents. The constant flow of information about prices, economies, and expert opinions triggers our emotional brains and stimulates quick decisions to reap profits (pleasure) or prevent loss (pain).

Buffett recommends investors not think of an investment in stock as “a piece of paper whose price wiggles around daily” and is a candidate for sale whenever you get nervous.

Short-term thinking – System 1 – often leads to trading stocks, not investing in companies. Day traders – those who buy and sell stocks within a single market session – are unusually unsuccessful, according to day trading studies by the University of California-Berkeley:

80% of all day traders quit within the first two years.
Active traders underperform the stock market average by 6.5% annually.
Only 1.6% of day traders make a net profit each year.
Financial data is especially susceptible to framing. Companies always express earnings and losses positively, either as an increase compared to past results or a smaller loss than previous periods. Trends can be manipulated based upon the comparison point and time interval.

Even the words we use to describe a choice establish a frame for assessing value. Characterizations like “high growth,” “turnaround,” or “cyclical” trigger the subconscious stereotypes we have for such terms without regard to the underlying financial data.

Framing can lead rational people to make irrational decisions based upon their projections of the outcome. This accounts for the difference between economics’ rational man and psychology’s natural man.

Buffett has learned to frame his investment opportunities appropriately to avoid short-term, arbitrary outcomes:

“We [Berkshire Hathaway] select such investments on a long-term basis, weighing the same factors as would be involved in the purchase of 100% of an operating business.”
“When we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever.”
“If you aren’t willing to own a stock for 10 years, don’t even think about owning it 10 minutes.”
Loss Aversion.
Kahneman and Tversky determined that in human decision-making, losses loom larger than gains. Their experiments suggest that the pain of loss is twice as a great as the pleasure from gain. This feeling arises in the amygdala, which is responsible for generating fearful emotions and memories of painful associations.

The fact that investors are more likely to sell stocks with profit than those with a loss, when the converse strategy would be more logical, is evidence of the power of loss aversion.

While Buffett sells his positions infrequently, he cuts his losses when he realizes he has made a judgment error. In 2016, Buffett substantially reduced or liquidated his position in three companies, because he believed they had lost their competitive edge:

Wal-Mart: Despite his regrets that he had not purchased more shares earlier, he has been a long-time investor in the company. The rationale for the recent sales is thought to be due to the transition of the retail market from bricks-and-mortar stores to online. A Pew Research Center study found almost 80% of Americans today are online shoppers versus 22% in 2000.
Deere & Co: Buffett’s initial purchases of the agricultural equipment manufacturer began in the third quarter of 2012. By 2016, he owned almost 22-million shares with an average cost of less than $80 per share. He liquidated his shares during the last two quarters of 2016 when prices were more than $100 per share. Buffett may have felt that farm income, having fallen by half since 2013 due to worldwide bumper crops, was unlikely to improve, leaving the premier provider of agricultural equipment unable to continue to expand its profits.
Verizon: Having owned the stock since 2014, he liquidated his entire position in 2016, due to a loss of confidence in management after the company’s questionable acquisition of Yahoo and the continued turmoil in the wireless carrier market.
Our distaste for losses can create anxiety and trick us into acting prematurely because we fear being left out in a rising market or staying too long in a bear market. Buffett and Munger practice “assiduity – the ability to sit on your ass and do nothing until a great opportunity presents itself.”

Representativeness.
People tend to ignore statistics and focus on stereotypes. An example in the Association of Psychological Science Journal illustrates this common bias. When asked to select the proper occupation of a shy, withdrawn man who takes little interest in the real world from a list including farmer, salesman, pilot, doctor, and librarian, most people incorrectly chose librarian. Their decision ignores the obvious: there are many more farmers in the world than librarians.

Buffett focuses on finding the “inevitables” – great companies with insurmountable advantages – rather than following conventional wisdom and accepted patterns of thinking favored by System 1’s decision-making process. In his 1996 letter to investors, he defines Coca-Cola and Gillette as two companies that “will dominate their fields worldwide for an investment lifetime.”

He is especially wary of “imposters” – those companies that seem invincible but lack real competitive advantage. For every inevitable, there are dozens of imposters. According to Buffett, General Motors, IBM, and Sears lost their seemingly insurmountable advantages when values declined in “the presence of hubris or of boredom that caused the attention of the managers to wander.”

Buffett recognizes that companies in high-tech or embryonic industries capture our imaginations – and excite our emotional brains – with their promise of extraordinary gains. However, he prefers investments where he is “certain of a good result [rather] than hopeful of a great one” – an example of the logical brain at work.

Anchoring.
Evolution is the reason humans rely too heavily on the first or a single bit of information they receive – their “first impression.” In a world of deadly perils, delaying action can lead to pain or death. Therefore, first impressions linger in our minds and affect subsequent decisions. We subconsciously believe that what happened in the past will happen in the future, leading us to exaggerate the importance of the initial purchase price in subsequent decisions to sell a security.

Investors unknowingly make decisions based on anchoring data, such as previous stock prices, past years’ earnings, consensus analyst projections or expert opinions, and prevailing attitudes about the direction of stock prices, whether in a bear or bull market. While some characterize this effect as following a trend, it is a System 1 shortcut based on partial information, rather than the result of System 2 analysis.

Buffett often goes against the trend of popular opinion, recognizing that “most people get interested in stocks when everyone else is. The time to get interested is when no one else is. You can’t buy what is popular and do well.” When making a decision based on historical data, he notes, “If past history was all that is needed to play the game of money, the richest people would be librarians.”

Buffett’s approach is neither to follow the herd nor purposely do the opposite of the consensus. Whether people concur with his analysis isn’t important. His goal is simple: acquire, at a reasonable price, a business with excellent economics and able, honest management.

Despite considering IBM an “imposter” in 1996, Berkshire Hathaway began acquiring the stock in 2011, consistently adding to Buffett’s position over the years. By the end of the first quarter in 2017, Berkshire owned more than 8% of the outstanding shares with a value greater than $14 billion.

While his analysis remains confidential, Buffett believes that the investors have discounted the future of IBM too severely and failed to note its transition to a cloud-based business might lead to brighter growth prospects and a high degree of customer retention. Also, the company pays a dividend almost twice the level of the S&P 500 and actively repurchases shares on the open market.

The growing IBM position – quadrupling since the initial purchase – is evidence that Buffett isn’t afraid to take action when he is comfortable with his analysis: “Opportunities come infrequently. When it rains gold, put out the bucket, not the thimble.”

Availability.
Humans tend to estimate the likelihood of an event occurring based on the ease with which it comes to mind. For example, a 2008 study of State lottery sales showed that stores that sell a publicized, winning lottery ticket experience a 12% to 38% increase in sales for up to 40 weeks following the announcement of the winner.

People visit stores selling a winning ticket more often due to the easy recall of the win, and a bias that the location is “lucky” and more likely to produce another winning ticket than a more convenient store down the street.

This bias frequently affects decisions about stock investments. In other words, investor perceptions lag reality. Momentum, whether upward or downward, continues well past the emergence of new facts. Investors with losses are slow to reinvest, often sitting on the sidelines until prices have recovered most of their decline (irrational pessimism).

Conversely, reinforcement from a bull market encourages continued purchasing even after the economic cycle turns down (irrational optimism). Therefore, investors tend to buy when prices are high and sell when they are low.

The S&P 500 fell 57% between late 2007 and March 2009, devastating investor portfolios and liquidating stocks and mutual funds. Even though the index had recovered its losses by mid-2012, individual investors had not returned to equity investments, either staying in cash or purchasing less risky bonds.

At the time, Liz Ann Sonders, Chief Investment Strategist at Charles Schwab & Co., noted, “Even three-and-a-half years into this bull market and the gains we’ve seen since June [2012], it has not turned this psychology [of fear] around.” In other words, many individuals took the loss but did not participate in the subsequent recovery.

Buffett has always tried to follow the advice of his mentor, Benjamin Graham, who said, “Buy not on optimism [or sell due to pessimism], but on arithmetic.” Graham advocated objective analysis, not emotions, when buying or selling stocks: “In the short run, the market is a voting machine [emotional], but in the long run it is a weighing machine [logical].”

Affect.
We tend to assess probabilities based on our feelings about the options. In other words, we judge an option less risky solely because we favor it and vice versa. This bias can lead people to buy stock in their employer when other investments would be more appropriate for their goals. Overconfidence in one’s ability magnifies the negative impact of affect.

For example, Buffett invested $350 million in preferred stock of U.S. Airways in 1989, despite his belief that airlines and airline manufacturers had historically been a death trap for investors. The investment followed a dinner with Ed Colodny, the CEO of the airline, who impressed Buffett. Certain that the preferred stock was safe and the airline had a competitive seat cost (around 12 cents per mile), he made the investment.

Buffett later admitted his analysis “was superficial and wrong,” perhaps due to hubris and his like for Colodny. An upstart Texas airline (Southwest Airlines) subsequently upset the competitive balance in the industry with seat costs of 8 cents per mile, causing Berkshire Hathaway to write down its investment by 75%.

Buffett was lucky to make a significant profit on the investment ($216 million), primarily because the airline subsequently and unexpectedly returned to profitability and was able to pay the accrued dividends and redeem its preferred stock.

Final Word.
Mr. Buffett’s investment style has been criticized by many over the decades. Trend followers and traders are especially critical of his record and philosophy, claiming that his results are the result of “luck, given the relatively few trades that made him so wealthy.”

Hedge fund manager Michael Steinhardt, who Forbes called “Wall Street’s Greatest Trader,” said during a CNBC interview that Buffett is “the greatest PR person of all time. And he has managed to achieve a snow job that has conned virtually everyone in the press to my knowledge.”

Before following the advice of those who are quick to condemn Buffett’s investment style, it should be noted that no investment manager has come close to rivaling Buffet’s record over the past 60 years. While Steinhardt’s returns are similar to those of Buffett, his were for a period of 28 years – less than one-half of Buffett’s cycle.

Despite their antipathy, both men would agree that System 2 decision-making is critical to investment success. Steinhardt, in his autobiography “No Bull: My Life In and Out of Markets,” said that his results required “knowing more and perceiving the situation better than others did . . . Reaching a level of understanding that allows one to feel competitively informed well ahead of changes in ‘street’ views, even anticipating minor stock price changes, may justify at times making unpopular investments.”

Buffett appears to agree, insisting on taking the time for introspection and thought. “I insist on a lot of time being spent, almost every day, to just sit and think. That is very uncommon in American business. I read and think. So I do more reading and thinking, and make fewer impulsive decisions than most people in business.”

Do you take the time to gather facts and make carefully analyzed investment decisions? Perhaps you are more comfortable going with the flow. What is your decision-making preference and how has it worked out for you thus far?
Do you know anyone who has owned the same stock for 20 years? Warren Buffett has held three stocks – Coca-Cola, Wells Fargo, and American Express – for more than 20 years. He has owned one stock – Moody’s – for 15 years, and three other stocks – Proctor & Gamble, Wal-Mart, and U.S. Bancorp – for over a decade.

To be sure, Mr. Buffett’s 50-year track record is not perfect, as he has pointed out from time to time:

Berkshire Hathaway: Pique at CEO Seabird Stanton motivated his takeover of the failing textile company. Buffett later admitted the purchase was “the dumbest stock I ever bought.”
Energy Future Holding: Buffett lost a billion dollars in bonds of the bankrupt Texas electric utility. He admitted he made a huge mistake not consulting his long-term business partner Charlie Munger before closing the purchase: “I would be unwilling to share the credit for my decision to invest with anyone else. That was just a mistake – a significant mistake.”
Wal-Mart: At the 2003 Berkshire Hathaway shareholder meeting, Buffet admitted his attempt to time the market had backfired: “We bought a little, and it moved up a little, and I thought maybe it would come back. That thumb-sucking has cost us in the current area of $10 billion.”
Even with these mistakes, Buffett has focused on making big bets that he intends to hold for decades to come. A longer time horizon has allowed him to take advantage of opportunities few others have the patience for. But how has he been able to make these successful bets in the first place?

source : https://www.moneycrashers.com/warren-buffett-decisions-secret-investing-success.

August 14, 2020

Best colleges in the us

FAQ Best colleges in the us

Below 25 Best College in the US

Massachusetts Institute of Technology
#1 Best Colleges in America
Graduate Student: Massachusetts Institute of Technology is a fantastic school that offers students an opportunity to explore anything. The staff is second to none and always encourage students to challenge themselves in whatever it is they are passionate about. Walking down the halls, you feel the energy and passion from students. The students at Massachusetts Institute of Technology live and breathe Science, Technology, Engineering and Mathematics. Everyone on campus is there to make the world a better place and that is what makes MIT so special. Everyone is highly intelligent and capable, but it’s the common desire to give back that makes the campus.

Stanford University
#2 Best Colleges in America
Alum: The campus is beautiful to start and provides many beautiful areas for studying or hanging out with friends. The campus is full of amazing resources including the libraries and professors. The academics are definitely challenging, but worth it. Go Card!

Harvard University
#3 Best Colleges in America
Freshman: I just finished my first year at Harvard. I had a rocky transition at first, but I am really loving it! The professors and TFs I have had are all really friendly and accessible, and there is an endless list of classes that I want to take. Conversations with peers are really thought-provoking and deep. You can find so many great communities through different activities, and there are so many great people on campus. Even as a freshman, I have been offered so many unique opportunities that I know come from Harvard's resources. I never thought it could, but Harvard has really become my home this year.

Yale University
#4 Best Colleges in America
Niche User: I really like the online courses from Yale University, you can choose btw a lot of different subjects and get smarter.
And the proffessors are amazing!
This university changed me a lot. Not only do I feel like an expert in my area of study, but I have been taught to write and speak in a much more compelling way than ever before. The university is very conducive to fostering strong friendships among undergrads. I have close networks of friends that I could not have formed elsewhere

Princeton University
#5 Best Colleges in America
Junior: There are great courses offered, and the people coming together here bring a variety of fresh ideas. There are many opportunities to learn valuable and world-changing skills and knowledge. Although there are also mechanisms at play that pull students into archaic ways of thinking, unfulfilling lifestyles, and professions that have a net neutral or negative impact on society. I'd also like to see greater diversity among the faculty and greater embodiment of diversity among the students. It's time for pluralism! Active expression and communal valuing of diversity - not diversity that is only quietly present and not honored for its value.

University of Pennsylvania
#6 Best Colleges in America
Senior: I truly love the University of Pennsylvania. I had an amazing time here and look forward to getting my graduate degree here next year. The highly professional environment and competitive atmosphere pushes students to reach their highest potential and grow beyond it. Penn also encourages students to have balanced social lives, and provides the students with the necessary resources to have their interests be represented within campus and in student groups. However, I must admit that Penn's hyper-competitive environment does have drawbacks, especially on students' mental health. I think Penn could tackle this by changing their grading scheme, especially for underclassmen.

Columbia University
#7 Best Colleges in America
Niche User: I visited Columbia at the end of March with a group and loved the vibe of the campus. Although I want to be as close as I can to or in the city, my ideal college campus needs look like a university setting. NYU, on the other hand, is right in the middle of the city and sometimes you can't tell where the buildings are without the NYU flags. I liked Columbia much better in that sense and I personally do not need to vouch for the education standard because we all know an ideal place to go for an intelligent, hard working student. Walking around the main area made me feel like I belonged there!

Duke University
#8 Best Colleges in America
Freshman: Choosing to go to Duke has been one of the best decisions I've ever made. Its campus is BEAUTIFUL; we have lush gardens and there are so many birds here, from towhees to even the occasional hawk. The opportunities here to get involved are almost overwhelming. We have this program called DukeEngage where students go to all parts of the world to work with communities through research and volunteer work. I will actually be going to Costa Rica this summer to help in rainforest restoratuon and conservation through this program!But what I truly love most about this school is its students. The atmosphere here is not competitive but collaborative. I came to Duke feeling insecure about my qualifications compared to those of the other incoming freshman. But never once did I feel belittled or patronized. Students here want each other to succeed, we want to see each other grow and challenge ourselves to improve. Here at Duke, 'Southern Hospitality' is the real deal!

Brown University
#9 Best Colleges in America
Junior: Brown University has been an incredible experience and has allowed me to pursue passions that I wasn't even aware I was interested in! The unique open curriculum allows students to take courses from a broad range of subjects and helps to ensure they find the right area of study. I personally believed I wanted to go into biomedical engineering, however, after taking a variety of classes at Brown in environmental studies, I have switched my major. Every teacher, student, and dean is so incredibly passionate about the work and everyone is constantly striving to be better which makes the University an amazing place and experience!

California Institute of Technology
#10 Best Colleges in America
Alum: Caltech is a very work hard play hard mentality. Academically, it has the most rigorous and intense coursework I've ever experienced. Alumni agree that any job after graduation pales in comparison to the Caltech workload. The professors are amazingly competent, and it's treated as no big deal to take a course taught by a Nobel-prize winner. I would say the classes are very theoretical with an emphasis on proofs, so it's not very industry-oriented (unless you study computer programming). Socially, although there's no Greek life, all students are sorted into one of eight dorm houses, which are essentially fraternities. There are parties, you just need to know where to look for them. The food is terrible, eating out or cooking your own is both cheaper and tastier. The dorms are old, but no major issues. Caltech isn't perfect, but it'll challenge you academically and get you a good job after graduation.

Washington University in St. Louis
#11 Best Colleges in America
Niche User: This school defines that you can not put a price on the education you receive. Every student is driven, focused, and goal oriented, so the competitive environment pushes you just as hard as the professors! The campus is extremely safe and beautiful and the research opportunities you receive are unlike any other!

Rice University
#12 Best Colleges in America
Niche User: I love the community atmosphere. Everyone works together to expand on similar desires. Rice as a whole is a college that fuels specific passions! As a person living with a low-income, Rice is determined to help give me FULL FREE tuition to attend their campus because they see my potential. Rice is very specific in it's majors, and the one thing that may be open for improvement is the expansion of their courses to incorporate and be strong in all degree fields.

University of Notre Dame
#13 Best Colleges in America
Freshman: I love Notre Dame! It's a beautiful place, inside and out. We've got all sorts of clubs, students and academic interests. Personally, I am very pleased with the Mass and Sacrament availability as well as all the Catholic-related activities. Of course, not everybody is Christian; Notre Dame is a home for all. I've already found some solid friends with whom I enjoy spending these cold (and warm) Indiana days. ND meets 100% of financial need; this assistance extends beyond tuition and has allowed me to get the full Notre Dame Experience. Everyone here is passionate about something, and one passion we all share is a love for Notre Dame, Our Mother. Go Irish!

Northwestern University
#14 Best Colleges in America
Alum: Northwestern is a well-balanced school--top notch academics, great arts programs, amazing engineering and science facilities, in a minor city (Evanston) and very close to a major one (Chicago), and even a bit of sports culture. NU students tend to be fun-loving, driven and ambitious, both in their academic and extra-curricular pursuits. It's definitely a work-hard-play-hard atmosphere when you're on campus, and while there is danger in this as you can easily over-extend yourself (and many students do at some point), it makes for a fulfilling four years.

University of Chicago
#15 Best Colleges in America
Alum: It's nice to see that the University has increased campus diversity of financial aid resources for families that will make the campus more diverse in terms of student backgrounds. I enjoyed my time in college housing a lot! Get involved with your house - go on house trips, play intramural sports, take on a leadership position. If you need something - speak up and ask for it! You really can have a say in your university. Don't be shy to speak up and ask questions. The University can only continue to improve with that kind of input.

Pomona College
#16 Best Colleges in America
Sophomore: I'm only a sophomore, but I've gotten involved with research for all four semesters, received internship funding, had expenses for two conferences paid for, was actively involved in an award winning Mock Trial without any experience, and learned how to play the violin through free private music lessons. I've also been able to go to Los Angeles often for endless entertainment, natural beauty, and incredible eats. This place may be tiny, but it is bustling with opportunity. The academic experience is robust, with professors who love to teach and peers who love to learn. The Claremont Colleges add so much depth, and each is distinctive enough to venture out to and seek out new perspective. I had my choice of attending a world-renowned university over here, but I could see the difference in how the undergraduates were valued. The only thing I wish were different was the lack of name brand- Pomona is so unknown by most! Still, if you are willing to work hard, you can go anywhere from here.

Bowdoin College
#17 Best Colleges in America
Freshman: So glad I chose to come to Bowdoin! A very close community where people treat each other with kindness and are excited to learn from their peers. Quality of life is great, with great dorms, food and surrounding area. Classes are challenging but there is very little competitiveness and lots of support for students academically. For a small liberal arts school, there is a very healthy and fun social life.

Vanderbilt University
#18 Best Colleges in America
Sophomore: What I love about Vanderbilt is the commitment to creating a meaningful & memorable experience. Ever since stepping foot on campus - when I was met by my freshman Head of House and the Move Crew - I've been supported and welcomed. I've been encouraged to pursue my interests in and outside of the classroom and attended countless events.

Sometimes it feels like there are too many things to get involved in, especially with the weight of academics on our shoulders, but not everyone experiences this the same way. One of my favorite things is the identity centers like the Women's Center, Black Cultural Center and KC Potter (LGBTQ) Center who provide students with fun and informative programming and the comforts of home. Plus, can you ever go wrong living at an arboretum?
I mean this honestly (but always a little ironically), Anchor Down!

Dartmouth College
#19 Best Colleges in America
Freshman: Dartmouth is simply wonderful. It has such a wonderfully cozy and collaborative atmosphere, which combined with the unparalleled focus on undergraduate students makes it the best college there is. The only thing people should be aware of is that there will be a large number of wealthy students, so be prepared to face some new socioeconomic diversity. Overall, it is such a safe and fun college set in a beautiful part of the country!

University of Southern California
#20 Best Colleges in America
Freshman: Coming to USC was one of the greatest decisions of my life! I'm a first-gen, low income minority coming from Texas who had never visited California before, so you can guess just how big of a difference California was from Texas. I thought I was going to feel overwhelmed and flunk out, but I didn't! In fact, I'm thriving here. The university is very beautiful, the brick and gothic sorta architecture is very pretty and really relaxing. There are so many opportunities and a lot of different majors, so I'm sure you will find what you are looking for. There are a lot of different activities to join, so you will definitely find your group of friends as long you get involved!

Cornell University
#21 Best Colleges in America
Freshman: Prepare to work hard - especially if you're in STEM. As an engineering major my life here is a never ending cycle of attending classes, working in lab, engineering project team related work, doing homework and crashing/going to bed at 1-2AM. It may seem rough to the outsider but if you're coming from a challenging high school (as I did) its a relatively seamless transition and I am infinitely happier here at Cornell! There is constantly something new happening from the range of amazing speakers visiting, cool things your classmates are creating/doing, Ithaca's quirky charm, your eccentric professors , etc... I came here expecting the competition to be intense and thank goodness its not ; there's a sense of general comradery amongst engineers. The motto 'any person, any study' is really true. They have just about every major allowing allotting the opportunity to study a great variety of fields. Fair warning about Ithaca; it gets REALLY cold! Invest in a warm coat!

Georgetown University
#22 Best Colleges in America
Junior: Georgetown University is an incredible university with top-notch professors and academic programs. Professors DO seem preoccupied with their research, but most genuinely care about students. Perhaps the most difficult aspect of the university is connected to how pre-professional it is. This can translated to club culture. People are more focused on getting jobs after graduation than most other schools. This is connected to Georgetown's return on investment, however. Well worth coming!

University of Michigan - Ann Arbor
#23 Best Colleges in America
Freshman: From amazing academics to contagious school spirit, I have loved my first year at Michigan. The universe exceeded all of my expectations. Everyone student is motivated to do their best. This is not only in a classroom setting, but it is in every aspect of their lives. I am pushed by all my peers to try my hardest. Although a large school, the administration truly cares about every student, and there are countless numbers of resources available to help with anything one may need. The social aspect of school is amazing. There are so many different types of people, clubs, and parties, so everyone can find something they like. GO BLUE!

Amherst College
#24 Best Colleges in America
Sophomore: Amherst is simply an amazing institution. The student body here is top notch academically, yet friendly, not cutthroat. The professors are genuinely available, almost 24/7, and have an interest in seeing their students succeed. Make no mistake, the academic environment is rigorous - for the most part the student body is made of of academic "1%-ers," and the pace and expectation is what you'd expect from that.
The town of Amherst is a quintessential beautiful Northeastern college town.
People are super successful coming out of Amherst. The acceptances to top medical, law and other graduate schools each year is mind-blowing. Same with people going into finance/Wall Street.
All in all, Amherst is a magical place to spend 4 years!

Tufts University
#25 Best Colleges in America
Freshman: As a freshman at Tufts, I am constantly blown alway by endless opportunities available to undergraduate students at various academic departments, student-run organizations, and Tisch College of Civic Engagement. Students are here to learn from a wide range of perspectives and always listen carefully to one another to reexamine their thoughts. Even in today's political divisiveness, I find Tufts students relatively open-minded and tolerant to perspectives and thoughts that might be contrary to their own. Furthermore, as a student who plans on majoring in International Relations, I am always struck by how organized the program is here at Tufts. Professors and students are experts in their field, and I can easily see future diplomats and leading scholars in my classroom. There are conferences at the Fletcher school almost every week where leading scholars and researchers come and speak. I love Tufts!

Find More Best colleges in the us

May 26, 2019