'10 Questions' Goes Back to School

Third, we're all human. We tend to do exactly precisely the wrong thing at the wrong time. I used to get exercised about it. I used to think people were stupid, now I realize they're just people.

We all fall prey personally to human nature. We finally buy Cisco(CSCO Quote) at $84 and decide to throw in the towel at $11. We can laugh, but it's true -- professionals and individuals alike.

When you put those three elements together, you realize that your best bet is to make your investments, lock them up and don't look at them for a good long time -- except to rebalance occasionally. Didn't Warren Buffett say his favorite holding period is forever?

Larry Swedroe and the 14 Truths

On Aug. 18, we published a conversation with Buckingham Asset Management principal Larry Swedroe to mark the publication of his newest book, which discusses "The 14 Simple Truths You Must Know When You Invest." Swedroe likes to say he's on a mission to save investors, one at a time if necessary. In keeping with the "back-to-school" theme of today's 10 Questions, we'll highlight his answer on Truth #12: Knowledge of Financial History Is Critical.

Swedroe: People think the bubble of the 1990s was different this time. It wasn't different, except that it was the Internet the time. I demonstrate in my book that if you just changed the names from JDS Uniphase(JDSU Quote) and the rest to the [electronics] companies of the 1960s, it was exactly the same bubble -- same P/Es of 200, same IPO frenzy, same bursting and all the scandals that followed. People say, "Don't burst my bubble." I won't, but the market will.

People all said the Internet would change the world. These technology-inspired booms are remarkably similar. If individuals knew their financial history, they would have been wise to what was happening in the late 1990s. I mean, we had daytrading back in the 1700s!

James O'Shaughnessy and Retiring Rich

Our 10 Questions interview on Aug. 11 was with Bear Stearns Asset Management's James O'Shaughnessy, in which we offered a refresher course from his book, How to Retire Rich. In the following passage, O'Shaughnessy discusses the virtues of asset allocation as a bulwark against the vagaries of the market.

O'Shaughnessy: Asset allocation and style diversification are bedrock principles of investing. One of the biggest mistakes people made was jettisoning every asset class that wasn't large growth because they were weighing down their returns.

And this was easy to do in the late 1990s, when you had people -- including many experts and media pundits -- saying, it's a new era! It's different this time! They repealed the business cycle! (Laughs.)