All of them! No, seriously. The hallmark of good investors seem to be that the read a lot, that is, in a more general sense, they process huge amounts of information.
Many investment books, especially the non-technical ones, contains a strategy that can be summarized on one page while the rest of the book is an attempt at justifying why this strategy works along with some anecdotes on how the strategy has worked for them.
This is like asking what diet or exercise book one should read. Different strokes for different people. What you usually get from an investment book is an autobiography camouflaged as a plan.
One of the hardest things about recommending investment books is that the level of investment knowledge of the person asking can be anything from preschool to hedge-fund manager. Despite being an enormously important subject in a capitalist market society, there’s no general education attempts on investing. Maybe this is because if people knew how to handle their money better, they wouldn’t have to work so much and seeing that the ruling class needs workers, it’s better if the hoi polloi remains ignorant. I’m so jaded.
The way I see it, Mr. Market and I are engaged in single combat. If my strategy consists strictly of a slash straight for the head, I can be sure that sooner or later, Mr. Market is going to duck and stab.
Therefore, I try not to identify personally with a specific plan or method. If the market changes, I change. There is no technique that is best and which will defeat (outperform) all others.
My problem with giving investment advice here is that there are fighters of all different levels and students of all different abilities and perseverance. The problem with investing is that it is all too easy to pick up a sword and start a fight. Often people ask me question akin to “Which technique I recommend?”
Well, if you want to know. Hold your sword raised over your head. Remain calm. Don’t panic. As soon as your enemy commits to his strike, bring your sword down on him. Mutual suicide. At least you didn’t lose more than him. I call this the index investing method of sword fighting, but I digress …
My point is that relying on a single technique makes you cannon fodder (or mince meat). Picking up a sword doesn’t make one a swordsman and buying a stock doesn’t make one an investor. You must study both hard.
Unfortunately, it’s all too easy to invest. People will gladly do this without a second thought yet they would never pick up a sword and challenge a random swordsman to a fight.
Investing is as much a study of yourself (I can’t help you) as it is a study of the market (I can help you). Like with swordsmanship, beginners receive different instructions in techniques compared to advanced students. A master knows no techniques because he knows all techniques.
“Know yourself and know your enemy and you shall be victorious”.
You know, I used to find this investor fascination with Sun Tzu’s Art of War and Musashi’s Book of Five Rings bizarre. What possible relevance could all these apparently vague references to swordsmanship and warfare has to do with the market. I was immature and this kind of thinking is more advanced. Of course this has everything to do with knowing your own risk-tolerance and the market’s risk-tolerance plus the skill level of the market.
In martial arts people are recommended to visit many dojos to find a teacher they are compatible with. In reality, they pick the closest dojo or one of the first ones they come across and stick with that. Investing is similar.
The proper course is to begin by reading as many books on investment as you can get your hands on. If a book is too complicated put it aside for later. The first goal is to know yourself. What are you comfortable with? After reading a couple of dozen books this should be more clear and you can begin to learn more about one particular “school”. Reading books does not a swordsman make. You can not learn about investing simply by reading books. You can’t do it in paper trading games either. Real money changes everything just like real danger changes everything. Do you think the tactics used in paintball would remain the same if real bullets were used of even if people took off their masks and pads? I assure you they would change drastically.
This doesn’t mean that you should stake all your money on it. Start with a little, like 10% and see how you fare.
You should keep learning techniques (investment methods) because Mr Market is the aggregate of all techniques. You must know what you’re up against. However, don’t get stuck on one particular technique. I repeat, “techniques” are a teaching tool for students. It’s a way of formalizing all movement into discrete concepts that can be named.
You’ll be ready for serious investing once you begin to develop your own ideas. This is also the point where you begin to generate what the nerds call “alpha”(*), that is, market outperformance. This is the point when you begin to question “technique” and “method”.
Original ideas have value. But few people think—this includes so-called market professionals(**).
(*) The efficient market hypothesis says that it is impossible to predict who will generate alpha. Not so, but the ability to predict alpha is an art in itself. It takes a master to know another master. A beginner will not be able to tell the difference between a good swordsman and a master swordsman. A good swordsman will. Similarly it takes a master swordsman to tell the difference between himself and a genius swordsman. Those who say it’s impossible to tell just haven’t given much thought to the matter. Saying that all swordsmen are randomly distributed is good enough for academic work. It’s good enough to understand the war from 50,000 feet.
(**) Be honest, how many of your fellow students would you say did some actual thinking on their own as opposed to just handing in assigned papers and doing the calculations they were taught? What makes most market professionals any different?
Originally posted 2011-09-27 13:38:48.