Legendary economist, Nobel laureate and author Paul Samuelson has died at the age of 94 (see Paul Krugman’s blog post).
I first came to know his name from what he has said below on investing (which is also my favourite investment quote):
Investing should be dull. It shouldn’t be exciting. Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas. — Source
Paul Samuelson was referring to the emotional traps (overconfidence, market timing, performance chasing, etc.) that investors often fall into. And that investors would be better off doing it passively. It is also the investment philosophy I adopt and wrote about it in this post 3 years ago.
In Your money and Your Brain, Jason Zweig described an investor who sold all of her stocks and bonds into cash whenever she goes on vacation, and move everything back when she is back from vacation. The investor says, “That way I know I’m in charge while I’m on vacation, and I can relax instead of worrying that I might lose money.”
The author described the inventor as being suffered from “the illusion of control”, the feeling that one can exert authority over random chance with our physical actions. (This reminds me of the book Fooled by Randomness)
The Mamak Stall Investor is going on vacation too. He is not going to do anything to his portfolio: no selling, no buying. He says, “That way I know I wouldn’t be subject to emotional roller coaster while I’m on vacation, and I can relax knowing that there wouldn’t be any surprise because my indexed portfolio will behave just like how the markets behave.” Will there be year-end stock rally? Will there be more bad news from the finance sector? “I don’t know, I don’t care“, he says.
Merry Christmas and Happy New Year to all of you!
Last month, I ordered three books from Amazon and shared the shipping cost with a member in sgfunds.com. Using Office 2.0, we collaborated on Google Spreadsheet to calculate and split the shipping cost. It was quite cool and efficient 🙂
The first book Wise Investing Made Simple: Larry Swedroe’s Tales to Enrich Your Future by Larry Swedroe uses stories (sometimes the author’s own encounter with his clients) and analogies to explain how the market really works, why the conventional wisdom in life does not work in investing, what the common mistakes in investing are. It aims to answer the “why” questions to indexing and passive investment, rather than the “how” questions to implement such strategy. The book also touches on the “odds and ends” questions in investing that are normally not the main contents in the “how” books of passive investing, such as:
- is there any connection between high expected GDP growth rate and high stock market return? (chapter 19)
- what if everyone indexed? (chapter 21)
- can active management gain competitive advantage in less efficient market? (chapter 21)
I have difficulty in understanding some terms used in sports (e.g. baseball) whenever they are used in the analogies. On the other hand, many stories are written as a dialog between a financial adviser and the client. This makes a good read for any advisers who want to know how to explain the concept of indexing and passive investing to clients. 😉
The second book The Intelligent Investor by Benjamin Graham is an interesting one. The author and the book are often quoted in discussions on value investing and stock analysis. So I didn’t pay much attention to the book, until it was quoted in John Bogle’s The Little Book of Common Sense Investing about Graham’s comment on indexing. Out of curiosity, I have browsed the book a few times in book store before I decided to buy it. The latest edition comes with Jason Zweig‘s commentary on each chapter, which is a good read by itself. I would say if I had read this book before, I would still invest in the indexing and passive ways – the ways Benjamin Graham recommended (albeit implicitly) for the “defensive investor” as defined in the book, expanded and explained clearer by Jason Zweig.
The third book Manias, Panics, and Crashes: A History of Financial Crises by Charles P. Kindleberger and Robert Aliber is the kind of book that you will come across if you visit Bogleheads forum long enough. After reading books on asset allocation and passive investing to tackle the expense “enemy”, investors are recommended to read up financial history of market crashes to prepare for the emotion “enemy”. Because a sound asset allocation plan is useless if investors cannot stick to it through the up and down of stock markets. I have not gone through a severe market crash since I started my portfolio, so I am reading this book to “bulletproof” my emotion from the next crash. Besides this book, other books on market crashes and financial history can be found in Bogleheads forum topics at Books on manias and crashes ? and Book on great Depression? Or find a movie on the 1929 Great Depression. 😉
Got my new book last week from the US. My brother was on a business trip in the US, so I gave him my $100 US-dollar bill left over from other trip to buy me some books and gifts. I listed two books to buy: Your Money and Your Brain by Jason Zweig and Wise Investing Made Simple by Larry Swedroe. He managed to get only the first book from the few book stores that he has visited.
I paid US$28 (US$26 + tax) for Your Money and Your Brain, more expensive than Amazon but cheaper than the listed price of S$46 at Kinokuniya Singapore. The first few pages of the book are diagrams of anatomy of human brain. Oops, did I just get a textbook for medical course? Hehe… There are also several colour pages that show the cross-section scans of the author’s brain under different money-related stimuli.
The book starts with:
“How could I have been such an idiot?” If you’ve never yelled that sentence at yourself in a fury, you’re not a investor.
I have just finished chapter one. Here are some sentences from chapter one:
Everyone knows that chasing hot stocks or mutual funds is a sure way to get burned — yet millions of investors flock back to the flame every year.
(along with another four sentences of “Everyone knows that … and yet …”)
“Financial decision-making is not necessarily about money,” says psychologist Daniel Kahneman of Princeton University. “It’s also about intangibles motives like avoiding regret or achieving pride.”
“If you don’t know who you are,” quipped the investment writer “Adam Smith” in his classic book The Money Game, then Wall Street “is an expensive place to find out.”
Know more about who you are as an investor can make you a fortune — or save you one.
No matter how much or how little you may think you know about investing, there is always more to learn about the final financial frontier: yourself.
Oh, Merry Christmas. 🙂