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We read and reviewed the 15 best investment and money books (according to the experts) so you don’t have to! Typically, my reviews are first-person narrative. I am an artist after all (and I’m sensitive about my sh*t). I am a writer secondarily.
However, Dr. Crosby is an investment expert and psychologist. Placing myself on the same plane as someone with those qualifications is not an arrogance I currently possess. Therefore, this review will remain light on the ignorant ruminations possed by yours truly and heavy on quotes from the expertise of Dr. Crosby.
The Greatest Crash of All Time only retains that crown until it doesn’t. It is a truism that just because the market is crazy does not make you a shrink. It is the innate tendency of humankind to project the present state of things into the future indefinitely.
I’ve never been one to shy away from miss-timing a crisis. This time around I decided to haphazardly hop on a 30-hour roundtrip flight at the start of what soon be categorized (mid-vacation) as a PANDEMIC.
Fortunately, as evidenced by the existence of this post, I am not dead…yet.
My latest adventure in ill-timed misfortune did give me the opportunity to read three books: The Behavioral Investor by Daniel Crosby, psychologist, asset manager, and author of The Laws of Wealth: Psychology and the secret to investing success; Atomic Habits: An Easy & Proven Way to Build Good Habits & Break Bad Ones by James Clear; and Maybe You Should Talk to Someone: A Therapist, HER Therapist, and Our Lives Revealed by Lori Gottlieb.
I read them concurrently and finished all three books in two weeks. While coincidental, the timing and choice to read them all at the same time would ultimately prove serendipitous. I would soon need to rely on the lessons learned from each just to mentally process the emotional toll of watching the stock market have it’s “fastest-ever fall from an all-time high to a bear market” since the Great Depression and “biggest one-day jump since 1933” all in the same month!
Mama said there’d be days like this.
It’s one thing to do an interview on Why Millennials Face the Scariest Financial Future Since the Great Depression ft. Michael Hobbes. It is a whole other experience to see that reality play out in less than 31 calendar days. What insights can we learn from the Behavioral Investor on what to do during times of calamity and chaos? Here is my summary of what Dr. Crosby has to say on the matter…
You Are Not That Smart, But Everyone Else is Dumb
“The most important part of being a well-educated behavioral investor is understanding just how little education matters. The world is full of well-educated people who have made stupid choices. Smarts it would seem, are no guarantee of being a rational actor.”
We tend to ascribe our own success and blame our failures on externalities, whereas we are quick to ascribe other’s failing to permanent personal characteristics. I cut you off because I haven’t’ had my coffee, you cut me off because you’re a bad person.
“Our brains have remained relatively stagnant over the last 150,000 years, but the complexity of the world in which they operate has exponentiated. Formal markets like our stock market are just about 400 years old. It would be a gross understatement to say that our mental hardware has not caught up to the times.“
The fact that your brain becomes more risk-seeking in bull markets and more conservative in bear markets means that you are neurologically predisposed to violate the first rule of investing “buy low and sell high.”
“The solution is to become a student of market history instead of falling back on your limited-lived experience.“
“Mental processes that serve us very well in almost every other facet of daily living are poorly suited to the world of investing.”
When it Comes to Investing: When In Doubt, Do Nothing
“Asking someone built for short-term survival to become a long-term investor is a bit like trying to paint a room with a hammer. You can do it, but it’s not pretty.“
Learning to score your investment wins and losses based on the quality of your decisions and not on the quality of your outcome Is the key to managing your emotions, appropriately measuring your own performance and living to fight another day.
“A large body of research suggests that investors profit most when they do the least. Mer Statman cites research from Sweden showing that the heaviest traders lose 4% of their account value each year to trading costs and poor timing, and these results are consistent across the globe.”
“Rule-based behavioral approaches like ours seek first and foremost to tilt probability in favor of the investor, which means that the default behavior for market participants should be patient, calm, and inactivity. Likewise, any rules aimed at timing market participating should lead to infrequent action and look for every excuse to stay invested.“
Behavioral Investing is Risk First Investing
“The very same human frailties that give life to behavioral arbitrage give birth to the wealth destroying realities of bubbles, panics, and crashes.
Understanding the frequency and severity of bubbles, panics, and crashes can make even the steeliest investor want to hide his money in the backyard.”
Being a behavioral investor means being respectful and aware of bubbles and crashes without becoming paralyzed by that knowledge. The only insanity grater than insulating yourself against wealth destroying crashes is becoming so fearful of them that you miss out on all of the good that markets do.
It is therefore incumbent upon the behavioral investor to create a system that allows him to get most of the grain while scrupulously avoiding beheading. Pete Lynch correctly quipped that “Far more money has been lost by investors preparing for corrections or trying to anticipate corrections, than has been lost in corrections themselves.”
But, I’m Special, Right? (Wrong)
“Although there is more than a little luck involved in investing, research suggests that skill does exist, but can only be showcased when the manger has the guts to be different. Consistent success in luck-heavy environments is attributable to good rules.“
I would be remiss and disingenuous not to openly admit that we have, in fact, interviewed successful day traders on the show. To me, this is not an admittance that no one anywhere can make money trading in the stock market anymore than it is a recognition that just because Lebron James is a great basketball player doesn’t mean you can average a triple-double in the playoffs simply because you saw him play in the Garden after staying in a Motel 6.
They have more-advanced training than their predecessors, better analytical tools, a and faster access to more information. The unsurprising result he says it that “the increasing efficiency of modern stock markets makes it harder to match them and much harder to beat them, particularly after covering costs and fees.”
If you believe you have the mental skills and emotional fortitude necessary to beat the market averages (an unnecessarily complicated endeavor given the cheaper and less emotionally-taxing alternative), then I will not stand in your way.
Instead, I will move to the side and wave this metaphoric Yield Sign. As an auditor by training and someone who is generally governed by the admittedly conservative laws of facts, statistics, and probability by personality, I simply offer a cautionary warning that is far more likely that you will lose your shirt, head, and money–and not necessarily in that order, statistically speaking.
This failing isn’t because you’re not a nice person. I’m sure you are. You are, however, I assume, also a human being. And, therefore, you will constantly battle your inability to overcome your own inherent flaws from birth to retirement.
I acquiesce to the fact that today’s post will do little to sway someone who wants to “get rich quick.” To be perfectly honest, I am 37-years-old/young as of the date of this post myself, and a part of me that is too large for me to admit without shame still longs to find a get rich quick scheme of my own when technically all I have to do is not die in the next 9.09 years and I will gross my next million.
But, why live a life governed by rules. Where’s the fun in that?
Becoming a behavioral investor is fundamentally about scraping away all of the bad lessons and fallacious visions that you’ve been sold and realizing that doing less gets you more. It is understanding that the less you need to be special, the more special you’ll become.
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