Using Investing Books to Deliver Top Shelf Returns
Investing books are packed into a sizable space in modern book stores. They’re certainly not going out of fashion. Judging by the way that investment books are edging onto the broader ‘top 100 best seller’ lists, we can paint a picture of this subcategory of self-help book increasing in prominence over the last decade and really starting to take market share away from other self-help book categories such as spirituality and psychology.
Are investment books fact or fiction, right or wrong?
Investment books sit in a strange camp in the self-help category. On the surface, they’re factual affairs (and certainly belong in non-fiction). After all, they give a history, they contain maths and mechanisms and almost feel scientific in the way they approach the topic of investing.
The best example of this is the way you will find beginners guides to investing which are structured quite like an investing course. I.e. Each chapter introduces a new topic, and as you run through the book, you slowly gain the fuller picture about how the wider stock market works and how all the participants sit and interact within this context.
That being said – investing books are terribly subjective. This is because it’s very difficult, nigh impossible to beat the market consistently. Countless empirical studies have shown this. After several decades, only a handful of individuals can demonstrate that they have consistently made better choices than ‘the market’ overall (as measured by indexes).
This implies that most under or overperformance is caused by good or bad luck, rather than temporary strokes of genius. It’s very difficult to tell the difference between the two.
So what you end up with is an industry where multiple authors, who have taken very different paths through investing, but have achieved mixed results at different times, will have formed a very different world view on ‘what works’ and ‘what doesn’t work’. In reality this view was highly informed by a) luck, b) their age and timing c) their background (i.e. what types of investments did they happen to become familiar with).
This leads to a situation where bookshelves will have a variety of competing views on what is the ‘best way to invest’. Many investing books focus entirely on property, and are written by authors who have clearly made it their professional to invest in, and advise others on, property investments.
Keeping your gaze wide
But of course, property is only one of many different asset classes. Sure enough, someone who invested heavily in property during 2001 – 2007 and 2010 – 2020 will have seen good returns, and would therefore conclude that property ‘is the way’. But when you step back and look at the bigger picture, this is only the conclusion they have drawn because they happened to sit in property during the ‘good times’.
Someone who purchased a city centre flat as an investment in 2008 or in 2018 in London will have seen significant losses in the first few years after putting in their money. They would probably not be feeling the same way.
How to get the most out of investing books
Because of the dynamic described above, i.e. the experience bias of authors, you need to via a bookshelf a little like the way you might view an investment portfolio. It’s a mix of views which tend to point in different directions.
As an investment book reader, you need to try and achieve some form of balance between the types of investment content you read, so that you achieve a balanced view in return. If you focus only on a single type of investment book, you may fall victim to the same narrow-minded experience bias of these investing book authors themselves, in thinking that there is only ‘one way’ to invest well.
In reality, there are a multitude of different effective investment options and there isn’t a single way which a group of academics or professionals would agree will deliver superior, top shelf returns compared to other methods.
Accepting this fact is one of the first things you should do before you commit to learning more about investing, and doing so with your own money.