Finance blogger wisdom: changed thinking
- June 11th, 2012
Abnormal Returns is on a break this week. That does not mean that we are content-free. As we did last year we asked a panel of independent bloggers a series of questions. This year we crowdsourced the questions from readers who won a copy of the Abnormal Returns: Winning Strategies from the Frontlines of the Investment Blogosphere for their efforts. We hope you enjoy these posts. Feel free to chime in with your own answers in the comments.
Check out the answers to yesterday’s question: If you had a son or daughter just beginning to invest, what would you tell them to do to best prepare themselves for a lifetime of good investing?
In the past year what book, article or blog post changed the way you think about an important topic? (Need not be investment-related.) (Inspired by Robert from Portland, OR)
Answers in order of response (first to last):
Steven Place (InvestingWithOptions): I read “The E-Myth Revisted” which tells you that you need to treat your business as you would a McDonald’s franchise, by systemizing all tasks so you don’t have to be the one doing it. I’ve spent the first half of 2012 “franchising” my trades and becoming more rigorous in defining my trade setups and management parameters.
Bob Seawright (Above the Market): Thinking Fast and Slow, by Daniel Kahneman, is a fabulous book, but it added to my thinking more than changed my thinking. So my vote goes to Why Nations Fail, by Acemoglu and Robinson, which changed the way I think about wealth, poverty, inequality and opportunity.
Zack Miller (Tradestreaming): The Paradox of Low-Risk Stocks: Gaining More by Losing Less [pdf] (AllianceBernstein)
Robert Sinn (The Stock Sage): Rereading “The Psychology of Trading” by Steenbarger and reading a few choice excerpts each day has helped me to refocus on the basics and stay tuned into the most important things such as developing a well though out plan and staying focused on the plan in addition to avoiding “regret” after a trade is over.
Todd Sullivan (Value Plays): One would be Quiet: The Power of Introverts. It turns many commonly held beliefs about productivity, the work environment and basic thinking on their heads. It also helps explain the rise of “social networks” and how they have been so successful and are superior to the typical “face to face group meeting”.
Ivan Hoff, (Ivanhoff Capital): I recently re-read “The WallStrip Edge” by Howard Lindzon and it reminded me how important it is to hold to your winners to make a difference and how few people actually do it. Cutting losses short is necessary, but insufficient for market success. You need to hold on to your winners and have a viable exit plan, because no trend lasts forever.
Kid Dynamite (Kid Dynamite’s World): Peter Brandt’s unemotional posts on technical trading and his ability to change his view as the data changes. Don’t be stubborn – adapt to data that affects your thesis.
Jared Woodard (Condor Options): Adam Elga, “Subjective Probabilities Should Be Sharp,” argues for the wildly counter-intuitive conclusion that every belief you have should have a precise probability attached to it.
Interloper (The Real Interloper): http://www.interfluidity.com/v2/2669.html, no question. His premise that industry’s role is, in part, to hide risk for greater good completely reoriented my thinking about industry/client relationship.
Rob (TechInsidr): As far as life changing books, “Willpower: Rediscovering the Greatest Human Strength” has definitely made a big impact on my life. In this fact paced world, we often forget about the psychological factors that influence our daily lives. This book provides some excellent background/research into the inner workings of willpower.
CJ (Crackerjack Finance): The Volatility Machine by Michael Pettis – a great book to help think about risks in a jittery world with abrupt changes in capital flows and the threat of debt crisis in Europe.
Toby Carlisle (Greenbackd): I know it’s unpopular, and I haven’t swallowed it holus-bolus, but Joel Greenblatt’s “The Big Secret” is interesting. Value-weighted indexing is an idea for which the time has come. For those who haven’t read it, the rationale is as follows: Investing is a competitive endeavor. Most professional investors underperform the market, which is market-capitalization weighted in the case of the S&P 500. There are simple ways to outperform the S&P 500 that are robust to behavioral errors, including equal weighting and fundamentally weighting it. A value-weighted index outperforms by the widest margin. I have a few small criticisms, and there are simple ways to do a little better again, but it’s a great idea and I read it first in “The Big Secret.”
DH (Dynamic Hedge): Thinking Fast and Slow by Daniel Kahneman. I’ve always been a student of cognitive bias and how it can handicap rational decision making. This book does a great job of highlighting both the blind spots and the strengths of the human mind. The Fourth Turning by William Strauss and Neil Howe. This book was something I would never ordinarily be drawn to. It certainly caused me to stop and think about the way I perceived our place in history. There are so many pessimistic forecasts out there comparing western culture to the doomed civilizations of the past. Between this book and some Vaclav Smil readers will acquire a more optimistic outlook on our complex world.
Walter (Sober Look): ISI Group Research and Capital Economics.
Sean McLaughlin (The Minimalist Trader): This blog post (read recently) was a huge kick in the pants for me and the best blog post I’ve read in a long time: http://blairlivingston.wordpress.com/2012/05/07/i-wish-i-had-known-dont-underestimate-compounding-in-everything/ by @BlairLivingston
David Merkel (Aleph Blog): Currency Wars, by James Rickards, made me think that maybe, just maybe, we will get commodity money, even a gold standard back one day. The alleged problem that a gold standard leads to crises is wrong. Bad banking regulation leads to crises, which we have as much today as during the Great Depression, and the panics preceding it.
Josh Brown (The Reformed Broker): So, for better or worse, I’ve found myself on the talking head circuit this year. Probably because of how svelte and handsome I am. Anyway, I started getting these really nasty comments and even emails about what a fat waste of life I am. And then Seth Godin did a post that straightened me out. He explains how once people have heard of you, they just form opinions for no reason: http://sethgodin.typepad.com/seths_blog/2011/07/one-definition-of-celebrity.html.
Eric Falkenstein (Falkenblog): Lots of books on how the subconscious mind affects our behavior, makes us constant confabulators: Righteous Mind (Haidt), Social Conquest of the Earth (Wilson), Subliminal (Mlodinow), Who’s in Charge? (Gazzaniga), Thinking Fast and Slow (Kahneman), Why Everyone Else is a Hypocrite (Kurzban). The book Willpower by Baumeister and Tierney really inspired me to be a better person, highlighting that discipline is a strength that improves the more we use it.
Jeff Miller (A Dash of Insight): I admit that I am cheating on this question, which is a very good one. I am going to nominate the most expensive book – the highly acclaimed Rogoff and Reinhart “This time is different.” This thesis fits the thrust of the blogosphere and provides an economic fig leaf for a bad investment thesis. We will all look back at this in a few years and wonder how many could have been misled by a single book, with little specific relevance.
Brian Lund (bclund): I’m cheating because even though I read this book in the last year, I usually re-read “Happiness Is a Serious Problem” by Dennis Prager every couple years anyway. It is a simple but not “simplistic” book that talks about a common sense approach to “happiness” and differentiates it from “pleasure.” One of the great takeaways is that for a healthy people, happiness is something you have to work at to be successful in, just like a career, a marriage, or most other things in life. And the key to success is “gratitude”. Gratitude for life, health, family, a sunny day, a winning trade you took, a losing trade you didn’t, or even that delicious blueberry muffin you ate this morning. It is hard to be an unhappy person when you start your day by being grateful for what you have, opposed to bitter about what you don’t. This book will change your life in a real and meaningful way.
Tim (The Psy-Fi Blog): John Kay’s piece “The Map is Not the Territory” in which he effectively skewers the value, point and purpose of macroeconomics: “The preposterous claim that deviations from market efficiency were not only irrelevant to the recent crisis but could never be relevant is the product of an environment in which deduction has driven out induction and ideology has taken over from observation. The belief that models are not just useful tools but also are capable of yielding comprehensive and universal descriptions of the world has blinded its proponents to realities that have been staring them in the face. That blindness was an element in our present crisis, and conditions our still ineffectual responses. Economists – in government agencies as well as universities – were obsessively playing Grand Theft Auto while the world around them was falling apart.”
Thanks to all the bloggers for their participation. Stay tuned tomorrow for another thought-provoking question.
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