There are plenty of books written about investing which range from an introduction to concepts all the way to teaching you how to analyze patterns in stock charts. A web search of “investment books” will reel in countless options. How do you choose? How do you know who to trust? What information do you need when you don’t even know where to begin?
Instead of wading through all the internet results I suggest you ask your financial advisor what they would suggest. Their recommendations are a great way for you to understand their investment philosophy while also allowing you both to communicate on a deeper level.
Here are 3 book recommendations from the advisors at Callesen Wealth Management:
The Little Book of Behavioral Investing | Author-James Montier
Nick's Pick (Nick Callesen, CMT, AIF)
The cave man part of our brain is wired for survival and exhibits a “fight or flight” mentality that we are often unaware of. This results in decision making that often leads to poor behavior by investors. A truth of life is that good behavior generally delivers good results while bad behavior, on the other hand, delivers bad results.
The Little Book of Behavioral Investing was published back in 2010, on the heels of the great financial crisis of 2008-2009. During that period, investors all over the world exhibited bad behavior by holding their investments until the losses became unbearable, their cave man brain then kicked into fight or flight mode, and they sold. Many, at the worst possible time, only to watch the American stock market rally over 600% from the lows of 2009 to the recent highs in 2022.
This book helps investors to understand how their brain is hardwired to sabotage their investment success and, hopefully, learn ways to overcome this tendency. We all have this instinct and, with some coaching from this book and/or a good financial advisor, we can all overcome it.
I’ve heard it said that “the person who can rule their emotions, can rule the world”. Most of us do not have the desire to rule the world but, if we can learn a few simple rules to guide our investment decision making, perhaps we can become better investors. The Little Book of Behavioral Investing is a must read that should help you along that journey.
The Laws of Wealth | Author-Dr. Daniel Crosby
Ryan's Pick (Ryan Gorman, CFA, CMT, BFA)
The laws of wealth by Dr. Daniel Crosby is a great book that looks into why humans struggle at investing. With entertaining stories, we learn goofy short cuts in our behavior that we can identify and try to counter.
The first meat and potatoes section cover the 10 laws. Among the laws, we see that diversification is important, but it always means having to say you’re sorry. This means you won’t always have over exposure to the best investments. Further, society has adopted the idea that volatility is risk. While volatility shouldn’t be ignored, the book explores other ideas of risk investors should focus on.
The second section talks about ways to work with an advisor to manage your investments in a behaviorally efficient way. A few of the five P’s of investing are Price and Push. These are investment “Factors” that have been shown to exist and persist in many markets around the world over long periods of time. They are value investing and momentum investing. This section covers ways to harness the behavior of others and is a great primer to investment strategies.
Overall, this is an entertaining look at human nature, ways to know and monitor yourself in the goal of becoming a better investor and finally understanding the effects of these behaviors on the market and how to harness it!
Simple Wealth, Inevitable Wealth | Author-Nick Murray
Jandin's Pick (Jandin Miller, VP of Operations)
This book will bring you on a journey to understanding several financial truths. Nick Murray breaks them down and delivers these truths with examples as well as simple, straightforward, and no-nonsense grandfather-like sayings.
First Mr. Murray introduces you to the Great Companies of the United States of America and The World. It is his way of painting a picture of what the “stock market” is comprised of. Investing into these Great Companies, according to Nick Murray, is the only investment that will create a portfolio where your net returns (average return after inflation) enable you “to retire comfortably and stay comfortably retired”. His reasoning is due to the difference of being an “owner (stocks) not a loaner (bonds)”.
Nick Murray then brings you on an inception style ride by redefining what risk is and what risk isn’t. Taking your mind off the near-term volatility and instead zooming out to look at your life 30+ years into retirement.
One of the final truths about investing is how to avoid The Great Mistake: selling when the market drops. “Human nature is a failed investor” because every investor is hard-wired to avoid danger/pain. When the market is falling it is only natural to want it to stop, which means selling for a loss. Therefore, he recommends having an advisor you can trust that will keep you focused on your goal “to retire comfortably and stay comfortably retired” rather than emotionally reacting to temporary declines.
Upon review of the three books, a theme emerges! Here at Callesen Wealth Management, we are advocates of managing investor behavior. Understanding our human nature can help you make better financial decisions. The great boxer, Mike Tyson, once said “Everyone has a plan until they get punched in the face.” It is the same logic with investing. You may believe you are a long-term investor, but until you are tested you cannot know how you will react.
Your future retirement is too vulnerable to rely solely on yourself. Find a financial advisor you trust, someone that can help you keep on track to your goals whenever fear, or the newest market fad, tries to break your faith.