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Here’s What I’ve Been Reading Lately…

March 10, 2018


A while ago I shared my focus for the year to come.  And one of my goals was to read more books.

As it turns out, a few of you are keen to know what I end up reading.

So I figured, why not turn it into a semi-regular thing, where I share which books I’ve read and whether they were any good!

I’ll aim to provide a rough summary with my takeaways.  And then you can decide for yourself, whether it’s worthy of reading.

 

Book 1:  The Four Pillars of Investing, by William Bernstein

Honestly, this is a great book, which covers the most important aspects of investing.

Here are some of my takeaways from the book:

  • High return and high risk are virtually inseparable.  Basically, to achieve outstanding returns, we must take higher than average risks.  Conversely, if we value safety and low risk, we’re destined to achieve lower returns.  In the context of shares vs cash, this makes perfect sense.

By investing in shares, we’re arguably taking a higher risk (in the short term) versus leaving those savings in a bank account.  But over the long term, that risk is well rewarded.  Indeed, over the long term, the safest asset is the riskiest.

What I mean is, cash is going to erode over time as inflation makes it become worth less and less, each year.  But the higher long-term return from riskier assets like shares, means your money will multiply over time and beat inflation.

  • Mr Bernstein also shows how to roughly estimate future returns.  That is, dividend yield, plus earnings growth.  Sound familiar?  Well, I alluded to in my post on Dividend Investing.
  • Also, he goes into great length discussing how difficult stock-picking is.  Stick to low-cost funds.  Diversify.  Focus on the long term.  Don’t trade.  All that good stuff.
  • He stresses the importance of knowing the history of markets.  And he shares some fascinating stories of past bubbles and downturns.  Really, he wants us to be better prepared for handing the wobbles and market madness that pops up from time to time.
  • Human psychology suggests we’re too confident in our own abilities.  In short, we think we’re smarter than we are.  While it sounds funny at first, I believe this is the most dangerous problem of all!  Because most of us think it won’t happen to us.  The truth is, the safest way to approach investing is probably to assume we know nothing.
  • He also points out the conflict of interest in the investment industry.  Many managers, stockbrokers and advisers are out for themselves.  Not for you.  But to fatten their own pockets.
    And the vast majority of financial media and news is absolute rubbish.  There’s nothing new in the field of sensible investing.  So you won’t learn anything really of value from those outlets.

Overall, focus on low cost, diversified, simple investing, and you’ll do better than most professionals.  And the best traits an investor can have are discipline and commitment.

The same goes for reaching Financial Independence.  Keep your eyes on the prize, focus on a few basic rules and stay true to your plan!

 

What I learned from this book…

I should probably pick less stocks and buy more LICs/Index Funds.  Also, diversify my portfolio more (which is a longer term goal of mine).  And importantly, stay committed and make our investing as simple as possible.

I’d recommend this book to anyone with an interest in investing.  Even if you only get a few nuggets of wisdom out of it – it’s worth your time.

For those interested, you can grab a copy here.

 

Book 2 –  Elon Musk:  Tesla, SpaceX, and the Quest for a Fantastic Future, by Ashlee Vance

Man, this book was insane!

Well, not so much the book, but the person it’s about.  Elon Musk is probably one of the most fascinating people on the planet today.

After persisting for a long time, the writer finally got Elon to cave in and give him access to his personal life and learn first-hand from his stories and experiences.

Ashlee’s then able to give an amazing view of how Elon operates.  And it’s just mind blowing.  I mean, his work ethic is superhuman.  He even shares that he wants to find a way to bypass eating, so he can just keep working!

There’s some incredible stories from the early days.  Such as him working on software to create web-based businesses and platforms, one of which kind of morphed into PayPal.

Anyway, at the time, he’d work all day and night.  He told the other employees when they get to work in the morning, to kick him in his chair, so he’d wake up and get right back to work again.

 

Changing the future…

What surprised me was how much of an impact he’s having on the trajectory of multiple industries.

The car industry, space industry and energy industry are transforming at a rapid pace due to forward thinking entrepreneurs like Musk.

There was quite a few dark days where SpaceX and Tesla were only 1 day away from bankruptcy.  And to match it, there was some equally uplifting tales where everyone had written his companies off, but they overcame many setbacks to end up delivering on their end products that were deemed not viable or flat out impossible.

The book shares his plans for building the worlds most powerful rocket, the Falcon Heavy (now complete).  Recently, SpaceX completed this successful launch.

Ultimately, Elon’s aim is to have humans become a multi-planet species.  This begins by carrying cargo up to Mars.

It sounds insane and unnecessary.  It sounds like a Billionaire with too much money.  But actually, it’s not all that ridiculous.  His main belief is simply…we need a backup plan.

Even if the health of Planet Earth improves, it makes sense to have a Plan B.  Another option, so the human race continues, should something else go wrong.  Although I was sceptical at first, this actually makes a lot of sense to me now.  Also, Elon says he even wants to spend his later life living on Mars!?

 

Conflict…

There’s no shortage of ex-employees and others who say Elon’s priorities are messed up, and he’s a ruthless, unforgiving person.

His personality is one that’s highly obsessive, demanding, unwavering and a perfectionist.

The reason he works with such urgency is because he deems these projects to be incredibly time sensitive (moving to clean energy through electric vehicles and solar panels, while building a Plan B for Planet Earth – Mars).

As he’s only got so much time on this earth, he wants to get as much done as possible.  Because he’s afraid if something happens to him, it won’t get done.

His conflicts seem to stem from his obsessive nature and the sheer intensity he works with.  Musk’s attitude seems to be, either you’re on board and proactive in solving our problems, or you need to get out of the way.

Interestingly, even the folks who hold a grudge against him, or feel mistreated, still have huge admiration for him and what he’s doing.

Overall, what comes through in this book, is his level of intelligence and limitless level of thinking.  Some of his ideas seem outright crazy.  But now, he has the runs on the board to show that he can make crazy things happen.  And his highly obsessive nature will ensure he doesn’t stop until they’re completed.

It’s a story of an incredibly interesting person, who may well go a long way to solving some of the largest problems in the world today!

If that sounds like your type of book, you can buy it here.

 

Final Thoughts

These books were both better than I expected.  And reading more books is easier when the books are actually interesting!

Hopefully you got some value out of these basic reviews, and they’ve added to your reading list 🙂

As I continue with this series, the aim is to bring you a good title from the finance space, and also one from the non-finance space.

Let me know if you have any great books you think I should read or review.  And any others that might be of interest to those in the FI community.

Having said that, my reading list is already ridiculously long.  So on that note, I’d better get back to it!

14 Comments

14 Replies to “Here’s What I’ve Been Reading Lately…”

  1. Dave

    Your comment “High return and high risk are virtually inseparable”.
    I dont agree with this comment, I dont think in order to get high return you will need to take unnecessary high risk.

    At the Peak of GFC, when the “perceived risk” is at its ultimate, with asset price being priced for doom and failure, we can argue that its the period of highest volatility and “lowest risk” as all the future risks are priced into the asset price. Hence, at that period in time, if you buy in, you will enjoy amazing returns for the years after.

    Now, the perceived risk at that time is Very high but the actual risk is V low as all risks are priced in. Some companies will have more cash than their Market Cap…how is that risky ? So as Peter thorhill said, “fear or risk is based on ignorance, and knowledge is power”… I believe the period of high return is the period of max volatility and lowest risk.

    Vice versa, when share price experience years of non-volatility and increasing in price, its expected that this good run will continue and sometimes only good things are priced in and risks are not, this is the period of caution and hence high risk, which on surface appears to be safe as price is increasing steadily. Mar

    I however, agree that its impossible to time the market.

    Jack

    1. That’s a great point re GFC. I fully agree with your statements there.

      Although I’m not talking about ‘perceived’ risk or volatility. The way I understood it was general investment risk. Low risk assets will have low returns. Higher risk assets (shares) will have higher returns. Look at people chasing bitcoin for ‘high’ returns, as an example.

      I agree with Thornhill’s message that price volatility is largely irrelevant. It’s a complete distraction really. Thanks for some good thought-provoking examples!

  2. Always great to come across another investment book I haven’t read! Thanks for the review SMA – those three other lessons you summed up from ‘the Four Pillars’ are excellent. Fully agree with the second point about thinking we’re smarter than we are, and it being the biggest issue for most investors (you could probably tell from my prior post that I’m trying to keep my wits about me on that one!).

    A Random Walk Down Wall Street also had a fantastic overview of the history of markets. Really fundamental knowledge to have for anyone investing.

    Since your reading list is so long I won’t add to it with any suggestions yet – I’m reading plenty of novels these days anyway which has been a nice change…

    1. Cheers Frankie!

      It’s an ongoing battle, because investing is so fascinating. Therefore, we’re more inclined to find encouraging reasons to immerse ourselves in it (thinking we can do a good job).

      Random Walk is on the list, perhaps I’ll bump it up the list now 😉

      That’s probably a good thing – reading more widely is never a bad idea!

  3. Bloody hell, I typed a heap of stuff here but it was lost when I went to copy and paste the quoted extract below. So haven’t got the patience to retype it all.

    In regard to Bernstein better to read his updated material in the 4 Adult Series booklets.

    Bernstein basically suggests that retirees move to a Liability Matching Portfolio. That is TIPs, short term bonds and term deposits. Essentially a risk free portfolio. Hence his motto of “when you’ve won the game stop playing”. Very much the opposite of Thornhill.

    However for the “few” that have the psychology to handle the volatility of a Great Depression type market crash you will find buried in the text of one of his publications (you need to look closely) the following which is very much ala Thornhill:

    “Yet, there is a small part of the equity portfolio that can be considered in the funding of retirement: the “safe dividend flow” from stock holdings. Although the value of stocks can fluctuate wildly, their stream of income is much more stable. At no point in the history of the U.S. stock market has its real dividend stream fallen by more than half, even during the Great Depression. During the most recent financial crisis, for example, although stock prices fell by more than 50%, dividends also dropped, but by only 23% from their peak, and only temporarily. You can thus reasonably add into your retirement permanent income flow about half of the dividends from your stocks or stock funds.“

    To finish although no one tends to listen to me (probably wise) stop reading US centric investing literature. Australia’s investing and dividend tax environment is not the US. Seek out long term experienced Aussie investing authors such as Thornhill.

    Taking a long break from online activity. CYA.

    1. As always, thanks for your thoughts Austing 🙂

      I completely agree with you (and Thornhill) that the traditional approach to investing in retirement is wrong – being aim to de-risk your investments more over time. I see no good reason to lock in terrible long term returns for the goal of a stable account ‘value’.

      While I do try to steer clear of much of the US centric investment advice, I’d heard this book was a good one – and I did enjoy it overall.

      Appreciate your time spent sharing, enjoy your break!

  4. Does Mr Bernstein have any thoughts on investment bonds? Investment bonds are my next favourite thing after LIC’s especially for those wanting to RE before being able to access Super.

    1. From memory I don’t think he mentioned it. I haven’t looked into them whatsoever, but have heard mixed opinions on them. Maybe I should take a look…

  5. Thanks, SMA. Let’s be honest – I’m not prioritising reading books at the moment. Short summaries help me feel like I’m still participating in a way. I enjoyed your thoughts on the Elon Musk one.

    1. Thanks Mrs ETT. It’s definitely not easy to get into the habit. You probably read a few books worth of blogs in a week though!

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