I admit—freely—often my biggest hang-up with Ms. Rand was that she’s too pure, too idealistic, advocating a worldview not possible in this world. Charles Johnson’s recent IBD piece puts such anxiety to rest.
“My personal life is a postscript to my novels,” she wrote in the afterword to “Atlas Shrugged.” “It consists of the sentence: ‘And I mean it.’ I have always lived by the philosophy I present in my books — and it has worked for me, as it works for my characters.”
Ken Fisher and Lara Hoffmans have published their layperson’s guide to building a basic wealth plan — I couldn’t recommend it more.
Much like his other books, Ken Fisher takes a route of empowering the average investor, being less didactic or preachy and offering usable perspectives in terms everyone can understand.
In my view, it’s one of the ultimate things a skilled expert can do for us: to give his knowledge back in a way all can participate in. Ken has seen it all, done it all, and been very good at it for very long time; it’s a pleasure to read about the fundamentals of wealth-building with all the signature wit and uncommon perspective he and Lara always bring.
This blog has long fought the inertia of dystopic Mathusian thinking, which never proves true but continues to be one of the prevailing fictional narratives of intellectual discourse. Matt Ripley’s The Rational Optimist was one of the best investing/econ related books of the last few years. Now comes Peter Diamandis’s new book Abundance.
Check out these books, and see Diamandis speak on the subject here:
Please indulge me for a book review not at all about investing.
One of the reasons, I think, Thoreau’s immortal quip, “The mass of men lead lives of quiet desperation” is so famous is because it’s so true. For reasons that don’t matter, I recently found myself in a few moments of such anger that I began to spiral—wallowing in a fury that discombobulates, grows upon itself, and erodes the foundations of meaning in the things we devote ourselves to, throwing the whole world out of whack.
What to do? I certainly don’t know, but here are some thoughts.
I start, each time, with my second favorite* quote ever: the great and wise Joseph Campbell, speaking of the struggle of the hero and his/her journey, summed it up like this: “The basic story of the adventure of the hero is, ‘Ok, so this thing has happened to you. Now what are you going to do with it?’”
What will you turn your disappointment into? And why will you do it? This, ultimately, is the question put to us all via basically all heroic myths through time and culture. For more, watch the still spectacular documentary Joseph Campbell and the Power of Myth, filmed at George Lucas’s Skywalker Ranch just months before Campbell ’s death.
Next, look directly to the modern myths themselves. Everyone has their own story that packs the most pop for their own lives. For all mine, even as an adult, the story of the Batman has been the highest and greatest modern myth. In 2009, Neil Gaiman and Andy Kubert collaborated on a series of comic books called Whatever Happened to the Caped Crusader? The idea was to write the “last” Batman story (as if there could be such a thing!). Though it is a comic, this is one of the most profound and deep works of fiction so far this century, without exception or qualification. Standing as an apparition over his own casket as those who knew him tell their stories about him, having just re-experienced the whole story of his life, Batman realizes this about his own life:
“…it doesn’t matter what the story is, some things never change. Because even when they aren’t talking about me, they are. The Batman doesn’t compromise. I keep this city safe, even if it’s just by one person. And I do not ever give in, or give up. Everything changes. Nothing stays the same. Every friend betrays me, sooner or later, and every enemy becomes a friend or lover. But that’s the one thing that doesn’t change: I don’t ever give up. I can’t give up.”
The meaning of a great myth is not to have us live up to such tremendous idealism, but to see that spirit as possible in us—to reach for it. If we devote just a bit of ourselves to this ethos: to our work, to our family and loved ones…it is impossible to go wrong. For Batman, and this is true in most great myths, the doing, the living, of the adventures is the meaning, not the goal or ending.
On that note, let us turn, briefly, to those great theorizers of the interior meaning of life: the Stoics, and specifically, Marcus Aurelius. In Meditations, and with great pith, Aurelius reveals:
Accept the things to which fate binds you, and love the people with whom fate brings you together, but do so with all your heart.
Here is the rule to remember in the future, When anything tempts you to be bitter: not, “This is a misfortune” but “To bear this worthily is good fortune.”
Spin? Maybe. But in the modern world, at least partially, meaning is self-made, self-determined. Meaning is there for the making. The stoics were among the first to reveal this.
Then, there is the great inscriptor of the American soul, Ralph Waldo Emerson. Each year, I endeavor to read all of his works (that’s right, all of them). But the heart of his work has always been the superlative essay, Self Reliance:
Men imagine that they communicate their virtue or vice only by overt action, and do not see that virtue or vice emit a breath every moment.
The force of character is cumulative.
Nothing can bring you peace but yourself. Nothing can bring you peace but the triumph of principles.
This is a nice summation: that the “force of character” is principles based, not always accomplishment-based, and that those principles are the ones to bring peace and meaning in the end.
It’s not without a tad of whimsy that lastly we meet the indefatigable David Lee Roth, +25 years exiled from Van Halen, only to find himself not just back in the band, but back on top of the music world. And in their newest song, Blood and Fire, even the clown prince of rock knows:
Lost victories long past,
Every time I bloom again
I thought it’d be the last.
And then something crazy happens…
I’m doing the victory dance.
Would that we’d always be so wise to take such a long view, even in rock and roll.
*My favorite quote ever is also Joseph Campbell’s: “We must be willing to give up the life we’d planned, so as to live the life that is waiting for us.”
If you haven’t yet perused Ken Fisher and Lara Hoffmans’ new book, Markets Never Forget, it’s a must read for any serious-minded stock investor (all their books are). So what if I’m biased (I work with both). Their work offers views you won’t read elsewhere, and no library of investing knowledge is complete without them.
Check it out here: www.marketsneverforget.com
Almost agnostic of genre, this fall is set to be one of the best in recent memory for new books. On my reading list the next couple months will be:
1. The Quest: Energy, Security, and the Remaking of the Modern World - Daniel Yergin
2. The Better Angels of Our Nature: Why Violence Has Declined - Steven Pinker
3. Arguably: Essays by Christopher Hitchens - Christopher Hitchens
4. Reamde: A Novel - Neal Stephenson
5. Thinking, Fast and Slow - Daniel Kahneman
6. Boomerang: Travels in the New Third World - Michael Lewis
7. 1Q84 - Haruki Murakami
8. The Prague Cemetery - Umberto Eco
9. The Magic of Reality: How We Know What’s Really True - Richard Dawkins
10. The Swerve: How the World Became Modern - Stephen Greenblatt
There are really only a few things you need to understand about probability and the stock market.
- Stock markets are Complex, Emergent, and Adaptive Systems (CEAS). Which means no mathematical model on earth can predict them accurately all the time. Instead, the best you can do is think of the future in terms of probability. In my view, most economists would do better to study meteorology than econometrics.
- There is an important difference between risk and uncertainty. The famed University of Chicago economist Frank Knight elucidated this idea (known as “Knightian uncertainty”), and it’s imperative for market forecasting. There’s “risk,” which can be computed, and “uncertainty,” which can’t be computed. For instance, you know the odds of flipping a coin: 50/50. This is quantifiable risk. But in events of much greater complexity, where the actual parameters or possible outcomes aren’t known, an actual understanding (in a mathematical way, anyway) isn’t possible. This is uncertainty. The degree to which you believe the market is “risky” or “uncertain” will drive a significant portion of your investing philosophy. (Most economists and stock analysts want to believe more in the “risk” part than the uncertainty part because that makes their jobs seem more relevant.)
This second notion in particular is a core idea at the heart of probability theory still hotly debated today. (I detail perspectives on risk and probability at length my book, 20/20 Money.)
In this spirit, four books on probability and randomness.
The Drunkard’s Walk: How Randomness Rules our Lives – Leonard Mlodinow
This is an excellent primer on probability, free of jargon and mathematical ornament. That’s important because in investing, it’s better to understand probability as a concept than as pure mathematics. Because of Knightian uncertainty (above), there really isn’t a lot you can put a definite number to–instead assigning possibilities often needs to be more qualitative.
A disappointment of this book is that it fails to really separate randomness and probability in a memorable way for the reader. This is a darn shame. Mr. Mlodinow at one point actually uses the phrase “the patterns of randomness.” Which is of course an oxymoron. Randomness, true randomness, has no pattern. And this is principally why stock markets are not purely random—they have patterns that don’t recur exactly the same every time, but often do. (Bulls, bears, panics, euphoria…you know the cycles by now.) But they have enough variance and false alarms, and there is such a general ignorance about market history, that most investors get thrown off the scent by greed and fear each time.
Drunkard’s Walk also integrates a bunch of neat behavioral psychology into the framework of probabilistic thinking. Errors like the “post hoc ergo prompter hoc fallacy” (because something happens afterward doesn’t necessarily mean the former caused it) are common in life and in investing.
The discussion of stocks in this book is a few pages and very shallow—there is no consideration here of the particulars of stock market probability and randomness tied to the efficient market theory, which deserve far greater treatment if they are to be commented upon. This makes Drunkard’s Walk good for thinking about probability and how it affects your life generally, but not so good for investing.
Fooled By Randomness: The Hidden Role of Chance in Life and the Markets – Nassim Nicholas Taleb
I am so ambivalent about Mr. Taleb. His books are thought-provoking, eloquent and often smack-dab-right-on true. But I’ve never been on board with his investing strategies or constant doomsday forecasts.
That aside, this is the best book in recent memory on investing and probability. Mr. Taleb has a feistiness to his prose that is so engrossing, you’ll scarcely realize you’re reading about a very dry subject.
Where I believe Mr. Taleb is wrong is his total belief in randomness. He even goes so far as to describe the last 100 years’ rise in the stock market as “stochastic drift” and that all perceived cycles and patterns therein are nothing more than illusion. This can be debated among philosophers forever, but MarketMinder has long believed that at a minimum human psychology features semi-repeating patterns over time that manifest in market cycles.
Never have I met with such a bipolar book. The first half constitutes simply one of the finest explanations of how stock market efficiency works I’ve read. Malkiel understands this issue like few do and debunks a litany of common investing strategies, from charting and technical analysis to value investing and discounting dividends. The first half of this book is a tour de force in right thinking about the stock market and its ability to reflect widely known or believed information.
So I was profoundly confounded by the book’s second half, which ignores many of the first half’s natural conclusions. This part is the “practical” investment advice for “laypersons.” I find the advice to be neither practical nor executable for the general public. As Malkiel lays out each complex financial instrument and describes how much detailed analysis and work it takes to efficiently manage one’s own money, the strikingly (almost hilariously) obvious conclusion is that no layperson should be doing this on their own. The fees incurred by a competent money manager—whether they have a record of beating the market or not—clearly deliver value for the non-professional in simply navigating the territory.
As has been said in this space over and again—investing is not a game for geniuses, it’s about discipline. Those who make the most money over time are those who make the fewest errors. It’s not about being the smartest; it’s about not being dumb repeatedly. Everyone will make forecasting errors, but great managers at a minimum can deliver the market’s return over time—a feat most folks on their own cannot do. That much alone is a tremendous wealth builder.
Siddhartha – Hermann Hesse, Sherab Chodzin Kohn, trans.
Ok, forget about the math and the logic for a moment, and let’s end things by thinking in terms of true human experience.
Herman Hesse’s Siddhartha is a book I read about once a year—a true classic, a quasi-biography of the Buddha story. (Note: It’s a rendering of the “story” of Buddha, which is archetypal. The actual historical person and his biography matter less than the story, which here is more or less repeated as fiction.) It’s a classic heroic adventure in the Joseph Campbellian arc and focuses on the life journey of seeking after “enlightenment.” What it ends up being is an adventure highlighting the importance of cultivating awareness and the integration of experience.
After many adventures, many futile attempts to gain enlightenment, Siddhartha returns to a river he encountered in his youth and finds that simply being with the river—observing it and paying it careful attention—yields the simple wisdom he’d sought all along.
A few weeks ago, I was rafting down the American River in Northern California with my dad and brother to celebrate Father’s Day, and I had all these books about randomness and probability on my mind. If you watch a river, even just for a short time, it becomes a near-perfect metaphor for the stock market and probability.
At any given time, in any given place, a trillion unique things are happening in a river, yet patterns are discernable—ultimately the waters flow in a similar way, yet no single water molecule will ever take precisely the same course. As you steer through the rapids, you have to think a couple moves ahead, you can’t truly control the river, just influence where you steer your raft; you have to go along for the ride in the right way—that’s the job (this is basically what good money managers do). One minute the waters are calm, but rapids can be just around the corner. It sometimes looks like you’ll careen into a rock if you keep on the current course, but that’s often the place you want to be—the trend doesn’t continue, and by the time you get there the water moved you to safety. And sometimes, completely unexpected things happen. Yet, the experienced and skilled guide gets you through every time, every river cycle, even if occasionally you get a little soaked.
I find most of those lessons to be true of the stock market. Specifically though, read Siddhartha for the joy of it and for one of life’s most important lessons: Don’t just seek after experience for thrill or adventure, seek to integrate experience in the project of self development. Experiences are as random as life without reflection.
Being Wrong: Adventures in the Margin of Error – Kathryn Schulz
I’m throwing this book on the blog today because I don’t feel like writing a separate book review about it on MarketMinder, and there’s been plenty written ad nausem on cognitive investor errors on this blog and elsewhere.
I saw Kathryn Schulz speak at the TED conference earlier this year, and as a result picked up her new book: Being Wrong. By taking some time to think through the qualitative pieces of erroneous behavior, this one stands out from the pack of what are now legion books about cognitive errors. Most psychologists today have been terrorized by science. Mind you, that’s not a terrible thing—science in psychology has been the thing to pull much of the discipline forward in the last decades. But, as with many things tied to the modern religion of science, it’s become so dominant in the field that most people in psychology have sort of forgotten what it means to be human.
When the world jettisoned Freud and Jung in place of strict empiricism over the latter half of the 20th century, it gained much, but lost some of the most truly artful and subtle thinking the world had to offer. You become more attuned to people and their minds generally by reading Freud and Jung and others like James Hillman. You understand people better, and in a way that numbers aren’t going to express. (And, all those guys rank among the best writers of their era in my view. Freud, of course, won the Nobel Prize for literature.)
Schulz brings some of this grand tradition back—weaving in careful metaphors with a good bit of art and craft into her discussion of common cognitive errors. She actually explores what it means to be wrong as opposed to revealing some statistics about how often people are wrong.
This makes for a great read—one you can take to the beach with you, but will still deliver a solid intellectual punch.
Have a great weekend everyone.
Food Politics: What Everyone Needs to Know — Robert Paarlberg
For my job at Fisher Investments, I’m out on the road quite a bit each year, speaking to investors from all over the country. One of the things that used to amaze to me when I started, but doesn’t anymore, is that people everywhere pretty much ask the same questions.
Oddly though (because at Fisher Investments, I deal in stock markets for the most part), I get asked about food a lot. Everything from the supply of it (farming), to the price of it (the balance between supply and demand along with myriad government distortions), to the demand of it (population growth, poverty and income, and nutrition and obesity). Of course, a good bit of it is relevant to investing—food makes a difference in inflation, economic growth, commodities prices, politics, and the earnings of many very large publicly traded corporations.
On that note, I recommend Robert Paarlberg’s Food Politics: What Everyone Needs to Know for a few reasons.
Paarlberg approaches the subject as a political issue. Which is right. It’s not that food has become “politicized,” so much as food itself has always been a natural political issue. What I mean is, how a nation or society views food, what we do with it, how we regulate it—is about as old as civilization itself. Semantics aside, viewing food as politics allows Paarlberg to approach the subject with as much objectivity as is likely possible—recognizing that activists, regulators, farmers and their interest groups, corporations, even consumers, all have ideological bents to this issue and their maneuvering among each other is what dictates what food is produced, and at what price. Said differently, understanding the economics of food is barely half the battle in understanding how it’s priced, who gets it, and why.
This also means that people involved in food politics will probably hate this book equally, which is to the acute advantage of the reader looking for pragmatism on these issues. The organic-sustainable types will feel undermined and short-shrifted; the farmers and corporations (from companies like ArcherDanielsMidland to McDonald’s) will also feel vaguely attacked.
Second, this book is short, and written in a style allowing you to skip around as you like. Much like Steve Forbes’ excellent How Capitalism Will Save Us from last year, Paarlberg’s book takes one topic a chapter (like obesity) and then asks a series of questions tied to that issue and answers them in pithy fashion. This is a good approach because most will only want to see the basics of these issues laid out without all the jargon that can go with them.
The “what everyone needs to know” part of the title is maybe a tad much. This book isn’t definitive in the informational or authoritative sense. (But then again, what is?) But it’s as good an introduction into thinking about the real political undercurrents of food as I’ve encountered, and will at least set the table for better thinking on this issue outside of what you hear at farmer’s markets or McDonald’s drive thrus or nightly news bloviating.
The Narrow Road: A Brief Guide to the Getting of Money— Felix Dennis
Here are the books containing those things that every great, rich business owner knows in his/her little black heart (kidding!), but is just too darn scared to say publically (not kidding). Felix Dennis’s books are no inspirational fables like Richard Schultz’s Onward: How Starbucks Fought for Its Life without Losing Its Soul. Rather, this is hardcore entrepreneurial candor—“the getting of money” in raw form.
And both books are just such great fun. I liked the first one so much I immediately picked up the second. Even if you find Mr. Dennis and his views callous—abhorrent even—it’s a jolly good ride to see how his mind works. Any true and experienced capitalist can’t help but smile while thumbing through these pages. And Mr. Dennis does it all with a poet’s touch—he’s a notorious man of the arts. Some of his tastes run sublime, like his affinity for John Dryden and Seneca’s stoic letters. And some profane—he’s the founder and owner of Maxim magazine and other such, um, provocative periodicals.
What I loved most about these books is they say stuff corporate foot soldiers will likely cringe at. And yet, most management or “get rich” books are aimed at these very folks—their disingenuous advice doesn’t align with starker reality. So Mr. Dennis believes he’s doing the working community a service by relating such uncommon truths—and he is. Those indubitable truths are (and most entrepreneurs will no doubt nod their heads at these): You don’t need to be smart or especially talented at all to be rich. In fact, most of the smartest folks will never really be rich because they’re too smart to be so risk-loving as to pursue big-time wealth, which is a low-odds game. Most of the smartest folks will spend much of their lives making their employers—those risk-loving entrepreneurs—richer. (Imagine reading that in the next warm and fuzzy self help business book you pick up at the airport!)
The risk averse need not apply to becoming really rich (at least of their own volition); you’ve got to put it on the line, expose yourself to the risks of solvency, litigation, regulation and all the rest—you’ve got to be a principal, an owner. Smart people know the odds of being a really successful entrepreneur are low. Those that make riches are a wily, gritty, persistent, never-say-die bunch who aren’t easily deterred and are willing to put their livelihoods—the whole shebang—on the line, daily. Which aligns with perhaps Mr. Dennis’s greatest advice: This is all a game and you should take it as such. At a certain point, money doesn’t matter much in life. Health does, family does, love does. Money doesn’t. Mr. Dennis knows because he spent many years destroying himself with drugs and women, all with the money he made. In this, his anecdotes are archetypal and fascinating in the image of the classic grandiose, bellicose, business titan. The whole endeavor of the “getting of money” is a game of sorts for he who isn’t so attached to it—the understanding of that fact makes the strategies and tactics of getting rich all the more clear. Funny how life works, but that’s darn true.
A few other tips and topics worth contemplating:
- Don’t ever ever ever give up ownership, any of it.
- Remain razor-focused on getting rich (if that’s your goal), not meaning or your “personal journey,” not people, not learning, etc.
- Delegate! Don’t try to do everything. Hire the right talent to do all or as much as you can.
- Never never never give in. Persistence is perhaps the most potent attribute of the eventually very wealthy.
- Bootstrap everything! Avoid investor capital as much as you possibly can, it’s a dirty business.
One place to disagree with Mr. Dennis: He feels direct company ownership is the only true way to get really rich. My boss, Ken Fisher, in his Ten Roads to Riches, outlines more ways and features just as much candor and pith, and actually quite a lot more insight, on how wealth is created in specific ways. Mr. Dennis remains very abstract and philosophical in his writings.
I don’t know that all, or even a vast majority, of richy-rich business owners act or feel as Mr. Dennis does. But my guess is a heck of a lot of them do. Business success is not nearly as much technical skill and vocation as people make it out to be (particularly in those industries that covet MBAs and other downright certifiable credentials). A lot of it is about understanding your market and audience, creativity, instinct, experience, guts, and a worldview that will allow for big success. (Yes, folks are often their own worst enemies in this regard, spending oodles of time on stuff that won’t make them any richer.)
So if you want to know how to get rich, if you want to know how the mind of a rich entrepreneur works or if you just want a glimpse of hardcore pragmatic thinking on these topics, here are your books.
*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.