Weekend reading: Are you weird enough to do well as an investor?

Good reads from around the Web.

I have mentioned before that I think I am wired differently to most people I meet, and I believe that this makes me a better investor.1

I don’t think that I’m smarter or wiser than the smartest or wisest person in the room.

Far from it!

But I do think I am close to what some people have described me as: Contrary, difficult, stubborn, argumentative, self-centered, arrogant, a loner, and a little bit heartless. (I prefer “coolly logical”, but then who wouldn’t?)

So the following passage concerning Bill Bernstain’s new book jumped out at me when I read a review at MorningStar:

In Rational Expectations, Bernstein painstakingly explains what was mostly implicit in his first book: Emotions destroy investment performance.

Somehow, some way, investors must suppress them.

The suppression might come from the blessing of nature; from ongoing investment education; through shielding mechanisms such as holding a blind trust; or, most commonly, by cutting back on stocks and holding a lower-volatility asset allocation. One way or another, though, it needs to happen.

Paradoxically, writes Bernstein, the task is hardest for people who are otherwise admirable.

He states, “The most emotionally intelligent and empathetic people I know tend to be the worst investors. After all, the very definition of ’empathy’ is to feel the emotions of others, which is deadly in investing.”

Bernstein relays the story of hospital patients who have brain lesions that disconnect their sense of fear; in investment simulations, those patients handily outperform the general population.

For most people, investing successfully is a deeply unnatural act.

Thinking about the people in my own life, this rings true.

Most of the ‘people persons’ I know are terrible investors. I do know some self-made warmhearted wealthy people, but they all got there through entrepreneurship, not investing.

Where the big empathetic hearts are doing okay as investors, it’s generally been because they are utterly disinterested in the subject but see its importance. They set up tracker funds and automatic contributions and then forget all about them.

Are you nuts?

In the wider world, I can’t think of a famous stock picker who you’d describe as the life and soul of a party. Few Whoopie Goldbergs, many Christopher Walkens.

(Don’t be fooled by the bonhomie of Buffett or Soros. It’s clear from their biographies that the social veneer came later).

This is a blog about investing, so perhaps some of you are thinking hopefully: “Oh yes, I’ve got the rational, obsessive, borderline aspergic mindset of a born contrarian!”

To which I say: Be careful what you wish for.

There’s much more to life than investing. 🙂

On that note, I loved this quote from a very cautionary Guardian article:

You remember that kid in elementary school, the one who would argue during a game of tag:

“You said you have to tag the person. Well you only touched my clothes. That isn’t a person.”

Remember that kid? That kid is Wall Street.

Ouch!

Enjoy the weekend.

From the blogs

Making good use of the things that we find…

Passive investing

• Seven truths investors simply cannot accept – Josh Brown/Kindergarten
• You’re a hertz machine in a megahertz world – Patrick O’Shaughnessy
• Practice does not make perfect in investing – Canadian Couch Potato
• This low volatility will not last forever – Rob Davies@UK Value Investor

Active investing

• Boring is good – Millennial Invest
• Reminiscences of a Stock Operator has still got it – Jim O’Shaughnessy
• Day trading your house – Investing Caffeine
• Building a snowball – Dividend Mantra
• Investing wisdom from The Wire – Clear Eyes Investing
• Bill Gurley debates the valuation of Uber with Aswath Damodaran

Both/other articles

• Avoid bond ETFs [Tax bit/munis is for US] – Bernstein/Abnormal Returns
• The battle is over. The bad guys won. Let’s pack up. – Simple Living in Suffolk
• Experimenting with Ratesetter – Retirement Investing Today
• Why Warren Buffett built a perpetual income machine – Conservative Income
• Carlos Slim’s three-day week could work – Richard Branson

Product of the week: The number of Premium Bond prizes handed out each month is set to rise to 52,000, reports The Telegraph. The overall tax-free return paid to bond owners on average will rise from 1.3% to 1.35%.

Mainstream media money

Some links are Google search results – in PC/desktop view these enable you to click through to read the piece without being a paid subscriber of that site.2

Passive investing

• Only two out of 2,862 funds consistently beat the market – New York Times
• An eye to the past can help guide the future – New York Times
• Will retiring baby boomers spark a stock market crash? – Swedroe/CBS

Active investing

• Tesco is a value trap, buy Sainsbury [Video]… – Telegraph
• …so what next for Tesco? – The Economist
• A bunch of charts from a bunch of pundits [Images] – Business Insider
• The case for Burford’s new 6.5% retail bond – Fixed Income Investor

Other stuff worth reading

• A soaring stock market is wasted on the young – New York Times
• 48, and deemed too old to get a mortgage – Telegraph
• Will we still need jobs when robots do all the jobs? – Boing Boing

Book of the week: Did that snippet from William Bernstein’s new book pique your interest? Then go grab Rational Expectations and see whether you match up to Bill’s idea of a detached and rational investor.

Like these links? Subscribe to get them every week!

1. Of course, this could just be a behavioural bias – over-confidence – that shows I’m exactly like everyone else…! [↩]
2. Reader Ken notes that: “FT articles can only be accessed through the search results if you’re using PC/desktop view (from mobile/tablet view they bring up the firewall/subscription page). To circumvent, switch your mobile browser to use the desktop view. On Chrome for Android: press the menu button followed by “Request Desktop Site”.” [↩]