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

Weekend reading

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

Active investing

Both/other articles

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

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”.” []

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{ 9 comments… add one }
  • 1 dearieme July 26, 2014, 1:47 pm

    “Avoid bond ETFs”: if I want to hold TIPS in an ISA, is there any other way than an ETF? And wouldn’t TIPS be so liquid as to be immune from his criticism?

  • 2 Neverland July 26, 2014, 2:45 pm

    @investor

    I’m surprised from your blog at least you come across as a very likeable fellow, albeit prone to self criticism (sp?)

  • 3 Cerridwen July 26, 2014, 4:44 pm

    Very interesting, although I’m not sure I would say that emotional intelligence and investing “savvy” are mutually exclusive. It’s more likely that exceptionally successful investors often see money as an end in itself and (at their worst) pursue it as such, rather than for all the things it can do to enrich life.

    Investing is just another outlet for that stereotypically “geeky” behaviour – collecting (with the added attraction of graphs, numbers and things that can be measured.)

  • 4 Dividend Mantra July 26, 2014, 7:14 pm

    Monevator,

    That’s interesting. And I would tend to agree. I’m typically described by those I know as pragmatic and analytic. I suppose if you are to empathetic that might hinder performance. I guess I just don’t feel that “flutter” in my heart when I see stocks rise or drop. I just look at business performance and react in the most pragmatic way I can.

    I would also agree with the comment above me that there is a certain aspect to investing that is attractive for collector types. I’ve always exhibited collector behavior, and used to collect coins when I was much younger. Collecting stocks, however, is much more rewarding.

    Thanks for the mention! Really appreciated.

    Have a great weekend!

    Best wishes.

  • 5 Peter July 26, 2014, 10:10 pm

    …or maybe, “The Investor”, you merely spend less than you earn and then save what you have left over, whereas some other people you may know don’t.

  • 6 Brian July 27, 2014, 12:08 am

    That seems a little unfair, Peter. I would say there is more to The Investor than that. After all, in his own words, he is Contrary, difficult, stubborn, argumentative, self-centered, arrogant and a loner.

  • 7 The Investor July 27, 2014, 1:26 am

    @dearieme — A question for The Accumulator I think.

    @DividendMantra — You’re welcome! Yes, I agree and am sure some of us prefer directly owning shares to funds for that very reason. I seem to recall Buffett was a collector early on, from The Snowball.

    @All — To be clear that list wasn’t the sum total of my personality, and the more socially positive traits mean you *might* not be too upset to find yourself seated next to me at a dinner party. 🙂

    But if you were thinking by pudding that you wished you hadn’t been, then something off that laundry list was probably to blame… 😉

  • 8 The Rhino July 31, 2014, 2:39 pm

    @TI all sounds very INTJ to me, I think TA is something else though..

    maybe you should both do an online myers-briggs so we can get to the bottom of this?

  • 9 Richard August 2, 2014, 11:18 am

    I always look forward to your reading lists and editorial content.

    Keep them both up 🙂

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