Why I Read (Part III)…

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activist investors, autodidactism, books, Bruce Kovner, consensus, contrarianism, fear and greed, Howard Marks, investing, Isaiah Berlin, latticework of mental models, literature, Magic Eye, mosaic theory, Nosce Te Ipsum, reading, Warren Buffett

OK, back in June & July, I covered two key benefits of reading:

Knowledge, Experience & Inspiration – a constant & wide-ranging diet of non-fiction reading’s essential for any investor, and something you’ll find all the great investors practice & recommend. 

Nosce Te Ipsum – I believe reading literature’s equally important, it’s one of the few ways you can truly know thyself (& other people). And painful self-awareness & examination offer the best hope of avoiding the potentially devastating impact of fear & greed on your portfolio.

It’s been a long time coming – let’s tackle the final benefit of reading, which I call:  Magic Eye. It’s definitely the most exciting – I guess I’d classify it as offensive, versus the rather defensive nature of the other benefits. But some context would be useful – let’s first talk a little about how I actually read:

Ever since I was a kid, I’ve always found it incredible how the entire world (even multiple worlds) can be encapsulated in a single book. And there’s almost never-ending mountains of them, just waiting to be discovered! In fact, they really are never-ending: In the UK, for example, 150,000 new titles are published each year! Faced with those kinds of numbers, I’ve always felt an overwhelming sense of urgency – how can I ever bloody read quickly & widely enough to ever make a dent in such a mountain?!

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Fear & Greed (I)

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biofeedback, black box, fear and greed, home bias investing, investment checklists, literature, Nudge, portfolio allocation, The Checklist Manifesto, trading, value investing, value-trap

Great traders don’t necessarily have to be that smart, but mastery of their emotions – specifically, fear & greed – is absolutely essential. The same is equally true of great investors, except it just happens in slow(er) motion… But most people end up choosing investing over trading. Which is pretty fortunate – the trading gods delight in seeing meticulous logic & analysis abruptly savaged by fear & greed.

Many would-be traders never recognize this, and fail accordingly. Others grasp it, but remain trapped in a never-ending struggle. Only the brave few ever learn to fully master these emotions. Investing, on the other hand, seduces you with the luxury of time & positive long-term equity market trends. Which often makes it far more difficult to recognize the corrosive impact of fear & greed on your portfolio returns. The fact many of us shy away from any kind of critical self-examination doesn’t help either. But there are two solutions available to us:

The first is reading. In my last post, I argued for an important alternative to most investors’ non-fiction diet – literature, and lots of it. The great novels, plays & poetry are windows into the hearts & minds of other people – and in turn, yourself. Learning to actually recognize emotions like fear & greed in yourself, and their potentially disastrous impact on your investing, is the first & likely most difficult part of the battle you face.

Now, I didn’t cover the second solution – how to actually conquer those emotions. Because unfortunately, when it comes to that challenge, we are all truly alone… 

Why I Read (Part II)…

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fear and greed, investing advice, literature, Nosce Te Ipsum, portfolio performance, readers, reading, South Sea Bubble, Warren Buffett

Continued from here.

I encouraged you to ‘Read, read, read & then read some more (’til you puke..!)’, and in return I promised you’d gain:

i) Knowledge, Experience & Inspiration

Readers appeared to enjoy the post, but perhaps it was a bit of a cop-out… ‘Cos there’s plenty of great investors who’ve already highlighted how much you need to read if you aspire to be a great investor too. That’s obviously excellent advice, and I probably didn’t add very much to it. But perhaps I can offer something valuable here – I believe there are two far more important benefits to reading. I should warn you, I’ll be writing about these from a far more personal perspective – so there’s definitely a chance they may not appeal to, work for, or even make sense to you (as an investor). That being said, it’s always worth remembering investing is ultimately ‘an art, not a science’:

ii) Nosce Te Ipsum

How often do you encounter people who are formidable experts in dispensing advice…but appear incapable of following their own advice? Dare I ask, maybe you’re one of those people?! But honestly, we all do it sometimes – when it comes to other people’s problems we have the wisdom of Buddha, but in our own lives we all too often make poor decisions, we deceive ourselves, we procrastinate, we trip ourselves up, etc.