Do you think you’re an above-average investor? Most of us do, and that’s the premise of Heads I Win, Tails I Win, a new book by Spencer Jakab, the former stock analyst who now writes the Heard on the Street column for The Wall Street Journal.
In the book, Jakab refers to Lake Moneybegone, a place where nearly all investors are below average due to a combination of greed, fear, naïveté, bad advice, and even the cost of sound advice. This, of course, is a play on the Lake Wobegone effect, a natural human tendency to overestimate one’s capabilities, that stems from the fictional town where “all the women are strong, all the men are good looking, and all the children are above average.”
Heads I Win, Tails I Win presents a compelling case for passive investing using statistics and anecdotes to show just how badly the deck is stacked against active management and individual stock picking.
Without spoiling a terrific read, here are some key takeaways from the book:
- Know yourself – The typical investor earns returns that are way below average and the first step to improving is understanding that performance gap and how your personality might be contributing to it.
- Stop zigging when you should zag – Leave yourself with as few decisions to make as possible and remove the temptation to do so in the future.
- Learn to be cheap and lazy – Your results are inversely proportional to your effort. Low-cost, passive funds that require as little input from you as possible are your best bet.
- Don’t confuse luck and skill – Your odds of identifying star fund managers in advance are very poor. Save your money and avoid disappointment.
- Turn lemons into lemonade – Bad times are inevitable. Embrace risk by refusing to panic, and rebalance your portfolio on schedule. You’ll capture extra returns on autopilot.
- History doesn’t repeat, but it does rhyme – There’s a lot of uncertainty, and savers need to understand what levers they can control: time, savings, and portfolio construction. Treating the market like a predictable money machine is an almost certain path to disappointment.
- Don’t be afraid to ask for help, but only as much as you need – A human advisor is more expensive than a robot (or going it alone) but may save you money in the long run by acting as a sanity check.
Time for a giveaway!
The author was kind enough to send us an extra copy of Heads I Win, Tails I Win to give away to one lucky Boomer & Echo reader. Just leave a comment below and tell us your worst investing trait.
Do you check your investments too often, or not often enough? Chase performance of hot stocks or funds? Succumb to fear and panic when markets tank?
Leave a comment before Friday August 5th at 5:00 p.m. EST. We’ll select a random winner and reveal the name in next week’s edition of Weekend Reading. Good luck!
This Week’s Recap:
Our mortgage is up for renewal next month and I’ve already received multiple calls from TD wanting to “set-up a meeting” to discuss new terms. I’m looking at the 2-year fixed rate or 5-year variable rate options. This article (and subsequent comments) at comparison site RateSpy argued something similar: Go short, or variable.
On Monday I wrote about my TFSA dilemma and came up with a solution to ramp up my contributions.
On Wednesday Marie continued her financial planning for couples series with a look at buying a home together.
And on Friday Marie explained how to create retirement income with a fixed payment strategy using monthly income funds.
Over on the Rewards Cards Canada blog I recapped the entire Air Miles fiasco.
The one thing that’s certain in retirement is uncertainty, says fee-only planner Sandi Martin, so pick your poison.
Traditional advice about needing to replace 70% of your working income in retirement is wrong, according to Money Boss J.D. Roth. Here’s how much you actually need to save for retirement.
But don’t be so quick to dismiss this money rule, says Michael Kitces as he defends the 70% replacement ratio in retirement.
How B.C. just violated NAFTA with its foreign property tax.
Money After Graduation shows the income you need to purchase a home in Canada’s 25 largest cities.
If you spend the money you have in savings, it’s not in your savings anymore. Des Odjick shares three ways to keep your savings in your account.
Rob Carrick says the only fail-proof way to reach your financial goals is to save more.
I’m moving in with my girlfriend. She makes way more than I do. How do we share expenses?
How to complain to customer service without being ignored. Learn the Spock Treatment, and six other tricks of successful complainers.
Marie Kondo got everyone to tidy-up, but here’s an interesting look at the class politics of decluttering:
“But minimalism is a virtue only when it’s a choice, and it’s telling that its fan base is clustered in the well-off middle class. For people who are not so well off, the idea of opting to have even less is not really an option.”
It seems like there’s a Go Fund Me set up for everything, from sick pets to funding vacations. Chris Taylor says this not-so-noble crowdfunding is causing backlash.
Apple has now sold 1 billion iPhones, the iconic smart-phone that first launched in 2007. That’s one iPhone for every three people on the planet with access to the internet.
Big Cajun Man Alan Whitton shared the huge list of fees charged at Queen’s University, where his daughter attends. Unlike tuition, these fees are not legislated and are subject to all kinds of creative additions and increases.
Frugal Trader lists the dividend kings – companies with annual dividend increases for over 50 years.
Our Big Fat Wallet blogger Dan Wesley reveals some changes to his dividend investing approach, namely avoiding chasing yield, reinvesting dividends, and limiting his trading activity.
It is inevitable that stocks will suffer a gut-wrenching drop sometimes. Michael James says to get used to this idea or reconsider your asset allocation.
Daniel Kahneman, the Nobel prize-winning psychologist, shares his thoughts on his pessimistic mother, the delusion of investment bankers and the need for irony:
“Investment bankers believe in what they do. They don’t want to hear that their decisions are no better than chance. The rest of us pay for their delusions.”
Dan Hallett argues that by fighting investor-friendly reforms, the mutual fund industry has brought on the commission-ban it so badly feared.
Finally, in honour of Gail Vaz-Oxlade’s recent retirement announcement, MoneySense shared some of the debt-diva’s wisest nuggets of personal finance wisdom.
Have a great long-weekend, everyone!