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Investing Books: The Good and the Bad |
This video is sponsored by:
by John Jagerson
Investing is an education intensive activity. The market is always changing and the "unprecedented" is common place. That means that investors should be actively reading the latest and greatest information on the web, from their peers and in books. At Learning Markets we get questions about reading recommendations quite frequently and this article will be an attempt to answer that question.
Click here for our recent review on one of our favorite investing books on charting patterns and technical analysis.
Recommending a specific book is tough because it really depends on what you are interested in as an investor or trader. In just about any investing subject there are good books and bad ones and telling the difference can be challenging. Because most "best-sellers" in the finance/investing category are "manufactured" best-seller lists are also of little help. However, here are a few basic rules you can apply before buying a book on a topic you are interested in that will increase your chances that there is something of value and worth your time within its pages.
1. Who wrote the book?
Celebrities, professional speakers and call-in show hosts write a lot of books but so do academics and finance professionals. I suggest opting for those books written by academics and finance professionals rather than pundits and personalities. That is not because the professionals are always right; it is because they are more likely to have presented an argument that you can substantiate, refute or potentially use for yourself. If it can't be backed up and made practical - what good is it?
2. Get Rich Quick
If the book proposes a get rich quick methodology characterized by fast returns, low risk, little time involved and small investments run away! We all know what this pitch sounds like and can easily avoid it by reading the inside jacket. I call this kind of book "financial pornography"; it has an appeal to certain personalities but has no substance.
3. Evidence
A quick flip through the pages of a book you are evaluating should show you whether an author is presenting actual evidence of their strategy or investing principle with historical data or whether that evidence is merely implied through anecdotes. Evidence in the investing world is difficult enough because past performance is not a good indicator of future performance but it is better to have some than none.
4. Does the author have "secret" knowledge
If the book's author purports to show you the hidden secrets those "Wall-Street-fat-cats" don't want you to know they are probably lying. One of the greatest things about the financial markets are their transparency. There are very few secrets and strategies can be evaluated independently with widely available data and studies. Keep in mind that the fund run by Bernie Madoff had no transparency, the strategy was "proprietary" and secret - that didn't turn out so well.
Applying the principles above won't completely protect you from buying a few stinkers but you should do a lot better than without them. In the video, I will go into some additional detail about the kinds of books that offer value and those that don't. I will also make a few suggestions about investing books that are just for entertainment.
Next: Want to see our suggested reading list? Click here.
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