Monday, August 14, 2017

Winning the Loser's Game

In the finance world, there are a whole list of books every professional seems to buy but few seem to actually read.  Books for the bookcase and for visitors to an office to see.  The best example is Graham & Dodd's Security Analysis, the massive tome which is far more influential than actual readership would suggest.

One of these such books for years has been the magnificent work Winning the Loser's Game by author Charles D. Ellis.  I have seen copies of this book everywhere from Wall Street to Main Street but ask the owner of the book if they have actually read it.

Blank stares.

This is a shame since Ellis is a brilliant writer who explains complicated concepts of investing and finance with a common sense ease which is disarming.

Investing really isn't all that complicated.  This explains the subtitle of the book, "Timeless Strategies for Successful Investing."  In other words, the keys to successful investing aren't new or unique to any given time.  The same rules which worked centuries ago still work today.  And these same rules apply to all categories of investing from stocks to real estate to collectibles.

One example is this simple problem which all active investors routinely encounter.  As an investor which scenario would you choose?

A.  Stocks go up---by quite a bit---and stay up for several years.

B.  Stocks go down---by quite a lot---and stay down for several years.

90% of investors say Choice A and, of course, they are wrong.  Choice A makes you feel wealthy but means you are constantly paying more and more money for the same shares.

Choice B is the correct answer.  Common sense says why.  A person could honestly hope for a forty year bear market and then for a bull run to begin two years before their retirement.

This book is now in its SEVENTH edition and keeps getting better.

Don't just buy it.  READ IT!

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