or “Just One Thing” John Mauldin asked some of the best minds in the world of investing to write down “one best investing concept that you want to pass on to your kids.” Their answers edited by Mauldin himself appear one per chapter and are the book.
What makes an investment book useful? Mauldin answers this question himself in the introduction – it’s the “’aha’ moment.” It must be the precise time while reading the book when you suddenly realize what you can do to improve your investment performance. Perhaps it is something that you have heard before, but never internalized, or an entirely new idea. Whether it should have been obvious to you or entirely outside of your usual scope of thought matters not. What matters is that something in your brain clicks and you gain a new understanding.
If a book that has an “’aha’ moment” moment is valuable, then the aha-rich “Just One Thing” is simply invaluable. Here is the summary of the chapters and their moments:
Chapter 1, Signposts in the Fog by Andy Kessler is about making decisions with imperfect information. The point being that if you wait for the fog to clear – the opportunity will disappear along with it.
Chapter 2, The “Not-So-Simple” (But Really Utterly So) Rules of Trading by Dennis Gartman is truly a simple set of rules for shorter term momentum trading. If you have the guts to do what Gartman does, you always buy whatever goes up and sell whatever goes down, but if the trade turns against you quickly get out and move to the next trade.
Chapter 3, The Triumph of Hope over Long-Run Experience: Using Past Returns to Predict Future Performance of a Money Manager by Mark T. Finn and Jonathan Finn, CFA explains how you should handle your money manager selection process. Using past performance as the predominant selection criteria is mighty tempting. Finns use statistics to explain why when used in isolation this metric is at best irrelevant and can even lead to you weeding out future performance leaders.
Chapter 4, The Long Bond by A. Gary Shilling, Ph.D. is a lesson in picking a very long term nonconsensus trend, sticking with it and riding it for as long as you can. As an example, Schilling uses the trend he rode successfully for around 30 years - an environment of decreasing long term interest rates. Amazingly, Gary got rich buying long term treasuries at issue and rolling them over every year into new issues.
Chapter 5, Risk Is Not a Knob by Ed Easterling serves as a reminder that one must first and foremost consider risk, when investing. Modern portfolio theory gives some measures of risk, but it also makes some unrealistic assumptions. Volatility can easily kill compounded average annual returns, so make sure that the risks you take are commensurate with expected returns.
Chapter 6, Psychology Matters: An Investors' Guide to Thinking about Thinking by James Montier is a mini anthology of human psychological applicable to investing. Emotions are important, self control is draining, everyone (including you) is biased, looking for confirmation is counter productive, more irrelevant information doesn’t help you make a better decision and you don’t know everything - are some of the more important points to keep in mind.
Chapter 7, The Means Are the Ends by Bill Bonner is a well written essay arguing that economic means are good, while political means are bad. Perhaps, but that isn’t going to stop politicians from having it their way regulating and taxing every aspect of human existence. Unlike other authors, Bonner gives no practical investment advice in his chapter. Agreeing with this author’s premise that governments are evil is not going to make you rich, nor will it make you a better investor.
Chapter 8, The 2 Percent Solution by Rob Arnott makes a great argument indexes such as Dow Jones Industrials and S&P 500 are flawed in that they are market capitalization value based. You will enjoy significant excess returns simply by weighing your portfolio holdings equally, or by sales, or by employment, or by book value, or by just about any other fundamental measure. Amazingly, this generally holds true for all market conditions.
Chapter 9, The Outsider Trading Scandal by George Gilder emphasizes importance of knowing the fundamentals of any company whose stock you hold. Ignore all the noise from outsiders and concentrate on getting the insider information. Unfortunately, most insider information is almost impossible to acquire these days and the author only suggests that you use an expert service or software to get at it.
Chapter 10, The Winner's Rule by Michael Masterson reveals that the secret of success lies in making sure that in every relationship the other party gets as much benefit as you do. Considering the needs of others, keeping your word and otherwise being a mensch (a person of integrity and honor) is definitely good advice, though I am not exactly sure how it can help improve investment returns.
Chapter 11, Rich Man, Poor Man by Richard Russell, the greatest Dow Theorist alive today, makes a case against hope and for action. He makes a point that compounding is the only way to the riches for most people, but to compound successfully, one must avoid loosing money. “The only time the average investor should stray outside the basic compounding system is when a given market offers outstanding value.” Russell’s primary tool for determining market direction is, of course, Dow Theory, but he makes no mention of it in the book.
Chapter 12, The Millennium Wave by John Mauldin is an optimistic look into the future. Mauldin’s “just one thing” is figuring out what will vary and what will remain constant. He sees change itself and the increasing rate of progress – unchanging, human psychology continuing to drive economic cycles, changing demographics influencing the future and nano and biotechnologies being the new boom cycle drivers. So, get ready for change and embrace it, lest you will be swept away by the next wave.
This in a nutshell is the book and its lessons. Despite being written by multiple authors it reads well as a whole – kudos to Mauldin on picking the brains of such a diverse set of experts and bringing it all together in a cohesive fashion - an editing job well done.
Jake Berzon
www.stockvalues.org
What makes an investment book useful? Mauldin answers this question himself in the introduction – it’s the “’aha’ moment.” It must be the precise time while reading the book when you suddenly realize what you can do to improve your investment performance. Perhaps it is something that you have heard before, but never internalized, or an entirely new idea. Whether it should have been obvious to you or entirely outside of your usual scope of thought matters not. What matters is that something in your brain clicks and you gain a new understanding.
If a book that has an “’aha’ moment” moment is valuable, then the aha-rich “Just One Thing” is simply invaluable. Here is the summary of the chapters and their moments:
Chapter 1, Signposts in the Fog by Andy Kessler is about making decisions with imperfect information. The point being that if you wait for the fog to clear – the opportunity will disappear along with it.
Chapter 2, The “Not-So-Simple” (But Really Utterly So) Rules of Trading by Dennis Gartman is truly a simple set of rules for shorter term momentum trading. If you have the guts to do what Gartman does, you always buy whatever goes up and sell whatever goes down, but if the trade turns against you quickly get out and move to the next trade.
Chapter 3, The Triumph of Hope over Long-Run Experience: Using Past Returns to Predict Future Performance of a Money Manager by Mark T. Finn and Jonathan Finn, CFA explains how you should handle your money manager selection process. Using past performance as the predominant selection criteria is mighty tempting. Finns use statistics to explain why when used in isolation this metric is at best irrelevant and can even lead to you weeding out future performance leaders.
Chapter 4, The Long Bond by A. Gary Shilling, Ph.D. is a lesson in picking a very long term nonconsensus trend, sticking with it and riding it for as long as you can. As an example, Schilling uses the trend he rode successfully for around 30 years - an environment of decreasing long term interest rates. Amazingly, Gary got rich buying long term treasuries at issue and rolling them over every year into new issues.
Chapter 5, Risk Is Not a Knob by Ed Easterling serves as a reminder that one must first and foremost consider risk, when investing. Modern portfolio theory gives some measures of risk, but it also makes some unrealistic assumptions. Volatility can easily kill compounded average annual returns, so make sure that the risks you take are commensurate with expected returns.
Chapter 6, Psychology Matters: An Investors' Guide to Thinking about Thinking by James Montier is a mini anthology of human psychological applicable to investing. Emotions are important, self control is draining, everyone (including you) is biased, looking for confirmation is counter productive, more irrelevant information doesn’t help you make a better decision and you don’t know everything - are some of the more important points to keep in mind.
Chapter 7, The Means Are the Ends by Bill Bonner is a well written essay arguing that economic means are good, while political means are bad. Perhaps, but that isn’t going to stop politicians from having it their way regulating and taxing every aspect of human existence. Unlike other authors, Bonner gives no practical investment advice in his chapter. Agreeing with this author’s premise that governments are evil is not going to make you rich, nor will it make you a better investor.
Chapter 8, The 2 Percent Solution by Rob Arnott makes a great argument indexes such as Dow Jones Industrials and S&P 500 are flawed in that they are market capitalization value based. You will enjoy significant excess returns simply by weighing your portfolio holdings equally, or by sales, or by employment, or by book value, or by just about any other fundamental measure. Amazingly, this generally holds true for all market conditions.
Chapter 9, The Outsider Trading Scandal by George Gilder emphasizes importance of knowing the fundamentals of any company whose stock you hold. Ignore all the noise from outsiders and concentrate on getting the insider information. Unfortunately, most insider information is almost impossible to acquire these days and the author only suggests that you use an expert service or software to get at it.
Chapter 10, The Winner's Rule by Michael Masterson reveals that the secret of success lies in making sure that in every relationship the other party gets as much benefit as you do. Considering the needs of others, keeping your word and otherwise being a mensch (a person of integrity and honor) is definitely good advice, though I am not exactly sure how it can help improve investment returns.
Chapter 11, Rich Man, Poor Man by Richard Russell, the greatest Dow Theorist alive today, makes a case against hope and for action. He makes a point that compounding is the only way to the riches for most people, but to compound successfully, one must avoid loosing money. “The only time the average investor should stray outside the basic compounding system is when a given market offers outstanding value.” Russell’s primary tool for determining market direction is, of course, Dow Theory, but he makes no mention of it in the book.
Chapter 12, The Millennium Wave by John Mauldin is an optimistic look into the future. Mauldin’s “just one thing” is figuring out what will vary and what will remain constant. He sees change itself and the increasing rate of progress – unchanging, human psychology continuing to drive economic cycles, changing demographics influencing the future and nano and biotechnologies being the new boom cycle drivers. So, get ready for change and embrace it, lest you will be swept away by the next wave.
This in a nutshell is the book and its lessons. Despite being written by multiple authors it reads well as a whole – kudos to Mauldin on picking the brains of such a diverse set of experts and bringing it all together in a cohesive fashion - an editing job well done.
Jake Berzon
www.stockvalues.org
