In the early 2000s, after accumulating several years of experience in stock investing and inevitably making the common mistakes typical of beginners, I decided to elevate my stock trading endeavors to an advanced level. Without clear objectives, my desire was simply to live without the constraints of an office, allowing me the freedom to make money from anywhere.
Lacking the necessary knowledge, I turned to Amazon to purchase books and invested in computer software to backtest trading logic using historical price data. In cycles spanning a year, I acquired and read 4-5 books, subsequently sitting down with the backtest software to explore and evaluate each noteworthy method gleaned from the literature. This iterative process continued until I felt sufficiently equipped to embark on my trading journey. Over the the next five years, I refined and replaced trading systems, leading to my early retirement with consistently impressive three-digit returns annually.
While the journey might seem straightforward on paper, there were, in reality, a few bumps along the road, but those stories are for another time. I share this now to underscore the power of books. I firmly believe that books, with their ability to impart knowledge, can yield remarkable results in any field of expertise. The crucial question in this process is: how does one choose the right books to gain knowledge?
First Step: Building Basic Knowledge
Starting from scratch is relatively straightforward – begin with the most popular and recognized books to establish a basic understanding. In the financial realm, this entails learning basic stock and bond terms, gaining insights into portfolio building, and familiarizing oneself with fundamental stock investment methods. However, caution is advised, as some popular books may lead you astray early in the learning process. Not all widely praised books offer significant benefits, and some may even have notable drawbacks. For instance, labeling a Kiyosaki book as a cornerstone of learning reveals a lack of true understanding. Even classics like ‘Intelligent Investor’ may not be suitable for beginners.
The primary issue with popular books is not just that they may instill misconceptions; rather, they hinder the development of your unique edge. How can you acquire specialized knowledge if you only read what everyone else is reading? It’s simply not possible. If basic knowledge is all you seek, these popular books may suffice, but if you aspire to deeper understanding, you must ascend to the next level. This underscores the importance of choosing the right books. You become what you read, and selecting the right books can propel you further and faster than others – a critical advantage in the investment arena.
Why Books?
But why books? Why not opt for courses, YouTube videos, internet blogs, or forums? In today’s world, books may seem somewhat outdated, but they remain the best medium for learning independently. If you cannot learn independently, you might as well forget about navigating the intricacies of the investment arena.
Choosing the right books offers several advantages. The author possesses significant expertise, puts considerable effort into their writing, and allows room for building context and logical thinking processes. Books are works of art, reflecting the author’s substantial dedication – a claim that cannot be made for blog or forum posts, YouTube videos, and the like.
There’s a notable distinction in how we consume books compared to other materials. A Hungarian poet aptly put it: ‘the surface is chattering, the deep is silent’. When engaging with videos, blogs, or forums, you’re in interactive mode, and it’s challenging to focus solely on content. Books, on the other hand, provide a solitary reading experience, allowing for undivided attention on the content, the ability to skip irrelevant points, and a deep dive into the most critical areas. This is crucial for building your own mental model, a necessity in the financial arena. In this process, books become your best allies.
How to Choose the Right Books?
Finally, we arrive at the main point—let’s delve into the steps I advise. Before laying down the rules, I want to emphasize the importance of reading a variety of books when building your edge. Books you’ve never heard of before could hold the key to your next gem of investment knowledge. I can’t even recall the title of the book where I found the initial idea for my first trading system. Any book has the potential to be your next valuable resource.
Rule 1: Avoid Freshly Published Books
There are thousands of books published every year, with millions previously published. The likelihood that the next new book will be the cornerstone of your learning process is low. When considering a freshly published book, your decision may be influenced by book marketing. Allow them to mature; let opinions form, and see if they seep into the public consciousness. The only exception is if you know the author and appreciate their work.
Rule 2: Scrutinize Descriptions, Author Bios, and Table of Contents
Read the description, author bio, and table of contents. Understand that the information packaging around books is designed to capture your attention. Titles, descriptions, and bios are often optimized for search engines. Be wary of promises in the title and description that might not be fulfilled. The table of contents is a great tool to check for the “bullshit factor.” Does it include chapters on drawbacks or potential problems with the discussed methods? If not, the book may be biased, serving as a sales tool, ego trip, or a product of ignorance. Every method has drawbacks.
Rule 3: Investigate the Author
Check the author. If you seek practical knowledge, avoid academics or advisors. Read books by individuals working in the field—investors, traders, fund managers, etc. Use your common sense. A book about financial freedom with a thirty-something smiling on the cover may lack credibility. If an author claims to have decrypted forex secrets while selling a $10 subscription to their service, approach with skepticism. Focus on authors with a trackable career in the field.
Rule 4: Evaluate Reader Opinions
Reading opinions about a book can provide valuable insights, but it requires a discerning approach due to potential biases and marketing strategies.
It’s essential to understand the basic setup of reader opinions. Readers often turn to textbooks because they lack expertise in a particular field, making it challenging for them to assess the true merits of a book’s content. While they can judge readability and ease of understanding, determining the importance and correctness of the content is often beyond their scope. Additionally, readers may exhibit a herd mentality, hesitating to write negative reviews if positive opinions dominate, possibly due to their own perceived limitations.
Another problem when evaluating opinions is that they can be heavily influenced by book marketing. Books with larger budgets often acquire more and better reviews. Some publishers even purchase opinions directly from dedicated services, further complicating the authenticity of the feedback.
To navigate this complexity, it’s important not to judge books solely based on the number and average of opinions. Instead, adopt a more nuanced approach:
– Dive into Opinions: Rather than just looking at numerical ratings, delve into the content of the opinions. Understand that overly positive reviews, especially those concentrating around a particular period, often indicate a strong marketing push. Phrases like “Must-have for investors of all levels!” or “A Five-Star Guide to Mastering Stock Analysis” might be indicative of promotional efforts. In such cases, it’s advisable to ignore these reviews.
– Latest Opinions and Power Readers: Shift your focus to the latest opinions, particularly those from power readers. These are individuals who have delved into multiple books within the same field, offering insights that go beyond style and delve into the actual content. Power readers are more likely to provide relevant critiques and may even suggest other books that serve the same purpose better. Look for balanced opinions, rated three or four out of five, as they tend to offer a more nuanced perspective.
By applying these strategies, you can sift through opinions to uncover genuine insights, allowing you to make a more informed decision about the book in question. Remember, the goal is to extract valuable information and perspectives that contribute to your understanding and knowledge in the investment arena.
Rule +1: Keep it Simple
Don’t overcomplicate the choosing process. If in doubt, buy it and read it. Every book is worth more than the price you pay, especially in the investment arena. I don’t remember a single book where I didn’t find at least one good idea. Even in Kiyosaki books…
Happy reading!
Dominic Feron 