What We're Reading
We're always reading. Here we talk about books, research, and commentary on personal finance and investments we find useful and interesting.
Updated by Clarified Team
John C. Bogle on selecting mutual funds based on past performance
"If it were easy to select funds that would outperform their peers by simply buying yesterday's winners, we would expect to see persistence; that is, most funds that ended the first period at the top of the heap would remain there in the next period and those at the bottom would remain there. But no. As it turns out RTM [reversion to the mean] overpowers persistence"
Bogle is the founder and retired chief executive of the Vanguard Group, an asset management company with $5.1 trillion in AUM. The above extract is from his book The Little Book of Common Sense Investing.
Daniel Kahneman is an authority on the psychology of decision-making, and a Nobel Laureate to boot. He also has a knack for dispensing gems of wisdom such as the one that follows:
"The confidence we experience as we make a judgment is not a reasoned evaluation of the probability that it is right. Confidence is a feeling, one determined mostly by the coherence of the story and by the ease with which it comes to mind, even when the evidence for the story is sparse and unreliable. The bias toward coherence favors overconfidence. An individual who expresses high confidence probably has a good story, which may or may not be true."
Rings true about investing, and life. This extract is from an old article he wrote for The New York Times in 2011. You could read it here.
Morgan Housel on the The Psychology of Money. We love Morgan Housel's take on investor behavior. He is a Partner at Collaborative fund, and a prolific writer. Note what he has to say about investing:
". . . investing is not the study of finance. It’s the study of how people behave with money. And behavior is hard to teach, even to really smart people. You can’t sum up behavior with formulas to memorize or spreadsheet models to follow. Behavior is inborn, varies by person, is hard to measure, changes over time, and people are prone to deny its existence, especially when describing themselves."
William J. Bernstein on How Millennials Can Get Rich Slowly :
"Learning market history isn’t just about knowing the past pattern of returns (though that’s helpful). In addition, it’s about learning to recognize the market’s emotional environment, which also correlates with future returns.
The 1929 market peak offered a classic example of the value of being attuned to sentiment; when asked how he knew to sell stocks the year before, Joseph Kennedy Sr. was said to have answered that when the shoeshine boys started offering him stock tips, he knew it was time to get out."