The Laws of Wealth – by Daniel Crosby
Date read: 5/19/20. Recommendation: 8/10.
If you’re looking for a book on finance or investing (especially in today’s market), you could do worse than picking this one up. Crosby gives an accessible overview of behavioral finance and offers principles for managing your own investing process and behavior. I always find books like this incredibly insightful and an important reminder that developing greater self-awareness and managing behavioral risk is the best chance you have to avoid falling victim to irrational or emotional financial decisions. Crosby emphasizes that investor behavior—rather than fund selection or market timing—is the best predictor of wealth creation. And patience levels the playing field.
See my notes below or Amazon for details and reviews.
My Notes:
Patience:
“Individuals have to understand that no matter what innovations we see in the financial industry, patience will always be the great equalizer in financial markets. There’s no way to arbitrage good behavior over a long time horizon. In fact, one of the biggest advantages individuals have over the pros is the ability to be patient.” Ben Carlson
What’s within your control?
“The investor’s chief problem—and even his worst enemy—is likely to be himself.” Benjamin Graham
Investor behavior is a better predictor of wealth creation than fund selection or market timing.
“Emotions are the enemy of good investment decisions.” Ben Carlson
“Investors who own their mediocrity are able to rely on rules and systems—they do what works and reap the rewards. Investors mired in a need to be better than average insist on flaunting the rules in favor of their own ideas and pay a steep price for their arrogance.” DC
“Investing isn’t about beating others at their game. It’s about controlling yourself at your own game.” Jason Zweig
Complexity is far easier than simplicity. Simplicity demands discipline, first principles thinking, and a deep understanding of the biases that you might be prone to.
Financial advisors:
Chief benefit to most people is not that of an asset manager, but as a behavioral coach.
Value investing:
“Paying an appropriate price is the single greatest thing that you can do to ensure appropriate returns and manage risk.” DC
Two ways to profit from variability in stock prices—1) timing the market or 2) pricing.
“The riskiness of an asset can never be divorced from the price that you pay for it; paying a fair price is the best friend of the risk-averse investor.” DC
“Value investing makes you rich over time, but growth investing can make you rich overnight.” DC
“Value investing requires us to overcome our fundamental tendency to attribute greater quality to things that are more expensively priced. Value investing requires us to sacrifice short-term opportunities at fantastic wealth for longer-term consistency of returns. Being a value investor requires us to ignore the positive stories surrounding glamour stocks.” DC
Avoid expensive stocks.
Successful investing:
“Successful investing relies heavily on buying socks that have good prospects, but for which investors currently have low expectations.” James O’Shaughnessy
Average investors conduct postmortems to understand what went wrong and leverage those lessons in the future. Create investors conduct pre-mortem to challenge assumptions, anticipate gaps in logic, and make adjustments.
“Indeed, I have found that a large percentage of my winning trades begin with a rehearsal of negative, what-if scenarios in which I mentally invoke my stop strategy. Conversely, I have found that my worst trades begin with an estimate of my potential profits.” Brett Steenbarger