Shameless Book Promo

Apologies for going off topic again, but the Goldman bonus discussion seemed to strike a chord, so perhaps this one will, too.  Also, many of you have asked about the book I was writing last summer, and there's finally news on that front.

The book is called The Wall Street Self-Defense Manual, and I believe it is finally available on Amazon and elsewhere.  I've published some excerpts on the book's web site, and Slate ran a couple of additional excerpts last week (here and here).  My publisher has also kindly allowed me to provide a downloadable PDF preview of the Table of Contents, Introduction, and Chapters 1 through 3.  To download this Preview, please click the link at the bottom of this post.

The first Slate excerpt shows why the average mutual fund will cost you approximately half of your potential retirement nest egg over 50 years.  The second excerpt argues that most ordinary investors should not buy hedge funds, a position that earned a predictable blast from some hedge-fund industry boosters.  As a result, I am now engaged in an online debate with fund-of-funds manager Ed Easterling on www.HedgeWorld.com .

The premise of the book is that the biggest risk to most investors' returns is not market crashes but the lack of a big-picture framework with which to make intelligent investment decisions.  Put differently, most investors know a lot more about how to intelligently buy a car than they do about how to intelligently select a mutual fund or construct a portfolio.  Because investors don't know these things, they are likely to follow bad. inappropriate, or irrelevant advice, buy inferior investment products, and/or fall prey to the biggest investment risk of all--their own emotions.  The goal of the book is to dispel some of the myths that permeate 90% of what one hears about investing, arm one with the knowledge necessary to avoid expensive mistakes (some of which are so common and accepted that they aren't recognized as mistakes), and, thus, help one invest more intelligently.

One warning: The book doesn't offer any secret tips on how to pick stocks.  Rather, it argues that most small investors should never pick stocks (or, for that matter, actively managed funds), and explains why not.  The mere suggestion of this often sends some people into apoplexy, so perhaps we will get some good counterarguments here.  In any case, if you have the time and inclination to read the book, I thank you in advance, and I hope you enjoy it.

Thanks again for the patience w/r/t the slow posting over the last few weeks.  I'll now try to get cracking again.

Download wall_street_self_defense_manual_preview.pdf

Comments

[hack]

Sounds like your book is full of good advice. But you're not exactly the first to publish a book with this message. What distinguishes your book from the dozens of others extolling passive index investing?

[Henry Blodget]

Good question. The book emphasizes the "why" rather than the "what" of intelligent investing. It draws a sharp distinction between what is intelligent for a professional investor in the business of investing, and an actual ordinary investor seeking to earn the best-possible risk adjusted return. It is concise, direct, and easy to understand. It will, I hope, help improve the returns of some of the millions of investors out there who have heard some of the concepts before but don't really believe them (and are therefore throwing money away):

--Why most people who think they are investing are actually speculating
--Why speculation is a negative-sum game (albeit a fun one)
--Why passive investing wins
--Why costs matter
--Why the "long term" is sometimes a synonym for "eternity"
--Why it is absurd to think that the average part-time trader to compete with professionals
--Why the playing field will NEVER be level.
--Why even most professionals lag the market
--Why Wall Street and the investment media are obsessed with speculation
--How you can tell if your investment advisor is a moron
--What stock analysts are good for--and what they aren't
--Why it is so easy to mislead yourself about your investment prowess (and that of others)
--Why your investment advisor probably can't pick "superior" managers
--Why past performance really isn't indicative of future returns (and why this is so hard to believe)
--Etc.

The book is also, I hope, a fun, quick read--a solid foundation course before one moves on to more data-intensive arguments and tactical advice found in some of the classics.

[Josh]

Henry,

When did u start working for Morningstar? jk, good luck with the book.

[Henry Blodget]

As soon as I looked at the evidence, which was startling and depressing.

[Victor]

A random walk down wall street by Burton Malkiel makes the case best about why ordinary investors should just buy very low cost index funds and simply maximize their exposure to different markets. In general i think he's absolutely correct and probably 80% of normal portfolios should be indexed. Having said that, I think given enough research or experience in a particular field, ordinary investors can do quite well picking individual stocks.
Good luck with the book Henry!

And as for more posts, let's hear what you think of:
-the new apple iphone
-whether panama is going to make a difference for yahoo's Q1
- Fortune's Google being the best place to work. In the game of winning the best engineers, surely this comparative advantage over MS/Yahoo is important.

[Sam E. Antar (former Crazy Eddie CFO & ex-felon)]

Henry,

As a former criminal insider I understand your points.

Investors are often considered “spectators” who are given paper called stock certificates. Once in a while the company throws them a bone and gives them a “token” dividend. Until then the company says don't bother us, just hope you can sell your stock to some us else at a higher price based on the brochure we put out called our financial statements. You may even get luckier if the company buys your stock with its shareholder’s money.

The “spectators” best hope is for some “empire builder” to come along with a big ego and buy your company’s stock. This way the acquiring company ends up at the end of this “pyramid scheme.” Remember AOL Time Warner?

I once heard someone say of Crazy Eddie’s corporate counsel Paul Weiss “they take black and white paper and turn it into green paper.” Printing stock certificates and the prospectuses and SEC filings they are based on is like printing money.

All you need is a good story and a speculation based auction such as our capital markets to make it happen. Maybe all you all need is a prayer as you enter this massive legalized gambling casino we call our capital markets.

Respectfully,

Sam E. Antar (former Crazy Eddie CFO & ex-felon)

PS: If anyone reading my comments thinks I am being overly cynical here, they should speak to a mental health professional who has treated burnt out executives who have played the game from the inside. They hear the real stories in therapy.

[Neal S. Lachman]

Henry,

Congrats on your book.

I happened to come accross your article on Slate last week, the one on Hedge Funds. I agreed with almost all points made by you. Great stuff, it was really worth my time. Ofcourse the HF industry is going to blast your pants off. But it doesn't make your points less valid.

I don't trust online transactions, so I won't buy the book yet, but I'll buy it from a bookstore soon. I hope many people will buy your book, because I think you have made a sincere attempt to educate retail investors, it is a laudable effort.

NSL

[Neal S. Lachman]

Sam,

It's always refreshing to read your comments. I think you are right that small investors are mostly spectators. But they choose for this status. The fact that they invest in a particular stock, must be seen as their "confidence" in the stock. The financial statements are of course the basis for some analyses, and it must be seen as a source of reference for investors. While financial projections and financial statements are among the most important measuring tools by which investors can base an "informed" opinion, the fact remains that the investor has a responsibility to himself to research the company, the market, the competition, and the potentials.

Investing is easily done, but making money with investments requires real work, or real luck -depends on what approach you take.

[Sam E. Antar (former Crazy Eddie CFO & ex-felon)]

Neal:
I fully agree with you.

Since leaving Crazy Eddie I got involved in commercial real estate (shopping centers, office properties). These investments are mostly governed by the discounted net present value of future cash flows.

The reason why I say this is because is the first thing any student learns in corporate finance class is that the price of a stock is supposed to represent the discounted net present value of all future distributions of profits.

The truth is that many investors never get their future slice of profits in the form of dividends like real estate. The rationale is that companies are better able to reinvest those funds (as retained earnings) for future growth.

Investors can trade their stock as they watch their reinvested funds grow into more value.

My earlier post is the more cynical view of the process. Some management’s (most don’t) hold that cynical view and abuse shareholders interests. We live in a tough and dangerous world. Most small investors seeking returns from equity securities or even bonds are best off in index funds. The overhead eats into the returns.

Henry is 100% correct and so are you.

With great respect,

Sam E. Antar

Convicted felon and dumped Crazy Eddie CFO

[Dominic Jones]

Henry,

I've been reading the sample materials. I've worked extensively in investor education in the past and what you've done is extremely valuable and a great addition to the existing retail investing literature. If it empowers just one person, it's worth it. Your history obviously makes the book stand out from others, and if that helps it cut through the usual noise, then that's a good thing.

Thanks.

[David Easthope]

As another former equity analyst, I look forward to your book. As an insider, no doubt you can see how always, always the "retail" investor is on the losing end of the stick whether through biased research, poor trade execution, hype from brokers, fees, use of "soft dollars" by managers to cover operating expenses, churning the account, etc

As another former analyst, I believe that small investors should shy away from individual stocks. Moreover, you are right that people like CNBC and Cramer should be ashamed of churning these individual investor's accounts (or else admit that this is truly speculation for entertainment and not a good way to invest long-term). People dont understand that Wall Street makes money by trading fees and betting against customers (even hedge funds)

Good luck with the book!