I sat down to speak with Doug Goldstein of the Money Tree Investing podcast to discuss whether it’s realistic to expect to beat the market with any consistency and the media’s role in spooking or exciting investors. He asked smart questions and I tried to give smart answers based on the findings in my book and other personal finance sources. Check it out!
I’m honored that my book was just listed as one of the best summer reads for advisers by Financial Planning. It’s on the list with some great books such as Michael Lewis’s The Undoing Project,” Daniel Kahneman’s “Thinking Fast and Slow,” and a book called “Great Expectations” by some British guy named Charles Dickens whose name rings a bell.
“There’s great stuff in here to share with clients, particularly when markets head south. Good behavior is handsomely rewarded for investors with long-term time horizons. I quote from it often.” – reviewer Stephanie Genkin.
This was a great one-year “bookiversary” gift. I’ll be speaking this fall at the FPA’s Financial Fitness Workshop in New York and at the annual meeting of the American Association of Individual Investors in Orlando for anyone who wants to see and hear me discuss the book’s lessons in person.
We’ve hit peak consonant and that has me worried about the stock market.
There’s a difference between being an investor and a speculator. I advise readers to stick to the former in my book and to keep it simple. But I also point out that the awful performance of most ordinary savers has a flip side since the markets are a zero sum game. Aside from fees, which are considerable and keep many fund managers and advisers in fine fettle, a small number of speculators reap the rewards of outwitting a large number of suckers. When you zig they often zag. if you want to be one of those guys or girls who can sniff out opportunity or danger and profit from it then you have to be able to read the writing on the wall. I think I just saw it.
The trend of naming companies and products with few or no vowels seems to have peaked. The shuttered burger store pictured above, which I walked by yesterday on Broadway, is exhibit A. Why on earth would this matter, though? Names are just names, after all, and the likes of Flickr, Scribd, or Unbxd are mostly private companies or, like Tumblr, divisions of public ones with other activities.
Ah, but trendy names have been a recurring sign of danger in markets. Back in the early 1960s there were the “tronics.” Any company associated with space or electronics did marvelously for a while as the government poured cash into the Space Race. Burton Malkiel writes about a company that sold records door-to-door and changed its name to Space Tone. It saw its stock rise sevenfold in a short period. This sort of irrationality signaled not only a bubble for those particular companies but the beginning of the end of the Kennedy Bull Market.
Years later, most of us were in the market already during the granddaddy of them all when hundreds of companies with a dot-com in their names achieved lofty valuations. We all know how that ended.
In fact it seems that, even outside of a bubble, avoiding companies with exciting names is smart. The great investor Peter Lynch wrote in One Up On Wall Street, the first book I ever read about investing, that “a flashy name in a mediocre company attracts investors and gives them a false sense of security,” and he warned against buying stocks that have an x in their name.
I decided to test this out for an article I wrote for the Financial Times back in 2010 and found 109 companies in the Wilshire 5000 that began or ended with an ‘x.’ They were, in fact, more expensive, far more volatile, and less likely to be profitable. In a stock picking game I’ve been playing for several years I’ve blindly shorted such stocks and made decent returns doing so. ‘Q’ is just as bad.
So back to the vowel-less companies. Is it a case of what’s old is new again? The Semitic languages, including modern Hebrew and Arabic, had some of the first alphabets and are written mostly without vowels. When I went to Hebrew school they were written in but are considered training wheels in modern Hebrew, much to my confusion in Israel.
That’s not the case here. There is no convenience factor as with those scripts, just a hipness quotient. My former colleague John Carney once made up a fake company called Grindr that would grind down your enemies, but it turns out someone grabbed the name to start a gay dating app. I considered grabbing the url for Tstr, perhaps to launch a grilled cheese company, but it already was claimed by “Tacoma & Seattle Trailer Repair.” Darn.
Anyway, the moment has passed and you’ve been warned. The stock market as a whole is at the 96th percentile of all observations in 135 years based on the Shiller P/E ratio and companies like Tesla with no earnings or free cash flow are worth multiples of established competitors many times their size. Put “cloud” in front of a product and you can command double the multiple. I can go on and on.
If someone, somewhere had bought a copy of my book every time I’ve been asked that question then Michael Lewis would be quaking in his boots. My stock answer is: “Oh, not a bestseller, but pretty well.” The truth is that it’s actually hard to say. Measured how and relative to what?
Well, now that I’m at the six month mark since Heads I Win, Tails I Win was released in hardcover, it’s time to take stock. The information about industry sales is pretty patchy, but what I found surprised me.
According to Steven Piersanti of publishing house Berrett-Koehler there were 256 million adult non-fiction books sold in the U.S. in 2013. That sounds like a big number but, even before counting self-published titles, there are an awful lot of new books per potential reader. He says the average U.S. nonfiction book sells less than 250 copies a year and fewer than 2,000 in its lifetime. That nonfiction average is pulled higher by bestsellers, many by celebrities. The median probably is lower. (For example, Tina Fey’s Bossypants sold 3.5 million copies as of last year). That jibes with what my editor at Penguin/Random House told me – that most books they buy don’t make them a profit. Mine has. It doesn’t even come out in paperback until this summer and I’ve nearly outsold “Hooking Up” by Tia Tequila.
So I guess I should be pleased. According to my publisher’s partial tally of sales, my book sold a combined 5,207 copies in six months including e-books but not audiobooks. Nielsen BookScan data, which Amazon breaks out on my author page, says that 3,397 physical copies have been sold in the United States. Of those, 499 were purchased in New York, my leading market by far. Los Angeles, Chicago, Boston, and San Francisco also were pretty good.
The “be cheap and lazy” brand of investing advice sold less-well in the Midwest, but I’m happy to say that there isn’t a metropolitan area where no one at all bought a copy. If you’re the one person who bought it in Toledo, Ohio, South Bend-Elkhart, Indiana, or Davenport-Rock-Island-Moline, Illinois, thank you!
Should I care about this? Isn’t it the quality that matters? I wish life were so simple.
So am I in it only for the income? Samuel Johnson famously said that “no man but a blockhead ever wrote, except for money.” Consider me a semi-blockhead, then. Completing a book is an ordeal for the author and his or her family and I would never write one with no expectation of remuneration. On the other hand, the “how’s the book going” crowd would be shocked if they knew the effective pay per hour that a moderately successful author such as myself earns. I try not to think about it, or to guffaw when people ask if I’m planning on retiring to write books full time!
Publishers pretty much count on people like me who have more passion than common sense. They’re much less sentimental, which is fine – they have families to support too. Even if the prose sings and the subject matter is groundbreaking, they won’t publish a book that they think will sell only 800 copies.
In that sense, then, the book is doing pretty well. It would have to sell a lot more copies for me to see any income beyond my advance on royalties. On the other hand, the more copies I manage to flog the greater the odds of my next project finding a publisher.
Music, hot chicken, Vanderbilt, my sister and her family, more hot chicken – I love coming to Nashville. My next visit and first-ever speaking engagement in town will be on February 9th at 6:30-8:00 in the evening at University School of Nashville. The $25 fee goes towards an excellent cause: the USN scholarship fund.
The title of my talk is “Beat the Odds and Become a Much Better Investor.” I’ll also be signing and selling copies (at my cost) of my book, Heads I Win Tails I Win: Why Smart Investors Fail and How to Tilt the Odds in Your Favor.
The Wall Street Journal is running a smart series this week, pegged to the 40th anniversary of the first index mutual fund, on the merits of passive investing. The editors asked me if there were any arguments for why active managers, despite their awful relative performance, are worth it. I came up with three arguments, the most convincing of which readers of my bookwill be familiar with: “Warren Buffett.”