The book

Happy Bookiversary to Me

Signing books at Books & Greetings in July, photo by Angela Schuster

“How’s the book going?”

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.

It’s true that I poured my heart and soul into the book and that it got really nice reviews and mentions in Forbes, Money, Barron’s, USA Today and The New York Times and was excerpted by The Wall Street Journal, Marketwatch, and others, along with some great advance praise. Book-writing is a business, though.

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.

Stay tuned.

investing · The book · Uncategorized

Least Likely to Succeed


(This excerpt originally appeared as a post on my LinkedIn feed).

Whoever first said that “life isn’t a popularity contest” probably needed to get out more, but he or she had one redeeming quality: being a good investor. My new book, Heads I Win, Tails I Win, shows that most of us are lousy.

Think back to your high school. If it was anything like mine, the student body voted to decide which of their classmates was cutest, best-dressed, funniest and most likely to succeed, among other categories. The last of those was often the easiest to guess: a kid who had it all figured out and was well on his or her way to an Ivy League university followed by medical school or some other solid, lucrative path.

There isn’t a vote for least likely to succeed. The point of these contests isn’t to hurt people’s feelings, even if they sometimes do. But if there were then the recipient would be equally obvious: that good-for-nothing stoner who was late for every class and barely graduated or didn’t at all.

Now imagine being able to buy a share in the future earnings of Mr. or Mrs. “Most Likely” and “Least Likely” as if they were a company. The market prices would be sky high for the former and a pittance for the latter, with good reason. Everyone else would fall somewhere in-between. That’s exactly how the stock market works, though the vote occurs every minute of the day.

Whether you rely on conventional wisdom or actual surveys such as “America’s Most Admired Companies,” picking out the corporate crème de la crème isn’t hard. But investing in them exclusively happens to be a bad idea. In fact, the least admired companies on such lists tend to outperform the best ones as measured by stock market performance.

Think back on the high and low achievers in your graduating class. Some of the bad eggs probably turned things around and, while they may not be fabulously wealthy, are doing fine. Meanwhile, some super-achievers never really lived up to expectations. Likewise, we pay too much of a premium for respectability in the corporate world. Once a company is a blue chip, it’s priced not only appropriately but at a premium. Translated into stock selection, going with less popular, less obvious choices is likely to be profitable. Finance professors Meir Statman and Deniz Anginer combed through several back issues of Fortune Magazine’s ranking of respectability and created a “most admired” and “least admired” portfolio. Shares of the latter outperformed the former by nearly two percentage points a year.

Favoring Wall Street’s redheaded stepchildren can be done systematically. One way is to buy companies that essentially are being dumped by larger corporations. Unable to sell them or unwilling to pay a big bill to Uncle Sam in the process of doing so, companies frequently “spin-off” subsidiaries to existing shareholders in a tax-free transaction. The thing is, though, professional investors act strangely when these brand new companies land in their portfolios. Suddenly a fund that owned, say, a large bank, also has the same exact stake in a small or medium-sized insurance company. They already owned it before, of course, but it didn’t have its own name and stock ticker. In a value-destroying disservice to their clients (hey, what else is new) , they decide that keeping it in their portfolio is more trouble than it’s worth so they’re likely to sell their shares in the near future, putting downward pressure on its price early on.

Meanwhile, a middle-level corporate manager at the former insurance subsidiary suddenly finds himself as the chief executive of a listed company with his or her very own stock options and an even stronger incentive to do well. It may take a while, but the results usually are surprisingly good. The phenomenally successful value investor Joel Greenblatt wrote about his strategy of buying spinoffs in You Can Be a Stock Market Genius. Other investors have taken note. There are exchange traded funds that buy spinoffs exclusively. A $100 investment in an index tracking their performance has grown to $319 in the past year compared to just $170 in the broad stock market

Another long-running, well-known, yet still successful way to profit from what’s out of favor on Wall Street is to buy the “Dogs of the Dow” each January – the ten highest dividend-yielding stocks among the 30 Dow Jones Industrials. These usually were relatively poor performers in the previous year, allowing their dividend yields to rise (as price falls, yield rises as long as payouts are unchanged). A $100 investment at the start of this century in the Dogs turned into $313 compared to $233 in the broad market.

Far worse than investing in the most-admired companies is having a preference for the most glamorous or exciting ones. The very first investing book I ever read, Peter Lynch’s 1989 bestseller One Up on Wall Street, warned investors away from companies with flashy names. It specifically said companies with an “x” in their name were to be avoided.

It seemed like a throwaway line but it stuck in my head years later. Just for fun I decided to test it out for an investing column in 2010. The results were surprising. I found 109 stocks in the Wilshire 5000, the broadest U.S. stock index, that began or ended with an “x,” including a few that did both. Right away I could see that Lynch was onto something. Only 49 of them had been profitable in the previous year. Even weeding the money-losing ones out, the remaining stocks were far more expensive on measures such as price-to-book or price-to-earnings than the broad market and also a lot more volatile. In other words, they were both riskier and less desirable on average.

Why would there be a connection? As any Scrabble player can tell you, few words have an “x” so that letter, probably along with “z” and “q,” lend themselves to made-up, snazzy-sounding names. By my calculation, an “x” appears in company names 17 times more frequently than in actual English words.

The same warning could have been given about companies with a “dot-com” in their name 15 years ago. A quarter century earlier, in the swinging sixties, it was anything with the suffix “tronic” or the word “scientific.” Hot companies included Vulcatron, Circuitronics, Astron and the gratuitously snazzy-sounding “Powerton Ultrasonics.” In his classic A Random Walk Down Wall Street, Burton Malkiel tells the story of a company that sold vinyl records door-to-door. Its stock price surged 600% when it changed its name to Space Tone.

The fact that boring stocks are better seems to be a lesson that each generation has to learn anew. Superior bang for the buck from dowdy, out-of-favor companies was discussed as early as 1934 in Security Analysis, the investing classic by Benjamin Graham and David Dodd. Graham was the teacher and has served as the inspiration for the most-successful investor of all time, Warren Buffett, so it’s safe to say that his theories have worked pretty well in practice.

Each generation may make the same mistakes, but individual experience seems to matter. When my son’s high school had a stock picking contest I asked if I could see his classmates’ portfolios. The most popular choices were highfliers such as Tesla, Facebook, and Apple. Not a boring company in sight. Most of his classmates lagged the market.

A company called Openfolio that anonymously aggregates results and holdings from thousands of individual investors showed the same thing. Some 77% of Tesla shareholders were 49 or younger while 73% of Exxon Mobil owners were over 50. But younger investors’ love of flashy companies hurt them. During 2014 the portfolios of 35 to 49 years olds lagged 50 to 64 year olds by 2.3 percentage points. Those below 25 lagged the older group by a whopping 6.4 percentage points.

Maybe we do live and learn.

investing · The book

Money Magazine Article


A nice article appeared today in Money Magazine by Kerry Close about my book: “5 Ways to Make Smarter Investing Decisions-By Outsmarting Yourself.”

Who doesn’t like a listicle? I’ll let you read it if you want, but here’s the intro:

The best thing you can do for your portfolio may be absolutely nothing.

A steady, mechanical approach to investing is a predominant theme throughout Heads I Win, Tails I Win, a new book released today by Wall Street Journal“Heard on the Street” writer and editor Spencer Jakab. The former Credit Suisse stock analyst emphasizes that the vast majority of investors are wired to think they’re better at making money than they actually are—and that we ignore all evidence to the contrary.

The solution? “Put into place a process that will stop you from sabotaging yourself,” Jakab recommended when we spoke to him this week. That means investing in a methodical—and even mechanical—way, rather than reacting to the ups and downs of the market and pundits predicting gloom and doom on TV.


investing · The book

Markets: 1, Analysts: 0


I love making bets. The stakes are never high – usually a beer, a sandwich, or, if it’s with one of my kids or my wife, making the winner breakfast in bed. The real payoff is the smug satisfaction of having been right.

Of course there are lots of things people bet about. If it’s “what’s the capital of Burundi” then you really should be braced for the other person actually knowing it’s Bujumbura. Why else would they agree to a bet? But the winner of, say, the NBA playoffs is unknowable. With the Warriors up two games to none, though, the odds are pretty much tilted in their favor (nearly nine-to-one over the Cavaliers).

A year ago I made a bet with three colleagues at The Wall Street Journal and chose a side before they could. It seemed like a milder equivalent of wagering on the Cavaliers to win but without adjusting the payoff – even odds. I had just received a list of the stocks in the S&P 500 with the highest percentage of buy and sell recommendations from analysts. I guessed that the list of sells would do better than the buys.

Based on what I write in my upcoming book, Heads I Win, Tails I Win, not only aren’t analysts very good at picking stocks but you can gain a slight over the market by going against them. I figured I had a slightly better than even chance of winning, putting a small amount of money where my mouth was.

I didn’t even look at the list before making the bet. After I did, though, I started to worry. On the “buy” list were Facebook, Google, and various microchip stocks. They actually did well. On the “sell” list were a bunch of energy stocks that did pretty badly since oil prices proceeded to keep falling for several more months. There were also a bunch of dull stocks, though, such as utilities and breakfast cereal makers. They were boring but beautiful.

The year has come and gone and, despite an awful showing by some energy producers, the sells did nearly two percentage points better on average than the “buys” on average. In fact, the “buy” list lagged the S&P 500 by almost four percentage points. Theory validated!

Burton Malkiel, who wrote a very nice blurb for my book, once quipped that blindfolded monkeys can do as well as stock pickers. One fascinating study shows they probably can do better. So, with all due respect to analysts (and I really mean it – I used to be one after all), you should never buy or sell a stock based on their recommendations.

The book · Uncategorized

Galley copies!


“They’re selling like hotcakes” is probably stretching things a bit because, you know, hotcakes cost money. The galley copies of my book that I received a few weeks ago, on the other hand, are priced to move at zero.

To avoid any confusion, the actual book won’t be published until July 12, after which time it will be available everywhere as a hardcover or an e-book. After getting several rounds of “congratulations” on a Facebook photo of the galleys, I should point out that they are uncorrected proofs meant for:

  1. People who review books or interview authors (and if you’re one of those people and didn’t get one, don’t be shy about getting in touch); or
  2. people who are very close relatives or friends and who think it is really cool to have something produced by an actual publisher with my name on it; and/or
  3. People who can’t wait three months to do this (all of whom I think fall into that last category too).

I was pretty excited to hold one in my hand too. It’s also been nice to read some of the advance praise (I’ll create a link here later).