I recently spent some time at my local Barnes and Noble looking at the shelves of investment books. I found many of the titles to be comical (even funnier than "
The Naked Portfolio Manager," if you can believe that!). There was a consistent theme with each book that I thought was dangerous though. Let's look at some of the titles:
1. "Fire Your Stock Analyst: Analyze Stocks of
Your Own"
2. "The 100 Best Stocks
You Can Buy"
3. "
(You) Invest Like a Shark"
4. "(
You) Day Trade Online"
5. "
(You) Get Rich with Options"
[With the last three titles, I have added the word "you" in parenthesis.] Two things are implied when you purchase these titles. Number one: The information each book offers is useful to you for the purposes of making investment decisions. Number two: You, the investor, can apply this information effectively to improve your investment results. With this analysis, I will ignore the first assumption and concentrate on the second.
On page 54 of "The Naked Portfolio Manager," I write about a study conducted by a scientist named Hillel Einhorn about three pathologists. The pathologists were asked to look at a series of slides and evaluate nine specific risk factors affecting Hodkinson's disease patients. All of the slides were of deceased patients. The question that Einhorn was studying was whether the pathologists could use their analysis of the nine risk factors to determine the patients' life expectancy with any degree of accuracy.
Einhorn found that the pathologists were able to accurately assess the nine risk factors, but were not able to use those risk factors to make accurate predictions about life expectancy. Using their risk assesments, Einhorn developed a model that was reasonably accurate in predicting how long the patients survived after the biopsies were taken.
How does this apply to the aforementioned investment tomes? Even if the information in the books is useful, there's no guarantee that the average investor, who is subject to emotional decision-making (picking stocks based on emotion), will be able to use the information effectively. The great thing about "naked strategies," which eliminates human error, is that you don't need specialized knowledge or expertise to apply them. Brilliant men have created the model for you. I have listed several of these models in the book and given references as to where you can find more models. All you need to do is follow them. That's one of the things that sets the information in "The Naked Portfolio Manager" a part from other books.
Labels: decision-making, emotions
