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Can A Book Serve As A Crystal Ball?
Monday, May 31, 2010, by Stathis
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Don’t bet on it. But a good investment book can certainly help you advance your investing skills.

Those who read investment books (hopefully by now) realize that most are littered with filler material, written (and often edited by ghost writers) in a way that makes you think the book is good. 

As a result, when readers finish these books, they frequently have nothing but praise for them. In most cases, readers have been fooled by skillful psychological tactics.

Rarely do people bother to stop and ask whether they truly learned anything that can be applied to their investment approach. 

Most often, one must seek out investment textbooks in order to learn things that can be helpful in the real world. But still, more times than not, this material works only in a vacuum.

Without a doubt, investors can learn some valuable information from academic-like investment books or books discussing theories. However, these books are most often low-yield. And if you are able to identify practical information from these books, you must understand the limitations. 

In contrast, I have found the vast majority of investment-related books written by pundits, reporters and even professional investors to be largely useless. This is especially true for these books (with rare exception) that receive widespread praise.

Understand that people often follow what others in the past have said about a book, without bothering to truly assess whether these books have truly helped them become more knowledgeable investors.

So you can forget about crystal balls; that is books that are predictive of investment events. While you might run into some that make generalized predictions that pan out, unless you are provided with specifics, it's unlikely to help you unless you have a good deal of insight prior to reading the book, which would negate any reason to read such a book to begin with.

Heck, you're lucky if you can find an investment book these days that's worth reading. I personally haven't read any investment books (other than to confirm how useless they are) in many years.

I could go down the list of books praised by the masses and even investment pros as "great investment books"...Black Swan, Subprime Solution, etc., etc...all useless as far as I'm concerned.  Some are more useless than others.

The problem is that until you know what's going on, you are likely to be fooled into thinking these books are valuable. I know this because I feel into the same trap back when I didn't know so much. So it's easy for me to say now, but it certainly wasn't easy for me to gain the knowledge I now have to realize this.

Novice investors who think many of the investment books they have ready are valuable make the same mistake for the same reason when they believe the media's claims that their hacks "predicted the collapse" without bothering to adequately research whether the claims are true.

The bottom line is that most investors lack the ability to make these determinations because they lack sufficient expertise. Other times, they simply take what the media says at face value. 

The bottom line is that most people are lazy.  

As far as I'm concerned, if an investment book doesn't actually attempt to help you become a better investor, it shouldn't be published. But of course, demand determines supply. The masses have allowed so many investment books to be published because they continue to buy them.

These are the same people who get blown out in the stock market over and over. They continue to watch CNBC and read the Wall Street Journal and other useless biased content from the financial media.

You must steer yourself away from the path of self-destruction. If you waste your time with the financial media, you will become your own worst enemy. This is a guarantee.

So when you are trying to determine whether or not to waste your time on an investment book, you should ask yourself how the book can help you make money.

A good investment book should teach you real skills you can apply to your investments. Anything short of that is a waste of time in my view. Save the investment novels and drama for fiction reading. These books have no business being listed as non-fiction, regardless whether they are true or not.

With that said, you should keep in mind that one can only extract so much useful content from a single book.

Most people continue to waste time with the media even though subconsciously they realize it is a dangerous move because they actually think they have the ability to sort through the trash and find real value.

Let me save you an enormous amount of time and money; you don't have this ability.

How do I know? 

If you did, you wouldn't waste your time with such a low-yield and dangerous approach. If you fall into this category you can help yourself by changing how you spend your time.

Others are simply too lazy and want easy money. If you fall into this category you cannot be helped.

Ultimately, the highest-yield activities leading to an improvement in your investment skills is attained by practical experience. That means you need to work hard over time and learn from your mistakes.

Obviously if you can find a guide to help you through this long and difficult process, you will be much better off. Unfortunately, the list or truly qualified guides out there are extremely small.

I don't fill books with drama or trivia when I write. I don’t take you into the trading pit and dramatize how I scored a big trade. Stuff like this is completely useless, just like these books written to dramatize the collapse AFTER it happened. 

I try to provide unique insight that can be applied to the real world. Otherwise, I won’t waste my time writing a book, because it's an extremely long and difficult process is to write a book by yourself, especially the length of the books I’ve written, and ESPECIALLY when I know that the book isn’t likely to reach many people due to the lack of distribution (the price of honesty is enormous and adversely affects everything I do).

Of course, most books are not written completely by the author. By the time the publisher gets a hold of it, they've assigned one or more editors to polish the manuscript. Other times, books are ghost-written.

Many who read America's Financial Apocalypse and Cashing in on the Real Estate Bubble have emailed me saying these books were like a crystal ball. I'll let you decide for yourself.

Despite the fact that I provided several analyses in The Wall Street Investment Bible, I have not received any similar emails. Perhaps the reason for this is due to the fact that only a few people have read it. 

I can tell you that the book contains several examples that, if followed, would have led to excellent gains. 

In fact, less than a year ago, I actually highlighted one of the case studies from the book on this website. 

You might recall my discussion of Blockbuster Video. I actually began this analysis several years ago when I was writing an informal newsletter.

Please have a look at the article. 

After explaining my rationale for entering and exiting the trade, I conclude that the Blockbuster/Netflix pair is a great example of a lucrative short-long strategy.

As you can see from the article (or excerpt from the book) it performed quite well.  

But was it too late to seize on this opportunity?  

Let's have a look at the charts since the article was published on September 2009.

 

 
 
 
 
 
 
 
 

As you can see, Blockbuster has continued to decline as Netflix has soared. The final chart shows the performance of Netflix relative to Blockbuster since 2002, which marked Netflix's public offering. 

 
 
 

 

As I predicted first a few years ago and reiterated in The Wall Street Investment Bible, short of a miracle, Blockbuster has no chance.

So how did I know this?  

While I did discuss some of the fundamental issues in this case study, you may have noticed that I typically I make use of charts to illustrate several things about stocks and the market, both on the website and the newsletter.

The reason why I often skip the fundamentals is because this part of the analysis are easier to see and understand (for me anyway) than it is to explain to others. It would take far too long to explain everything. In contrast, it's easier and quicker to show you what's going on from the charts.

Moreover, I always incorporate fundamentals into my charting analysis to a variable degree (although you may not be aware of that).

That is why the book is very important. I discuss things that I just don’t have time to cover either in the newsletter or on the site.

Subscribers might be wondering why I didn't profile Netflix in the newsletter, since it has performed quite well over the last year. The reason is because, while I was confident it would continue to gain market share at the expense of Blockbuster, I do not know where this company will be in a few years. Much will depend on how well management continues to adjust to the rapidly changing media landscape. While they have done an excellent job thus far, much of their success has come due to the pathetic management of Blockbuster.

So instead of profiling companies that are the latest and greatest, I try to focus on good solid investments that are undervalued in the newsletter because of the uncertainty in the stock market and economy. On occasion, I will make exception if I see incredible value or there is a really good cash dividend involved.

Two caveats. First, the short-interest for Netflix is quite high. Given the recent run-up, I would say the shorts are positioned well. However, most shorts are short-term strategies. Right now there is nothing standing in Netflix's way.

Second, the CEO of Netflix was recently named to the Board of Directors for Microsoft. This is HUGE.

Why? First, it illustrates how clueless MSFT has been in digital media. Netflix management wasn't particularly impressive in my opinion. They look great when stacked against the idiots at Blockbuster.

But also, having Netflix a part of MSFT board means there is likely to be some partnership activities between the two companies, or MAYBE a buyout down the road. I'm not making predictions. I'm merely stating viable possibilities.

Would I be a buyer of Netflix here? 

No way. It's considerably overvalued, and combined with the market risk, I would stay clear of stocks like this. In this market the vast majority of investors should be focusing on solid companies with long histories of operations and success, and especially companies that pay cash dividends.

Even if the stock comes down a good deal, as a long-term investment, in my opinion it's still quite risky due to the rapid pace of digital media progression. A big media company could theoretically crush Netflix at this point (although the media is struggling to survive).

This opinion is based on my own level of risk tolerance. Others might have a different appetite for risk.

One thing I will say is that Netflix is likely to continue to do well for at least a couple of years without any major challenges, as Blockbuster vaporizes. But that doesn't mean shares will rise. Shares are very ahead of themselves as it is.

The point is that you should be looking at everything I write because I don't write about something for no reason; that includes when I discuss loser stocks.

You should always find some learning points from everything I write (that is my intent anyway). Of course, I’m not perfect and it’s likely that sometimes I don’t communicate things clearly enough for you to see the point I’m trying to make, but if you look it’s there.

I’m not a writer. I don’t have the time or the talent to turn trivia into a cutting edge thriller, nor would I ever care to waste my time doing so.

I write specifically to advance the knowledge and insight of readers. This is something very few books attempt, although many people are fooled by books they think have provided value.

I will tell you this. The best non-fiction books on business and investing I have ever read have been those that are not well-known. This makes sense when you think about it because if a book is well-known that means it appeals to the masses. And if you’re reading non-fiction books the masses think are good, chances are that there won’t be much meat in it. This is just my own opinion based on my experience. Of course there are always exceptions, but I haven’t many I can think of.  

I already know some of you realize what I’m talking about and have ordered every book I’ve written. You have studied these books, taken notes, and re-reviewed them. You are on the right path to becoming a great investor.

I’m not saying I hold the absolute key to your future success. Ultimately, it is you who holds this key.

All I’m saying is this. If you find someone who helps you see things you never saw before and you are able to learn valuable lessons from them and make money from following them, you need to cling to them like your life depends on it, because you aren’t likely to find another who will fill their shoes anytime soon.

Now I don’t know whether I fit that description, as it’s a very tall order to fill. Everyone is different, so everyone works differently.

I’m telling you this because I was in the same boat as you several years ago. Unfortunately, I didn’t have anyone to learn from. I searched like you can’t believe and came up empty-handed, wasting tons of money and endless time on scams and epiphanies.

I finally realized something I already knew applied to everything else; if you want something done right, you have to do it yourself.

I certainly don’t want anyone to become 100% dependent on me. I’m here as your guide, to show you where not to waste your time, and to show you some shortcuts.

I’m not telling you this as a way to try and get you to buy my books, as some of you (who are likely to not be that familiar with me) might assume.

What I’m telling you has nothing to do with selling books. Just look at the number of readers I have and you can see I have no motive to tell you this other than to make sure you read and study my books for yourself, not for me.

I barely make enough to cover my expenses for publishing my books, so selling a hundred or so more isn’t going to make much of a difference.  The reason for this of course is due to the mass ban that has been placed on me by the media and the entire Internet. The reason for this ban is because these portals are filled with nothing short of crooks and profiteers looking to extract as much money from you as they can without giving you valuable insights.

If my goal was to sell tons of books, I’d be like everyone else and hold off on the truth; I wouldn’t expose how mutual funds are a rip-off; I wouldn’t expose the media as a criminal industry; I wouldn’t criticize the SEC, and so on.

Instead, I’d write books like “Become a Millionaire Trading Stocks,” or “How to Become a Mutual Fund Millionaire.”  

If I wrote this trash; if I sold people lies and false hopes like so many others, publishers would love me because I would reach the masses and sell huge numbers of books. And the media would promote me because I would be pleasing their sponsors (the financial industry).

The problem is that such books would be useless. And they would not be telling you the full story.

I'm not a sell-out. I can't be bought off, unlike virtually everyone you see positioned as experts.

So, at the risk of sounding like an ego-maniac (and hopefully, those who have been following me know that I have to self-promote because no one will promote me since the media has banned me) I feel that if you spend the time to read and study all of my books, you will raise your investment and business IQ a few notches; maybe more.

But still, that isn’t enough. You should take full advantage of every article I post on the site, regardless of the topic because I write them all for the same reason; to get you to think about things you may not be know about or things that you know, but aren’t consciously thinking about.

And do NOT overlook my articles on the media. I usually spend much more time on these articles than any investment piece, and I do it for a damn good reason. Over time, you will understand when you look back. Your mind set will be completely different.

I know this because I used to be completely naïve. Remember, I started from ground zero. In fact, when I began in the business, I started below ground zero.

I didn’t even know the difference between a stock and a bond. I was a science guy. But I was also an art guy and I think this has helped me the most.

You can even find several excellent investments or investment/trading strategies I previously discussed on this site if you sift through the archives. 

Now by no means will everything I discuss do well. There will be times when I’m flat out wrong. Everything changes. That is why I emphasize the need to measure and manage risk.

It doesn’t matter if I give you a great investment. What matters most is what you do with it; when you buy and when you sell, how much you buy when and how much you sell when, how you hedge risk and so on. These are skills that are learned through years of experience. I can help you learn them much faster and hopefully with fewer losses. But you will have losses; probably big losses. This is a reality of investing.

If you cannot accept suffering losses you should not invest. The key is to learn from your mistakes.

If you are unable to learn from your mistakes you should not invest.

The best one can expect is to find someone who has a good batting average, while understanding that everyone is human.

If you look to follow someone who has made one or two great calls, you might end up losing everything.

In order to be a great investor, you must have a good level of consistent success. So you should seek that from anyone you use for guidance, with the understanding that you will always have to customize your investment approach based on your own skill level, risk tolerance, and investment objectives.

And if you already haven’t read America’s Healthcare Solution, I would advise you to do so ASAP. You shouldn’t assume it’s some rant on the healthcare system. It has many sections and even a couple of chapters that will help you develop your mind when thinking about investments.

After reading the book, I am confident you will better understand healthcare investments, specifically the latest healthcare sector that promises to become huge, healthcare IT and telemedicine.

You will also see how high-tech giants are positioning themselves to seize a piece of America’s $2.3 trillion (and growing) healthcare industry. 

Am I the only person who writes books geared to help investors?

Of course not.

But there aren't many out there who do because most people lack the skills required to deliver value so they focus on writing books that deliver the perception of value.

Most of these books are marketing gimmicks designed to appeal to as many people as possible. That means you won't see any real value. Publishers are largely to blame for this. That is why the best investment books will be the ones you don't hear about. The only exceptions to this are books that have gained exposure after decades of being published.

Investing is not a game. It is a very serious activity. And it's a very difficult process. Unfortunately, the media has made it appear as a game that can be won by anyone. So if you read an investment book that is easy to understand and apply, most likely it will be useless.

 

 

 

 

 

 

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