The Streetwise Investor: Steering Clear of Investment Traps Pitfalls and Other Dangerous Lures – Charles Fahy .
I came across this book in the Army War College Library about 20 years back when I was not much into investing. Later I tried looking for it , but could never trace it; and on Amazon, it cost over Rs 2700/-, a book of about 200 pages.
Recently , going through some old diaries , I found some notes that I had then made.
Here’s a digression right at the beginning; Mhow enjoys the privilege of hosting three great institutions of the Army; and along with it comes the privilege of having three great libraries, in a radius of about two Kms.
One of the most important aspects of library management is procurement of books; right numbers and content for the available budget.
These days budget seems to be generous and often there is pressure to expend the amount before the year end. Book vendors are called in Feb and latest books are ordered and sadly, many ‘competition’ books are bought as that’s the phase when people look at books when preparing for some entrance exams.
Ironically, after gaining entry to an educational institution, reading stops.
In the earlier days , there was more time and less money ; so, procurements were well considered. Some of the best books are in the old libraries in a dusty shelves.
Let’s come back to the book , the streetwise investor.
What I liked about the book was the focus on an investment system rather than any tips and tricks.
He goes on to prove again and again that a human mind is hard wired to lose money. One needs to identify or evolve a system of investing and follow that to accumulate money.
He uses interesting illustrations to show how the Chinese Whisper phenomenon turns a sell call to buy call and how the media amplifies these signals to create irrational spikes.
Obviously, the ideas are tailor-made for the American system, but can be well related to Indian environment; and in any case we have almost moved to the American system in earning , spending and investing habits.
Some pearls of wisdom:-
1. Human nature will always tearaway at your investments if you don’t have patience and a good accumulation system.
2. Remember the difference between investing and speculating.
3. Don’t be greedy.
4. Before investing, make certain all your basic needs are provided for and that you have ‘extra’ capital for your financial program.
5. If you decide not to handle your own portfolio, choose a broker or money manager who uses a low risk, long term accumulation system that offers consistent performance over a five year or a longer period of time.
6. Continue to educate yourself.
Some ground rules
1. Pay down debt. Pay off the 12%, 18% on higher credit card interest. Your money can’t earn that on a guaranteed basis; so pay it off .
2. Save money and build your liquidity by using any possible tax-deferred system such as pension account.
3. Remember the human nature flaw. Don’t give in to greed and impatience . Long term investing will prove to be your most successful ally. Don’t trade the markets unless you are experienced at it. Use a system.
3a. Corallary to the above; when you have bought into what you think is a ‘buy’ market and you are too early, don’t lose your cool.It will recover and go to new highs. If you have bought quality stocks, they will follow the market.
3b. If you must trade the market,learn to buy in, when it seems scary.
