Blogs & Comment

Reading the markets

My disdain for recommendations aside, the right book or two might help.

(Photo: Tim Macpherson)

The last time I recommended a book was in August of 2010, when I made a passing reference to the Canadian Securities Course. And it was also several years ago that I suggested you take a look at a book on statistics written by a University of Toronto math professor. So, despite financial publishers sending me a ton of books on the market, recommendations are something I rarely make here.

My reasoning is relatively simple: most of the books on the market that I’ve read or been sent are simplistic. They tend to be biased, promoting one point of view: that mutual funds are the answer, or that a particular strategy is the answer. Most of the remaining books are so academic that there is a greater danger, in me recommending them, of turning the reader off than inspiring them to learn more.

Take mutual funds, for example. In Canada alone there are over 5,000 of them, so finding the right one for you is a difficult task indeed, especially for the do-it-yourselfer. Going beyond that to find the right combination of funds, without too much cross-representation among the chosen funds, geometrically complicates the task. I’m not against mutual funds, but I haven’t seen a book that would help in this regard, so I have no mutual fund books to recommend.

On the other hand, books that promote a particular strategy only work when they are applied to selected historical periods in the market, periods which, naturally, these books use to demonstrate their point. However, in my three decades of experience coupled with reading about markets before my time, the only strategy that I see standing the test of time is to buy solid blue chip dividend-paying stocks from diverse industries, hold them for the long term, and diversify them properly with a judicious allocation to bonds and cash. But you don’t need a book to tell you that.

Of course, I do advocate that you read, and I read literature voraciously myself, because I believe it promotes critical thinking, which is eminently useful in making rational investment decisions.

I still recommend you try the Canadian Securities Course, even if you just sign up for it, read the text, and never write the exam. This text is without bias toward one product or strategy, and provides a good blend between being easy to understand while also providing the basics of the academics behind proper investing. Read more in my August 7, 2008 column “Know what they know.”

At the same time, understanding the market is far more than understanding its products and mechanisms. You need to have a read on the world we live in today. In my mind, with the global market economy being both pervasive and here to stay, it’s even more important to understand not just world events, but trends in those events. In short, what’s happening in the big picture. That can be invaluable in understanding and spotting investment trends.

To that end, I would recommend a book by Mario Vargas Llosa, who won the 2011 Nobel Prize for Literature. El lenguaje de la passion (The Language of Passion) is a collection of essays discussing his take on the state of the world. You don’t have to agree with his view, but it will certainly boost your critical thinking skills. And that can only help make you a better investor.