Book Review: Faber, The Best Investment Writing, Vol. 2

If you didn’t read the first volume of Meb Faber’s The Best Investment Writing (and you should have and of course still can), you’re got another crack at learning from a lot of smart folks who collectively manage hundreds of billions of dollars. The second volume of The Best Investment Writing (Harriman House, 2018) includes more than 40 articles, and, since the book runs about 350 pages, the articles are bite-sized. Most of them originally appeared online and were geared to a semi-distracted readership, which increasingly describes all of us.

The articles are organized under four headings: market conditions, risk and returns; investment portfolios, strategies and edges; pricing and valuation; and personal finance, behavioral biases and beyond.

Here I’ll recap two articles that appealed to me and that lent themselves to summary. The second criterion ruled out many excellent contributions. For instance, trying to summarize Barry Ritholtz’s “An Expert’s Guide to Calling a Market Top: The landscape is filled with pundits predicting the demise of the bull market. Here’s how to get in on the action” would be like trying to summarize a Letterman top-10 list. The task would simply produce a pale imitation of the original.

And so, to the two articles I chose. First, “10,000 Hours or 10 Minutes: What Does It Take to Be a ‘World-Class’ Investor?” by Charlie Bilello, originally published on the website of Pension Partners. From the title you can surmise that Bilello will debunk the applicability of the 10,000-hours rule to trading/investing. He argues that luck trumps skill in investment outcomes and that, in looking at the successes of the market wizards of years past, we can’t determine with certainty whether their performance was the result of skill or luck. More important,

“even if we concluded that there was some skill involved, doing x, y, and z because a ‘market wizard’ did x, y, and z in the past is a guarantee of nothing. …the environment they operated in no longer exists. … If the wizards themselves were faced with the task of repeating their prior successes, they too would fail—Warren Buffett would not be the next Warren Buffett if he had to start over again today. Paul Tudor Jones would not be the next Paul Tudor Jones. Stanley Druckenmiller would not be the next Stanley Druckenmiller.” The average investor should simply spend ten minutes learning about controlling costs, diversification, and asset allocation. “In a field where the outcome is driven more by luck than by skill, being a master of nothing (diversifying and protecting yourself from the unknowable future) yields the highest probability of success.”

Second, Samuel Lee’s “Waiting for the Market to Crash Is a Terrible Strategy.”

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