Investing books are a valuable tool for the investing masses. Used to spread good investing knowledge around the world, so that people of modest means can achieve reasonable rates of return on their savings and save for a brighter future? Perhaps this isn’t the case.
This article will set out several reasons why even the best investing books aren’t as perfect as they might first seem. They’re not quite the ‘great equalizers’, indeed, they could actually help perpetuate the gaps in the quality of information held by the rich and the less rich. The rich being the professional finance managers or those with large portfolios or financial advisers, and the passionate amateur investors which I’ll call ‘armchair investors’.
It might seem like having a huge choice and the freedom to pick any investing book is a real advantage to every investor. However, the overwhelming number of investing book titles available actually becomes an issue. I agree that there are some great books out there, but they’re difficult to find because one needs to wade through the hundreds of other published books to find them.
To someone inside a connected industry, it can be easy to receive recommendations from others who are ‘in the know’, about which books contain the stand-out insights, and which simply have recycled and re-hashed content available elsewhere.
In contrast, someone who is brand new to investing can be overwhelmed by the choice and will have fairly poor odds of selecting one of the ‘classic’ titles. In a case of the blind leading the blind, it can be hard to trust book reviews on online stores, on the basis that beginner investors only tend to read 1-2 books on investing, meaning that a large proportion of reviews are written by people who don’t have the context of the rest of the market. While such reviews won’t be dishonest – after all, they’ll still contain people’s thoughts and feelings on the book itself, they may fail to distinguish between the truly excellent content.
Investing books are often available in affordable paperbacks, but not all prices are equal. My personal copy of ‘Technical Analysis of the Financial Markets by John Murphy’ is a large hardback, but it set me back over £50 to purchase about 10 years ago. Even now, it retails for a similar price just as an ebook download and used prices are still £20+.
This is so expensive (for a book), that this will price it out of the reach of many beginner investors. With so many other titles available for significantly less than £20 each, it stands to reason that few will even consider spending twice or three times that on an investment book. Of course, this is sometimes the price you need to pay to secure one of the best investing books.
Finally, we reach the final hurdle that a beginner must navigate before they can find the best investing books, the publishers’ marketing departments. Some books sell themselves better than others. One problem is that the books that sell themselves the best, are usually not the best.
I’m talking about books with titles that sound thrilling and which appeals to our desire to get rich. Books such as “How to build a $1m Property Portfolio in 3 Years’ and ‘How to become rich through Stock Market investing”. These books receive a penalty point from me virtually because of their catchy titles. Investing is a pursuit that receives research, patience, and wisdom.
Firing up the part of people’s brains that craves wealth, freedom and financial success is a legitimate way to sell a book… but it doesn’t promote good investing. By tying aspirations about financial independence into a tome about investing strategy, and investing book could entice people into investing who don’t have sufficient risk tolerance or a long enough time horizon to do so.
By making investing sound easy, and by setting expectations of high returns (not average returns), an author is building up people’s expectations of results, and they may feel disappointed if their results are similar to the average investor.
Of course, statistically, the results of the average reader will be average, therefore sharing case stories of very lucky individuals who happened to join a market at the perfect moment (i.e. investing in property in the mid-’00s), can be frankly quite misleading for a new investor to read about today.
The best-investing books need to be honest about the trade-offs between performance and risk and should be upfront about the extreme difficulties that even professional investors have in beating average market returns over long periods. By knowing this, professional investors have an edge – they know what to expect.
Instead, by arming investors with hopeless optimism, some investing books which are aimed at new investors can hold them back in having a successful investing career.