Top positive review
Beware of the Paradox
Reviewed in the United States on September 4, 2018
So, here is the thing. If you’re looking into this book, it is because you’re probably interested in managing your own money. Also, because this is a very basic book, you are probably on the early stages of your investing education. Which means you still have a lot to learn from the theory and, especially, from the practice. Now, because you still have a lot to learn from the practice, you will probably be making most of the mistakes this book warns against. Hence the paradox.
So, you are starting your journey here, attempting to formalize what until now it’s only been an intuitive understanding (if that). After finishing this book, you feel good about it, confident that you can do this. So, you then delve into Value Investing, in an attempt to use some fundamental analysis to pick a group of stocks that make up a portfolio that is stronger than the S&P. You soon realize that this is not that easy, as there are too many variables to take into account and then, even if your fundamental analysis is correct, the market for some reason does not validate your views. You feel tired, but not enough to give up. After all, this is really cool stuff and makes you sound smart at social gatherings. So, you decide to change your approach. You still feel like it is possible to create a basket of stocks that can beat the market. You see names like Amazon, Netflix, Nvidia, and think you can easily get on a sweet ride by investing in those market leaders. You do well. But you think you can do better. Because the market decided to take a break with Netflix, your results are not as great as you thought they would be. In the meantime, you’ve been reading Peter Lynch, learned about those 10 baggers, and started looking around you for those places where you usually shop at. You love going to Shake Shack. So you look up its stock symbol and realize it had a tremendous run since its IPO. At a family meeting, you hear your fresh-out-of-college nephew talk about how much he likes his job as a data scientist at Hello Fresh, where they use an incredible tool called Tableau. So, you decide to invest in all of these companies. Initially, you do well in Shake Shack. But then the market decides it had a very long run and it’s time to take some profits off the table. So, you end up with average results. Tableau does great and you keep hearing good things about it. Then it tumbles 50% overnight on disappointing earnings. Hello Fresh has an amazing business model but for some reason the stock has been trading in ranges for ever.
Now, a year has gone by and you realize you got the same results the index had. Except that you spent all that time and money trying to build and maintain your portfolio when you could have easily bought and held the SPY. Even worse, you now have to pay taxes on all those trades that you exited just so you could feel good by pocketing some profits.
Well, my friend, those are the type of lessons this book tries to teach. The problem is that you will not listen at first and will eventually learn the hard way, just to end up here again (probably re-reading this review). But that’s good. You learned your lesson and are wiser now. Good luck!