Summer Holiday Reading – Financial Advisor Style
Tales of asset allocation, investment opportunities, wealth management and murder in Sicily.
One of the most enjoyable things about summer holidays as one gets older and wiser is the pleasure to be had from reading at a leisurely pace.
Given that our family holiday was in the south east of Sicily this year, I was delighted to stumble upon the crime novels of Andrea Camilleri. The novels are set in Sicily and feature Inspector Salvo Montalbano who is almost as interesting a character as his creator.
Camilleri started the fictional series at the age of 70 and one of the novels in the series won the 2012 Crime Writers’ Association International Dagger – a nice way to celebrate his 87th birthday. It’s never too late to have big goals. More on Montalbano later.
I also decided to read some more serious books – again at a leisurely pace. The first was a third reading of Fooled by Randomness by Nassim Nicholas Taleb. Described as irreverent and written in an acerbic style by an author with an intimidating breath of knowledge, it is full of fantastic insights captured under imaginative headings such as:
- Taking knowledge less seriously.
- If you’re so rich, why aren’t you so smart?
- Skills in Predicting Past History.
The central proposition is that we mix up luck and skill, especially in the markets. This happens because we fail to understand probability when trying to analyse mutual funds and analyse investment opportunities. It is a great read if a little heavy – a chapter was enough for me most days!
A lighter – and certainly shorter – read is The Investment Answer which covers 5 decisions you should consider when managing your money and protecting your financial future. It also reminded me of one of my favourite quotes from John Kenneth Galbraith:
“We have two classes of forecasters: those who don’t know and those who don’t know they don’t know”.
It was very pleasing to note that the philosophy of this book is aligned with that of Metis Ireland. So, if you read this book and find it of interest, you know who to contact. Helpfully, my colleague Carl Widger, summarised the Metis Ireland rule book while I was away – click here to review. It will take less than 60 seconds and is not quite as irreverent as Taleb’s book!
A key insight is that we are sometimes our own worst enemies when it comes to making investment and financial planning decisions. In Metis Ireland, we have a mantra – Stick with the Plan – for a reason. Research has shown that investor return is consistently a fraction of investment return. In other words, individual investors do not beat the market. There are many reasons for this including a psychological herd mentality. We can show this visually:
This is because of the Emotional Cycle of Investment – irreverently summarised below.
There are plenty of actions you can take to avoid this damaging behaviour. This video demonstrates why you should Stick with the Plan using a practical and Irish example.
Back to Inspector Montalbano to finish. The crime novels have been adapted for Italian TV and are very popular – they have also been shown on BBC with subtitles. The beautiful port village of Puntasecca is the location for filming and there happened to be a shoot on the day we visited.
The town was full of excited Italians waiting for a picture with the TV stars of the series. In a personal example of herd mentality, I couldn’t help but get in on the act. I have no idea who this very gracious lady is – role on the winter and some Inspector Montalbano on the TV so I can find out!
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