The book Inside the Mind of the Turtles: How the World’s Best Traders Master Risk, by Curtis M. Faith is primarily about ways to both embrace risk and protect yourself from risk. The publisher, McGraw Hill, has graciously offered two giveaway copies for my readers.
To enter the draw, send an email with the subject “Book” to the address shown on the upper right corner of this blog. The draw will close Sunday June 14 at noon. I will contact the winners to get (Canadian or American) postal addresses.
Curtis Faith offers 7 rules for dealing with risk:
1. Overcome Fear. Fear clouds judgment.
2. Remain Flexible. Surprise outcomes may require a change of plan.
3. Take reasoned risks. Risk can be good if the odds are in your favour.
4. Prepare to be wrong. Plan in advance how to deal with unfavourable outcomes.
5. Actively seek reality. See the world as it is rather than as you want it to be.
6. Respond quickly to change. If your plan calls for some action in the face of unfavourable outcomes, don’t delay.
7. Focus on decisions, not outcomes. In the face of risk, good choices can have bad outcomes, and bad choices can have good outcomes.
The part of this book I liked best was the rational way of thinking about risk. A choice involves risk if there are several possible outcomes and you can’t be sure which outcome will become reality. Usually, no amount of analysis can allow us to predict the outcome for certain.
If we decide that the odds are in our favour and take a chance, the worst may still happen. For this reason, we should plan in advance what we’ll do if our luck is bad. By planning in advance for bad outcomes, we can choose a reasonable amount of risk to take on.
The main thing about this book that I didn’t like was the emphasis on trading. I think that much of the discussion about risk is useful for non-traders, but the book often comes back to trading strategies. It may be possible for a minority of traders to succeed, but it is easy to show mathematically that the average trader must perform worse than buy-and-hold investors.
A couple of good quotes:
“An economist is an expert who will know tomorrow why the things he predicted yesterday didn’t happen today.” – Laurence J. Peter
“In my experience, 95 percent of the ‘professional’ people in the investment business have no idea what they are doing. ... Most of them are just salespeople. ... You need to learn enough to distinguish between wise and foolish counsel.”
A not so good quote:
“The public at large is told that market timing is a fool’s game. ... They don’t understand what super returns people could get by just missing the worst market days.” – Van K. Tharp
Until someone shows me how to miss the market’s worst days without also missing good days, I remain skeptical of market timing claims.
Overall, I recommend this book for its useful and rational approach to thinking about risk. But, be prepared to filter out the parts that make less sense.