Wednesday, February 5, 2014

It’s Still Not Rocket Science

In a follow-up to It’s Not Rocket Science, Tom Bradley at Steadyhand has another investment book out called It’s Still Not Rocket Science (available free in PDF form here). Like the first book, this one is a collection of a few years of Bradley’s essays explaining investment topics clearly. Bradley’s style contrasts sharply with the usual message from the investment industry that investing is very difficult and that you’d better hand over your money before it blows up.

Disclaimer: I did not receive any compensation from Steadyhand to write this review other than a free copy of the book. My relationship with them is limited to having met a few times and liking how they treat their clients. I’m a DIY indexer myself, but for those seeking advice, Steadyhand offers lower fees than most other options. Further, Steadyhand is actually trying to beat the index rather than charging high fees for just hugging the index.

Here are a few ideas from the book that jumped out at me.

Measuring Personal Returns

Most do-it-yourself stock pickers “don’t take the time to calculate their overall return.” This makes it easy to lie to others, “although it’s more often to themselves.” My experience has been that most people who buy lottery tickets claim they have made more than they’ve spent, and most stock pickers claim they’ve beaten the market.

Return of Capital as a Selling Feature

“A product has an advertised yield of 6 per cent, but is earning only 3 per cent from interest, dividends and capital gains (after fees). The investors’ capital is used to cover the rest of the distribution. It’s a marketer’s dream. The client makes up the shortfall and it’s positioned as a selling feature. ‘Buy now and you’ll receive a tax-efficient 6 per cent yield.’”

Unrealistic Expectations

“Our clients think we can do more than we’re capable of. Some think we know which stocks are going up and when to get in and out of the market.” These expectations are fueled by the tendency to highlight “savvy stock picks and prescient interest rate calls.” The industry advertises “the funds that are performing the best right now.”

Bradley’s essays are worth a read whether you want to be a better investor yourself or want to understand the mutual fund industry better.

2 comments:

  1. link seems broken.

    I found it here: http://www.steadyhand.com/education/library/book/its_still_not_rocket_science/

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    1. @Anonymous: Thanks. Steadyhand fixed a spelling typo in the link that broke my link. It's fixed now.

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