market folly

Ben Carlson recently released an insightful new book, A Wealth of Common Sense: Why Simplicity Trumps Complexity in Any Investment Plan.  In it, he dives into checklists for investors, behavioral finance, and key concepts investors need to be aware of.

Carlson's career has covered managing institutional portfolios for endowments, foundations, and pensions.  He also writes the popular investment blog with the same name, www.awealthofcommonsense.com (which we've linked to in our "What We're Reading" posts on numerous occasions).

Right now, his book is the #1 best seller in Wealth Management on Amazon.  It's easy to see why given the very practical concepts and ideas outlined in the book.

Chapters include:

- The individual investor versus the institutional investor
- The traits required to be a successful investor
- Defining market and portfolio risk
- Market myths
- Defining your investment philosophy
- Behavior on Wall St
- Asset allocation
- A comprehensive investment plan
- Financial professionals

We found the chapter on 'Defining Market and Portfolio Risk' the most insightful (fans of Oaktree Capital's Howard Marks will probably also enjoy this section). 

Carlson writes, "Risk is context dependent and can change depending on your personal circumstances and your perception of risk.  For most investors, your biggest risk comes from not knowing what you're doing, which means you don't have an investment plan in place.  Without a plan, volatility and uncertainty will eat you alive."

He goes on to add, "Volatility can be both a risk and an opportunity, depending on how you react to market fluctuations.  Intelligent investors view volatility as an opportunity, to both profit and keep their cool under pressure by following their process."

Newer investors would find the chapter on 'Defining Your Investment Philosophy' the most useful as it's a key concept most people don't really give enough thought to before diving right in.

Both on his blog and in his book, Carlson has a way of drilling down big picture ideas into the most important nuggets, all with concise language.  This is very valuable as it a) saves you time and b) ensures you focus on the most important aspects of a topic, tuning out the noise and complexity.  While this is great for readability, it's also a reminder of an important cliche: it's easier said than done.

The main drawback of the book is the lack of concrete and/or actionable ways to execute on what he's outlined, as that's largely left up to the reader.  Given that everyone's particular investment situation is different, we get why he did this, as blanket advice won't apply to everyone.  That said, it would have been nice to see a few more signposts guiding readers toward certain paths under broad scenarios.

The back of A Wealth of Common Sense says that inside you will learn how to: "keep up with - or beat - professional money managers, exploit stock market volatility to your utmost advantage, learn where advisors and consultants fit into a smart strategy, build a portfolio that makes sense for your particular situation."

That last point is arguably the most valuable concept taken away from the book given that everyone's risk tolerance and goals in investing are different.

Who should read this book: individual investors ('retail' investors) will benefit the most from reading this.  Those who enjoy concepts of behavioral finance or are looking to learn more about it will also find it useful.  Financial advisors and money managers (or aspiring ones) could also utilize this as a means to refine their own thinking and to identify topics to discuss with clients. Professional buysiders will take less away from this book.    

Overall, reading the book was time well spent.  As we've often said before, investing is a continual education and Carlson's book furthers that.  It's a practical read that addresses key investing concepts that often get drowned out by volatility and short-term thinking.   You can read the new book A Wealth of Common Sense by clicking here.