Today is going to be my more or less annual or close to it investor education rant. I was at a meeting of a prominent individual investors association last night and while I enjoyed meeting and talking with some folks I was appalled by the lack of knowledge in the room. One fellow admitted he had never read a 10K or 10q in his entire investing life. Someone asked about millennials and investing to help her newly minted college graduate and I mentioned Patrick O’ Shaughnessy and his excellent book for millennial investor. I also referenced his father and all his work. Blank faces all around. Some of the comments and discussions convinced me that that most of these folks are managing their life long accumulations using what they have read in the monthly association magazine.

If you are going to manage your own money you have to know what you are doing. Yes, I want you to buy my newsletters because I think I have something to say and can make you some money. However I want you to be well educated about the process. I like subscribers that can argue with me and maybe even teach me a little something over the years.

You need a deep in depth knowledge of markets whether you are investing in individual stock, managed accounts or mutual funds. You have to read them all I am afraid. It does not matter if you favor growth, value or a technical approach to the markets. The other schools of thought are active participants in the market and will have an impact on prices. You need to read Ben Graham, Joel Greenblatt and Marty Whitman’s value investing books. You have to add Tobias Carlisle, Patrick O’Shaughnessey and his father into that mix. You also have to read and learn the great growth stock pickers like Navellier, Phil Fischer, Mitch Zacks and William O’Neil. You also need to read Steve Nisson, Larry Williams and John Murphy on the basics of technical trading of stocks. Trend traders have a huge effect on stock prices at times so Michael Covels books on the subjects are on your reading list as well. Counter trend traders play a part in this mix so add Victor Niederhoffer to the list as well. Gary Antonacci just published a new book called Dual Momentum that I think is going to important and needs to be read.

That’s a good start. Now let’s add Damodoran on valuation and investment fables. Probably better read all the editions of Jack Schwagers Market Wizards as well to gather different viewpoints. You really need to understand as many different market viewpoints as possible Guy Wyser Prattes Risk Arbitrage is also necessary homework. Victor Wendell has written an excellent book on net-net investing that you should probably read as well.

You need to understand the workings of fixed income and interest rates as well. Start with James Grant for the history of interest rate markets. When you are done that move on to Frank Fabozzis fixed income handbook. You also need to read Calamos on convertibles in my opinion to really get a grip on taxable fixed income. Back to Fabozzi again now for the handbook of municipal bonds as they will most likely be an important part of your business if you deal with individual clients. Jim Lebenthal on munis also makes a lot of sense if they will be a big part of your repertoire.

Now we have to put all this together. You should read Peter Bernstein on capital markets and risk. David Darst on asset allocation is absolutely mandatory . You need to learn how to diversify and allocate portfolios and not just use an out of the box software package provided by your firm. To take it to the next level read Phil McDonnell on optimizing portfolios.

If you plan to trade options and have not studied McMillan, Euan Sinclair, Taleb or the like on options pricing I think you are criminally negligent. Every time you enter an options trade keep in mind that in all likelihood the firm buying or selling that option from you has had to install special air conditioning units to cool the supercomputers they are using to make prices. The best advice I can give most retail investors is to avoid pitons unless you have the time to put in selling cash secured puts on stocks that fit a strict value definitions.

That is a bare minimum start in my opinion. Not only should you read them I think you should have a passion for this stuff deep enough that you want to read them. A lot of this can now be gained though the excellent little books of investing put out by Wiley and Sons but some of it you just have to work your way through. If you decide to adopt a specific style of investing you have to go still deeper into the subject. Most of all you have to keep reading and educating yourself all the time.

I am going to plug the Little Book Series as a way to get your investment education off the ground and up to speed quickly. My finger prints are on 4 of these ( I will leave it you to figure out which four) as I served as either a consultant or ghost write on the projects. Authors include Louis Navellier, Chris Browne, David Darst, Pat Dorsey, Mitch Zacks, James Montier, Jack Bogle and other investing luminaries and legends. They are quick easy reads and will give you a really strong foundation in stocks and markets. You can check them out here:

http://lp.wileypub.com/LittleBook/

It is your money. I believe my newsletters can be an enormous help as you search for profits. But you need that base education about markets and money. After all I could get hit by a bus tomorrow and the crack staff doesn’t know much beyond “sit” “stay” and “wanna treat” so there is no succession plan.

Charlie Munger once remarked that” In my whole life, I have known no wise people (over a broad subject matter area) who didn't read all the time -- none, zero. You'd be amazed at how much Warren reads--and at how much I read. My children laugh at me. They think I'm a book with a couple of legs sticking out.” Once you have that base knowledge you need to try and stay up on the world. Read the news. Read the reading list each week that I send to you. Just that simple act will make you better informed than most professionals and this is doubly true of the Banking on Profit newsletter because no one else follows these little banks.

Keep in mind. Educating yourself is the last thing Wall Street wants you to do. They NEED you uninformed. Most brokers haven’t read all this stuff and most brokers are too busy learning new selling techniques and spitting out computer produced financial plans to deepen their education to this level. If you know more than they do how they will ever sell you stuff like annuities with 7% commissions, trusts that create trailing 1.5% fees annually or unlisted REITs without outrageous cost structures.

I love associations like AAII and others. The meetings are fun, you need great people and they do have great material. But it is not enough.

Read.

Then read some more.

Cheers

Tim

Better educated investors will spend a lot more time in https://www.youtube.com/watch?v=9ChADh1zt5I