Preface: Consistently Not Stupid
This book is designed to reduce mistakes—your mistakes—with money. Tiny errors, epic fails, and everything in between. If only you could learn how to avoid the avoidable errors investors make all the time, your life would be so much richer and less stressful!
That is my charge: To share what I have learned so you can skip the most common mistakes people make with their capital. Avoid these unforced errors and your financial well-being will eclipse 90% of your peers.
Most finance authors don’t take this approach. The typical investing book goes the “How-To” route. They want to teach you—in a dozen chapters or so—everything you need to learn to become financially successful. Execute these 100 strategies, and start adding up the dollars!
That approach fails in the real world. Even if you do all the right things, it only takes a few mistakes to undo all your prior efforts.
This truth is counterintuitive: Avoiding errors is more important than scoring wins. This wonderful insight came from Charley Ellis in a 1975 Financial Analysts Journal paper titled “The Loser’s Game.”1 Investing, Ellis observed, is similar to tennis, in that most people lose by making unforced errors. The way to win the “loser’s game” is simply to lose less: Make fewer errors, and let the other guy beat themselves. A decade later, Ellis expanded this thesis into his classic book Winning the Loser’s Game.2
How Not To Invest will do that too: In the modern context of social media, Reddit memes, and 24/7 news, I am going to teach you to avoid the many mistakes that undo most investors.
More simply stated: Make fewer errors, make more money.
Berkshire Hathaway’s inimitable Charlie Munger phrased it this way: “It’s remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent.”
I am going to review the most common errors investors make; I will show you the myths that so many firmly believe to their detriment. I’ll include some favorite mistakes, including a few of my own, as well as lessons from the wealthiest and most error-prone investors.
All humans are fallible. That is the very nature of what it means to be human; we have a limited ability to see the future or even understand the past and present. We all make mistakes. This book will help you make fewer of them; those you do make will be less expensive.
The goal is the same as Munger’s: “Consistently less stupid.”