“Seven Mistakes Every Investor Makes (and how to avoid them)” – Book Review by Value And Opportunity
Odey Tells Investors Prepare For 11% Inflation And A Market Crash [2020 Letter]
"Assets are priced for eternal delight and negative real interest rates lasting forever," Crispin Odey declared at the start of his December 2020 letter to investors of the OEI Mac fund. The $170 million fund lost -3% in December, according to a copy of an investor tear sheet, which ValueWalk has been able to review. Read More
Despite having a full time job and a high quality, frequent blog, he also managed to write a book. Being a German of course, he doesn’t promise to make one rich quickly but it tries to identify and provide solutions for very common mistakes that indeed almost all investor make.
Seven Mistakes Every Investor Makes (and how to avoid them) by Joachim Klement
The Mistakes Every Investor Makes
Although Klement is a more Macro oriented investor, his advice is great also for stock pickers or any other investment styles. He emphasizes a lot of points that I share 100%. The investor mistakes that he concentrates are:
- Avoid too much detail in forecasting but rather try to get the direction right
- Avoid being too short term oriented
- Avoid becoming too stubborn
- Avoid the wrong lessons of history/experience
- Don’t miss out on the other side of a story
- Mistakes in selecting the wrong fund managers
- Not understanding structural market changes
The book contains a couple of very interesting research pieces that were new to me, especially with regard to behavioral aspects of investing. I also very much like his “mental model” of a stock or a market as a ball pulled by different elastic rubber bands.
One highlight in my opinion is clearly the last chapter on markets as complex systems which clearly only scratches the surfaces but is very helpful in trying to understand what is going on. The “this time is different” crowd always believes that you can make perfect predictions form the past, but Klement clearly shows that “the only constant is change”.
Another part that I liked very much was the research on how to create financial bubbles in experiments and the role inexperienced investors play in creating bubbles.
His recommendations to avoid the mistakes are common sense like keeping a journal and a checklist, limiting media intake, not looking at the portfolio too often and understanding ones own psychological limits with regard to investing.
Over my own “career as an investor” I have come to many of the same conclusions than Clement but it took me a long time to get there. I wish this book would have been available earlier and can really recommend it it for every investor but especially for those who are in their early years. The book is relatively short (200 pages) but there is a lot of content.