Investment U

The Investment U E-Letter: #339
Friday, May 21, 2004

The Two ‘Secrets’ to Mastering Investing
Plus, Five New Investment Books to Help You Take the Next Step
By Dr. Steve Sjuggerud
President, Investment U

“How did you get so much investing knowledge at such a young age?”

I get asked this question often. I don’t know what answer people are looking for but I’ll tell you how I learned what I’ve learned…

It wasn’t through school, though I went as far as you can in school. It wasn’t through a personal mentor, though I’ve been fortunate to spend time with many great investment minds. And it wasn’t through some type of divine intervention, or “just having a knack for it.”

How I got here is simple. Today, I’m going to share with you exactly how I did it, and how you can do it, too.There are two things you need to do, and that’s it. But they are big…

1. You need to learn as much as you possibly can.
2. You need to get out there and do it.

How to Get Started on Your Journey

Getting out there and investing is the obvious part. You’ve probably already done some of that, and probably have lost money in your time. That’s okay. As long as you consider that money as “tuition” – that is, as long as you try to learn from each of your mistakes – you’ll be getting better.

Tiger Woods can’t just read about golf to be good at it… he’s got to take some swings.

Learning as much as you possibly can is the part that most people slack off on for whatever reason. I just don’t get how people can invest and avoid learning. I spend my days trying to learn more, and to get better at this craft, just like Tiger Woods works on his craft and then applies what he’s been studying.

A friend (who writes www.EarlytoRise.com) says it takes 1,000 hours to master anything. Mind you, 1,000 hours is no guarantee of success. It basically means that you know what you’re doing. By that gauge, he’s probably about right. So if you can study investing 10 hours a week for 100 weeks, you’ll know what’s going on. The question is, what should you study?

A Great Education…In Five Powerful Books

If you’re just getting started, I’d highly recommend the Investment U Course. I’m biased here because I wrote it. But it was written to be “everything you need to know about investing, and nothing you don’t.” You can read it in an afternoon. And it will probably save you tens of thousands of dollars in “tuition.” How else can you spend an afternoon and save yourself tens of thousands of dollars?

After you finish that, you ought to read Safe Strategies for Financial Freedom, written by Van Tharp, D.R. Barton and myself. This book is brand new (it had hit number-seven on Amazon.com before it came out). The official release date is June 4, but it is available on Amazon.com right now.

To me, this book is at least three books in one… (1) You learn how to rethink your personal finances in terms of your “financial freedom number,” which should allow you to retire earlier… (2) You learn how to size up the markets then invest based on what you see… (3) There are some more sophisticated chapters toward the end on managing risk in your investing.

There is a lot here.

Next, you may want to consider Financial Reckoning Day, written by William Bonner and Addison Wiggin. Bill and Addison asked me to create the charts for this book, which made the New York Times bestseller list for a while this year. In one section, they compare Japan’s investment frenzy that peaked in 1990 and the subsequent bust over the last 14 years to the U.S. today. I prefer to use history to guide my guesses about the future. And this book is the best book this year at both giving the history and informing those guesses.

In the new book Bull’s Eye Investing, John Mauldin kindly credits me for my research and work (and flattery will get him everywhere). Like the last two books I mentioned, this book covers a ton of ground. I particularly liked some of the behavioral finance stuff in this book… like “the six emotions that cause investors to make mistakes:”

1. Fear of regret – so you hold losers too long
2. Shortsightedness – attaching importance to day-to-day events
3. Cognitive dissonance – inability to change your opinion with new information
4. Overconfidence – people tend to overestimate their abilities
5. Anchoring – people giving too much credence to their most recent experience
6. Representativeness – people seeing “patterns” in random events

Also, don’t buy a hedge fund until you’ve read Mauldin’s book.

Another “new” book that I highly recommend is The Book of Daniel Drew (it is only available at www.FraserPublishing.com). It originally came out nearly 100 years ago. But the lessons are so powerful, I talked the publisher into bringing it back into print.

Drew was one of the world’s most powerful investors in the mid- to late 1800s. Three pithy quotes from the book:

1. “The money market is the key to the stock market. They who control the money rate also control the stock[s].”
2. “The way to make money in Wall Street is to calculate on what the common people are going to do, and then go and do just the opposite.”
3. “Cut short your losses and let your profits run, is the rule.”

It is a great read (but quite frankly, you can skip over the first 75 pages or so, and start where Daniel meets Vanderbilt in New York for the first time. That’s where the action begins.)

That’s about it. You know how to master investing: Learn it and do it. Here are five books to get you a long way down the right path. Finish these and, well, you’ll have just 950 hours to go…

Today’s IU Cribsheet

• All the books I mention above are great tools for becoming a master investor. They’re easy to get hold of, too, just visit the links above.

Good investing,

Steve

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