Smart surfers vs blinded rabbits (Book Review)

Source: The Hindu BusinessLine.

If you don't like to read a book on investment written by a drummer who `once played with a well-known 80s pop group' you can skip this. For the rest of us, though, here is The Next Big Investment Boom, by Mark Shipman, from Kogan Page (www.vivagroupindia.com).
The book is on `the secrets of investing' and on `how to profit from commodities,' and it begins with an exhortation that you take responsibility for your money. "The majority of the working population will spend over 75,000 hours at work and, even on average earnings, will earn over £1 million in wages. However, when it comes to retiring there is a high probability that very little of this money will be left." It's a sad fact that most people never achieve their true potential for building wealth, rues the author.

Take control
The bulk of wealth is created from investment rather than employment, says Shipman. Therefore, "it makes sense to focus more of your time on where you are going to invest your money than on how you can earn more of it," he argues. "You owe it to yourself to take control of your financial planning and your financial future," rather than "burying your head in the sand when the subject of finance or investing comes up." Successful investing doesn't require above-average intelligence, assures the author. "It is not an intellectual challenge; it is an emotional one." All you need is "a certain mental attitude and the discipline to follow an approach that exploits major long-term trends whenever they occur." The path of `trend following' that the author outlines is about `buying assets that are rising in price and selling assets that are falling in price.' Explains Shipman: "As a trend follower, I never set price targets or attempt to predict how far the market will move. Instead, I am just happy to sit and wait for the market to make its first moves and then jump on for the ride — just as surfers look to ride a good wave."
Investing is a mental game, notes a chapter on the psychology involved. "Successful investing is more about maximising your profits when you're right rather than the number of times you are actually right," instructs a section titled `get used to losing.' For, it is a fallacy that a successful investor has to be correct all the time, as Shipman declares. "The only true measurement of our skill is how much money we make."
An essential mental attribute is discipline — "to remain with your investment strategy regardless of what you may hear or read to the contrary." A testing time can be the final stage of a bull market — "when everyone is talking about it and participating in it and the media are giving publicity to anyone who is making wild predictions of `just how high prices could go'." If your strategy finally indicates that you should liquidate your investment and cash in, that's when you'll need the discipline actually to instruct the broker to sell, counsels the author. What happens to those who lose their discipline at such a juncture and choose, instead, to remain invested? "Having already abandoned their plan and now without a clear strategy to guide them, they become mentally paralysed, as they can't believe what's happening to their investment and the profits they once had."
And something more gruesome happens: "Stuck like rabbits in car headlights they often take to staring at their market quote machines, market data websites or the financial television channels in disbelief, hoping and praying that prices will recover to their previous levels so they can close their positions without too much damage." Enlightening read, about how timing works, as much for investors as for drummers.

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