If you're seeking a book that will show you the fundamentals of smart investing, Chris Merchant's "On Investing Well: The Components of Good Investment" might be of interest.Â
The author of this book is a behavioral financial advisor who has received recognition for his contributions to the industry and is a certified financial planner.
What is the book about?
The book is broken up into three sections, each of which discusses a distinct facet of wise investing. The first section focuses on the type of mindset an investor needs to have. The guidelines for making wise investment decisions are explained in the second section. The final section demonstrates how to use these ideas to develop strategies that meet your needs and preferences.Part 1: Master the Mental Mindset for Investing Well
In this section, the author demonstrates how psychology and emotions are just as important to investing as facts and formulae. He makes the claim that many investors fail because they put too much emphasis on techniques and disregard fundamentals. They believe they have discovered the ideal investing strategy, but there is no foolproof system for making money in the market. The secrets of successful investors reside not in the techniques they employ but in the values they uphold.The author also warns against some common pitfalls that can sabotage your investing performance, such as:
- Following the crowd and chasing fads
- Being overconfident and overestimating your abilities
- Being influenced by biases and emotions
- Making decisions based on fear or greed
- Trying to time the market or predict the future
To avoid these pitfalls, the author suggests that you adopt a mindset that is:
- Rational and objective
- Long-term and patient
- Disciplined and consistent
- Humble and realistic
- Curious and learning
By mastering this mindset, you will be able to overcome the challenges and uncertainties that come with investing and make better decisions based on facts and logic.
Part 2: Build a Strong Foundation Based on Principle and Use that to Make Decisions
In this part, the author introduces the four elements of good investing, which are:- Purpose: Why are you investing? What are your goals and values?
- Plan: How are you going to achieve your purpose? What is your strategy and process?
- Portfolio: What are you going to invest in? What is your asset allocation and diversification?
- Performance: How are you going to measure your progress? What are your benchmarks and indicators?
The author explains how these elements are interrelated and how they can help you create a solid foundation for your investing journey. He also provides some practical tips and tools for each element, such as:
- How to define your purpose using SMART (Specific, Measurable, Achievable, Relevant, Time-bound) goals
- How to create a plan using SWOT (Strengths, Weaknesses, Opportunities, Threats) analysis
- How to build a portfolio using the Modern Portfolio Theory (MPT) and the Efficient Frontier
- How to evaluate your performance using risk-adjusted returns and Sharpe ratio
By following these principles, you will be able to design an investing plan that is aligned with your purpose, tailored to your situation, diversified across different assets, and optimized for risk and return.
Part 3: Combine the Mindset and Principles You have Learned to Create Methods You Can Use to Invest
In this part, the author shows you how to apply the mindset and principles you have learned to create methods that you can use to invest in different types of assets, such as:- Stocks: How to analyze companies using fundamental analysis and valuation techniques
- Bonds: How to assess bond quality using credit ratings and yield curves
- Mutual Funds: How to choose funds using expense ratios and performance history
- ETFs: How to compare ETFs using tracking error and liquidity
- Real Estate: How to invest in real estate using REITs or direct ownership
- Alternative Investments: How to diversify your portfolio using commodities, hedge funds, private equity, etc.
The author also discusses some advanced topics, such as:
- Investing over 50 (While Retired): How to adjust your portfolio for income and preservation
- Investing for Retirement: How to save for retirement using IRAs, 401(k)s, etc.
- Investing for Millennials: How to start investing early and take advantage of compounding
- Investing for College: How to save for college using 529 plans, etc.
- Investing for Nonprofit: How to invest for social impact using ESG criteria, etc.
By combining the mindset and principles you have learned with the methods you have created, you will be able to invest well in any asset class, any market condition, and any life stage.
Why should you read this book?
This investment book differs from others in several ways. You can learn how to think and act like a smart investor from this book. In this book, the complicated world of investing is made straightforward and accessible to everyone. You can take control of your financial destiny and accomplish your goals with the help of this book.FAQ
The main premise of the book is to provide readers with an approach that simplifies the process of investing well. It emphasizes the importance of principles over methods in investing.
The Era of Personal Responsibility refers to the current period where individuals bear most of the burden for saving for a college education, health care, and retirement.
The book is divided into three parts: mastering the mental mindset for investing well, building a strong foundation based on principles and using that to make decisions, and combining the mindset and principles learned to create methods for investing.
The book emphasizes the importance of adhering to principles in investing. It suggests that successful investors' secrets lie not in the methods they use, but in the principles to which they adhere.
Chris Merchant is an award-winning CERTIFIED FINANCIAL PLANNERâ„¢ and Behavioral Financial Advisorâ„¢. He holds an MBA and is the founder of Hunt Country Wealth Management, an independent financial planning and investment management firm.
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