If you ever thought that the stock market was a rigged game, you’ll really enjoy this book. Lee Muson uses a mixture of anecdotes and data to illustrate why “Wall Street” is putting on a rigged game and that it needs “Main Street” to play along. The basic gist of the book is that your standard investment advice is wrong. Buy and hold is not a guaranteed strategy (it’s not even a strategy, because it only covers half the process – when are you supposed to sell?), diversification is often done wrong, and statistics lie. Your 401(k) might be nice, but you’re pretty much trapped. He devotes a very significant percentage of his book arguing the point that Wall Street has done all it can to make sure you play its game and that it beats you.
I won’t go into the details, these are arguments you’ve probably heard of before, but if you want some backup from someone in the industry, this book is chock full of them. These aren’t behind the scenes types of “hush hush” secrets, they’re just the things you’ve always suspected and probably talked about around the dinner table. One classic idea is that diversification can lower your risk. Diversification can lower your risk, but diversification doesn’t mean mixing up your asset allocation so you’re X% domestic and Y% internationally. It just means that your assets are allocated in a way that the total risk is less than the weighted average of risk. It’s more subtle, and harder to achieve, than putting $100 in this and $100 in that. Everyone knows this… but by the time it’s communicated into something to “do,” the original intent is lost.
Personally, I agree with a lot of the arguments and it was one of the reasons why I wrote this Devil’s Advocate post on why you shouldn’t invest in the stock market . That said, I still invest in index funds and a smattering of dividend stocks.
So what can you do about it? The key is being educated and asking the right questions. It’s in understanding what is a good idea and what’s not. ETFs, in general, may be a good investment but that doesn’t mean every single ETF is worth looking at. An index fund might be a good idea but are you suppose to buy and hold and never think about it? Probably not. In the end, you need to be educated in order to come out ahead and, unfortunately, it’s rarely as easy as a simple rule of thumb.
All in all, an interesting book that I enjoyed reading.
As an aside, if the last name sounds familiar, it’s the name of one of the lead characters, Roy Munson, from Kingpin  – a classic. 🙂