Reading, learning and thinking are core investing skills

Welcome to the latest post in my journey to build financial literacy for young adults. As mentioned in my previous post, I had originally planned to write about the travails we’ve had in setting up the securities for account my younger son. Unfortunately, we still haven’t been able to complete the setup as we’ve had a number of technical issues. Once the account is actually set up, I’ll write about it – it’s definitely taken a lot longer with many more hiccups than I had anticipated. For today’s post, though, I’d like to share with you the lessons I’m trying to teach my sons about reading, learning and thinking as a core investing skill.

For today’s kids, investing is all about speed and excitement: Frequently trading exotic securities through apps that are constantly accessible on their phone and sharing stories of how quickly they’ve made money with their friends. I’ve heard so many stories from my kids and other young people about individuals trading on Robinhood and becoming millionaires overnight from their cryptocurrency or Tesla options trades. Their view on investing is that it’s all about rapid-fire trading and getting rich quickly.

In this context, it’s really hard to educate my sons that investment success is a slow process which takes lots of time. Counter to today’s culture which stresses quick decision making and constant action, being a good investor benefits from slow and deliberate decisions and limited action.

Fortunately, my kids know about Warren Buffett, one of the most successful investors of all time. Quoting his words helps me get some thoughts across to them. The following two of Mr. Buffett’s quotes have always carried a lot of weight for me:

“I insist on a lot of time being spent, almost every day, to just sit and think. That is very uncommon in American business. I read and think. So I do more reading and thinking and make less impulse decisions than most people in business. I do it because I like this kind of life.”

“Read 500 pages like this every day. That’s how knowledge works. It builds up, like compound interest. All of you can do it, but I guarantee not many of you will do it.”

https://www.theladders.com/career-advice/warren-buffetts-80-rule-the-most-successful-people-spend-a-great-deal-of-time-reading-and-thinking

I often tell my kids that it’s important to learn about what you are investing in and the wider world in which one’s investments operate and then think through the pros and cons of an investment before making it. Making well-thought and less impulsive decisions is one of the key competitive advantages that incredibly successful investors develop. I also share with them information that many studies have shown that people who trade more frequently end up having worse returns. Of course, studies such as this one from Brad Barber and Terrence Odean at the Haas School of Business (Trading Is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors; https://faculty.haas.berkeley.edu/odean/papers%20current%20versions/individual_investor_performance_final.pdf) which talk about this subject are a lot drier and less likely to be read by kids.

Rather than bore my kids with constantly telling them that frequent trading hurts performance and that it’s more important to read, learn and be deliberate in the investment world, my strategy has been to occasionally send them articles which I find interesting and educational. Most of the time, my kids ignore them. However, once in a while, they do read something I send over and it’s personally gratifying when they bring them up at dinner or when we’re on a bike ride. Seeing my kids’ thinking through and processing lessons from those articles gives me hope that they will be more deliberate and thoughtful as they start investing.

Most of the material I read is from investment industry professionals who send out periodic newsletters. Here are some free ones which I can heartily recommend:

• John Mauldin: Thoughts from the Frontline; https://www.mauldineconomics.com/subscribe-frontlinethoughts
• Joe Calhoun: Weekly Market Pulse; https://alhambrapartners.com/2021/10/10/weekly-market-pulse-inflation-scare/
• Lance Roberts: Real Investment Newsletter; https://realinvestmentadvice.com/
• Steve Blumenthal: On My Radar; http://advisorcentral.cmgwealth.com/on-my-radar/
• John Hussman: Hussman Funds Market Comment; https://www.hussmanfunds.com/category/comment/
• Jesse Felder: The Felder Report; https://thefelderreport.com/

Please note: these are free newsletters or market commentary. I have no affiliation with any of them or their organizations and the only reason I mention them is that I find their thoughts informative and educational. Like I’ve done with my kids, I would suggest that you sign up for their free newsletter and read them. If you don’t find them informative after reading them a couple of times, unsubscribe.

When my kids do mention that they find an article interesting, I suggest that they sign up for any free subscription from that author and learn from them. I also let them know that some of the material may not make sense at this point as the authors do often use industry jargon. However, over time the material will make more sense as they learn more about investing. Fortunately, my sons have found some of the articles I’ve sent interesting enough that they’ve signed up for a couple of these newsletters and I’m hoping that they’re reading them and building up their knowledge and insights into longer-term investing.

I hope you found today’s post informative with good tips on some informative reading sources which you and/or your kids can also benefit from. In my next post, assuming we’ve completed my son’s account setup, I will write about the travails we’ve had in setting it up. If there are any topics you’re interested in my writing about, please let me know. Also, if there any good reading sources you know about, I would love to hear about them.