We will start all our reviews with the statement that there is a website doing excellent book reviews that enthusiastic readers will find useful. We can neither add to or improve on it. We will review books that website does not, books which primarily are of historical interest for investors. In addition, we will review interesting and relevant academic papers, magazine and newspaper articles, interviews and videos.
Today’s review is an example.
Gerald M. Loeb, The Battle for Investment Survival, Simon and Schuster Inc., 630 Fifth Ave., New York, NY, 1935, 1936, 1937, 1943, 1952, 1953, 1954, 1955, 1956, 1957, 1965
First published over 80 years ago and still in print, Loeb’s book is widely praised by those who promote the idea that stock market investing is rocket science and who benefit from investors’ insecurities which they encourage. The first chapter after the introduction opens with the statement: “Nothing is more difficult I truly believe, than consistently and fairly profiting in Wall Street. I know of nothing harder to learn.”
In Loeb’s day, that was true. That was long before a self-directed (do-it-yourself) investor could earn decent returns by the simple, low-cost act of adopting the habits of highly effective investors. Investing today, the successful, self-directed investor could state: “Nothing is easier I truly believe, than consistently and fairly profiting in Wall Street. I know of nothing easier to learn.” Admittedly, the preceding smacks of hyperbole but it is not far off.
Let us review the habits.
- Having an early, disciplined savings program
- Self-directed investing
- Buying the entire US market
- Buying and holding
- Buying low, selling high
- Avoiding complexity
Now, let us see how some of Loeb’s key recommendations square with these effective habits.
Concerning the first habit, he does talk about disciplined saving for use later in life and about the decreased purchasing power of savings because of inflation. He addresses the self-directed investor (habit number 2) in much of the book and does encourage having cash much of the time (habit number 6).
In Chapter 6, titled How to Invest for Capital Appreciation Loeb says: “It is far better to let cash lie idle than to buy just to “keep invested” or for “income.” In fact, it is really vital—and just this one point, in my opinion, represents one of the widest differences between the successful professional and the loss-taking amateur.”
That view is as relevant today as it was 80 years ago. Deciding on a personal asset allocation which requires a high percentage in cash, allows the self-directed investor to buy low, that is, to buy when the markets are below their mean.
However, much of the book deals with picking stocks and timing markets. Peer-reviewed, academic papers available today show that the odds are heavily stacked against this approach. A tiny percentage of investors can pick stocks and time markets effectively. By buying the entire American economy and holding it instead of picking stocks and timing markets, the self-directed investor gets better results over the long run, with little effort. No such papers were available in Loeb’s day nor could investors buy the entire economy by purchasing a market index exchange-traded fund.
The S&P 500 index is the most widely used benchmark for measuring portfolio performance. It was introduced in 1957, many years after Loeb’s heyday. Equaling it is no simple task. Most actively managed investment funds fail to match it let alone beat it. Loeb may have been one of the people who did, but we will never know.
In Chapter 14, titled The Importance of Correct Timing, Loeb states: “Cutting losses is the one and only rule of the markets that can be taught with the assurance that it is always the correct thing to do.”
Let us look at the chapter title, first. The successful, self-directed investor knows that correct market timing is not a realistic objective. Instead, the self-directed investor adopts habit number four which is to buy and hold. Additionally, cutting losses precludes habit number five which is buying low and selling high. The successful, self-directed investor does not pick stocks but invests in a US market index ETF which is a close approximation of the American economy. Cutting losses might be good advice for single stocks some of which “fall out of bed” and never recover. Investors buying the entire US market will incur losses from time to time. The self-directed investor sees that as an opportunity to buy the market at bargain prices.
Loeb was a prolific writer publishing his views inThe Wall Street Journal, Barron’s and Investor Magazine. He has been called “the most quoted man on Wall Street.” by Forbes magazine. Nevertheless, the book is not a useful guide to investing in today’s environment. However, it is an excellent example of nearly a century of stock market history and the changes in basic principles which have taken place alongside those which remain intact.