Putting your money in the stock market: is it a gamble, or is it an investment? Does the “crowd mentality” influence the stock market? Charts and graphs, computers and market analysts—do they really make a difference? Systems: are there any that really work? Who makes the big money on Wall Street? What is money, anyway? And let’s be honest: do you really want to be rich?
These are the questions addressed in this pithy, witty, wise and funny book on the stock market, written by one who’s been through the Wall Street wringer. Written under the alias of Adam Smith, his real name is George J.W. Goodman, who is Harvard and Oxford educated. Published in 1967, not much has changed since then; the same rules apply. The Wall Street Journal recently included “The Money Game” among the 15 best books on Wall Street investing that have stood the test of time. Caution: if you’re looking for some special insight into making money on the Street, “The Money Game” is probably not for you.
One of the main points of the book—which the author returns to again and again—is that the stock market is a game. Those who make money see it as such, where the real object is not to make money but to play the game. They are the precious few who see money not as an end in itself but as a means of keeping score. Smith cites cases where investors who made a killing on the Street retired early only to become bored with their yachts and their Ferraris and their endless afternoons on golf courses in Miami and Palm Springs. They missed the action. What did they do? Return to Wall Street to take up the game once more. Can smart investing be taught? No. It’s a kind of locked-in concentration, an intuition, a feel for what’s going on. Either you have it or you don’t. Even the best investors start out by making mistakes--and learning from them. Says one very successful investor: “When I look back, my life seems to be an endless chain of mistakes.” The market is ruled by greed and fear, and possesses a herd mentality. After all, what’s more galling than to see someone making money when you’re not? What do they know that you don’t? Probably not much, says the author, and very likely will end up losing the money they made. He cautions never to follow the crowd. The crowd is “excessively emotional, impulsive, inconsistent, irresolute and extreme in action, incapable of any but the simpler and imperfect form of reasoning, like an unruly child.” If you must invest, do your homework. There is no substitute for information. The market is not a roulette wheel. Good research and good ideas are the one absolute necessity in the marketplace. And—perhaps most important of all—know yourself. Be able to step away and observe your actions with disinterest. The Street is an expensive place to learn who your are.
And what of money and all its allure? Says the author: money is “condensed wealth; condensed wealth is condensed guilt. But guilt is essentially unclean.” People who became rich often try to ease their guilt by making large donations to charities. The apparent accumulation of wealth “is really impoverishment of human nature.” At the end of the book, the author questions whether or not the money game is really worth the effort, and making money on the Street is all that it’s cracked up to be. The author quotes famed economist John Maynard Keynes that the day will come when avarice and usury are no longer our gods. When that day comes, mere wealth will no longer be of social import, morals will change, and “we shall be able to rid ourselves of many of the pseudo-moral principles which have hag-ridden us for two hundred years, by which we have exalted some of the most distasteful of human qualities into the position of the highest values. . . .”
“The Money Game” is sort of an old-fashioned morality tale about the pitfalls and evils of making money, and where all but a few accumulate anything like real wealth. And of what purpose for those who do? To be merely rich? The author asks: “Is that what life is about it? What about the enjoyment of art, a good book, a walk in the park, being with family, serenity itself?" If you’re looking for an angle on making money, this book is not for you. But if you’re looking for a good yarn, a bit of wisdom and ample humor, you’ll enjoy this book very much.
WHY SMART PEOPLE MAKE BIG MONEY MISTAKES AND HOW TO CORRECT THEM, by Gary Belsky & Thomas Gilovich
Reading this book is akin to medicine that tastes awful but is health giving. Somewhere along the line most of us have lost money foolishly, a little or a lot. This book is a guide to understanding how we value, spend and invest our money. The writing is breezy, which is fine, but to fully grasp what the authors are saying requires careful reading and much thought. I recommend starting with the back of the book: “Conclusion: Now What?” (page 199) and “Postscript: Psychic Income” (213) and then proceeding to the beginning of the book. By doing so you will find it easier to understand the concepts as they develop throughout the book—little truths that add up to financial savvy and big savings. However you begin, finish the book. Ingest the full measure.
The authors discuss a number of ideas learned from psychologists about how people make purchases, value money, and make foolish mistakes on a daily basis. Some of the concepts include “Mental Accounting,” “Loss Aversion,” “Regret Aversion,” “Anchoring,” and “Sunk Cost Fallacy.” Among the more prosaic concepts are “The Herd Mentality,” “The Ego Trap,” “Brand Loyalty,” and “The Fizzbo Fallacy.”
Financial mistakes can be lessened or avoided altogether by getting a second opinion, by being wary of “expert advice,” by questioning everything, being skeptical of statistics, avoiding optimism, not following the latest trend, treating all money as equal (as “earned income,” whether won in a poker game, found on the street, a tax return, a bonus check, etc.), and by not throwing good money after bad. The authors discuss these matters and many more and how they can help you financially over the long haul. Knowledge is power, but too much knowledge can be destructive. One example: people who follow the stock market day-to-day do less well than those who pay less attention. Among the things you can do immediately to grow your money: raise your insurance deductible, switch to index funds, pay off your credit cards with your emergency savings, set up a payroll deduction plan, and diversify your investments. You can do these things without reading the book, and learn so much more if you do. Bottom line: be wary, know yourself, and you’ll save yourself a lot of grief (and money).