[Editor's Note: This is a guest post from John Lim. He is reviewing A Wealth of Common Sense by blogger Ben Carlson (not Carson.) I had a reader lend me this book for my Kindle and made it through the first three chapters before the loan ended. It was very good up until that point, but since I never finished it, it didn't seem right to do a review of it. I have no financial relationship with John or Ben, but as usual, if you buy the book (or anything else) through links on this page, I get a few cents from Amazon.]
A Wealth of Common Sense, the recent book by Ben Carlson, was a true pleasure to read. More importantly, it overflows with financial wisdom and common sense. Voltaire once said, “Common sense is very rare.” He may as well have been speaking about how most people approach investing. In his book, Ben Carlson beautifully dissects the underpinnings for the following truism from Warren Buffett: “Intelligent investing is not complex, though that is far from saying it is easy.” But what I love about this book is that he not only explains the “what” about smart investing but also the “how.”
A Wealth of Common Sense Summary
This is not to imply that this book is full of specific investment advice. It is not. It is also certainly not a “get rich quick book”. But it is a book that is chock-full of actionable investment ideas. These include both what to do in order to maximize long term returns, but more importantly, what not to do. Frankly, the latter is where the book really shines in my opinion. Carlson illustrates again and again that the worst enemy to the investor is likely himself. While there may not be that many new deep truths about investing, Ben Carlson writes with a clarity and dispassionate wisdom that was truly refreshing and enjoyable.
The carefully selected graphs and charts are another of the book’s great strengths. They are laden with very useful historical perspective. But, my favorite chapter of the book was “Market Myths and Market History”. Here Carlson dispels some of the most common myths that have riled and misled investors (including myself) for ages. The chapter begins, “Meet Bob. Bob is the world’s worst market timer.” Bob’s (fictional) story is both hilarious and sad. It is Ben Carlson at his best. Bob lays bare some of our deepest psychological shortcomings as investors. But despite being the world’s worst market timer, Bob has two redeeming virtues that allow him to still retire comfortably by the age of 65.
An example of how the book is extremely practical without giving specific investment advice is this: Carlson cites a study that looked at investment returns from 1965 to 1995 under various scenarios. Scenario A was investing your money annually in the stock market at the market high of every year. Scenario B was investing the same amount of money annually on the first day of the year. The annualized returns must have been much worse for Scenario A right? Actually, the difference in annualized returns was a mere 0.4 percent!! That’s right, 10.6 percent for Scenario A (buying at the yearly high) versus 11 percent for Scenario B (buying on first trading day of the year). For me, this insight alone was worth the price of the book. It was as if a heavy weight had been lifted from my shoulders. I would no longer lose any sleep over trying to time the markets.
Another area this book provides great insight is on the importance of having a comprehensive investment plan and how to come up with one. I think many of us who enjoy finance and have studied it, skip this step and go straight to picking investments. Maybe we picked an asset allocation at some point in our lives, but how much thought did we really give it? For example, how do we react when value investing has been out of favor (as it has been lately)? Without a formal plan or policy in place, the temptation will be great to bail on your strategy and embrace what has been working. An entire chapter is dedicated to this important step, including a list of questions to consider to generate your own Investment Policy Statement (IPS). But as Carlson stresses, “The best investment process is the one you are willing and able to stick with through any market cycle.” The behavioral component of any investment plan cannot be stressed enough. This is where theory and practice either collide disastrously or form a beautiful union. This book helps you achieve the latter.
Should You Read A Wealth of Common Sense?
In short, this book is a timeless gem. While some may be disappointed that individual securities or strategies are not discussed, this book will be just as relevant in ten or even twenty years from now as it is today. The truths discussed may be simple but they are far from simplistic.
For me, the unifying thread of the book is that what makes investing difficult is not picking stocks or funds or even an asset allocation. (Truth be told, an asset allocation could be chosen and filled with index funds in under an hour.) What complicates investing, in short, is the human component– that’s you and me. We make things too complicated. We try too hard, and we are often in a hurry. Perhaps most importantly, we lack self-understanding. Whether you are a novice or sophisticated investor, I think you will benefit tremendously from this book from Ben Carlson. It beautifully distills the few big investing truths that investors, young and old, so often forget.
Buy A Wealth of Common Sense today!
What do you think? Have you read the book? Did you like it? Why or why not? Comment below!
Another reason I read this blog religiously. Great motivation to buy another book. Thinking of it a gift to colleagues and clients. Thanks Jim.
This is the reason I love Ben Carlson – he focuses on the behavior and the plan, not the portfolio. Great review!
Very good review. I’ve read the book and think it’s the best book on investing I’ve ever read. The “what not to do” is so important and underlines the maxim that money is made not in bull markets, but in what you do in bear markets.
I have seen Ben’s Blog/site but have not read the book. However, as Johanna and Grant have mentioned it sounds like it may be a good read and worth taking a closer look.
Dr. J
In all due honesty if you have read bogle, malkiel, swedroe, and Bernstein you have all the knowledge you need about investing for the long term; not a difficult topic to master
Carlson writes with a clarity and an honesty that is truly remarkable. It reads like the kind of advice one would expect from a wise old uncle, full of thought provoking insights. Read this book!
Another plug for his blog, which i like. I also like the weekly roundup of interesting articles that he does (As does the finance buff) – similar to WCI monthly roundup of interesting articles in his newsletter. I’ll have to check out the book.
I remember WCI discussing investing on Jan 1st vs later in the year…..and you are correct that the percentage difference is very small. However, over 20-30 years the monetary difference can be huge with a large portfolio. Can WCI share the link to that post in the past? Agree with the idea as a whole though that the timing matters not, more the act of saving/investing is what is most important.
Thanks for the review.
I think I can vaguely recollect the post you’re thinking of, but can’t seem to find it right now.
Actually, maybe it was this forum post: https://www.whitecoatinvestor.com/forums/topic/order-of-funding/
Bens blog is great, and his links are usually good as well, pretty active on twitter and always interesting things to say. From my limited interactions with him he seems like a nice guy.
Great review of a great book! Ben Carlson is an incredibly smart young man who is able to write in a way that allows even the most novice investors to understand. This book is a great resource for investors and serves as yet another reminder that emotional investing is a dangerous practice.
Maybe a more technical question here, but the $20 price is beyond the 70% royalty threshold of $2.99 to $9.99 for ebooks on Amazon. WCI’s ebook version is for sale at $9.99 to presumably take advantage of this royalty characteristic. Is there a financial benefit accruing to the author for setting the price above that range? Asking since $20 something *.35 and $10 *.7 are roughly equivalent, with the former benefiting Amazon a lot more.
You’re correct about my strategy and that of many other authors. However, I have seen some people keep their Kindle price high in hopes that folks will just buy the print book instead since the prices are similar.
WCI or Ben, you would only push people towards the print version if you have a special deal where you get to keep 70% or more of the royalties right? Every print deal I’ve seen gives lower royalties than the 9.99 option with Amazon. Anyhow great to see someone outside of the usual Bogle, Swedroe, Bernstein cohort explain investing in a different voice and way
I make half as much on a Kindle version at $9.99 as I do on a print version at $20. About $6 versus $12.