Swedroe: Beware Of Investment Books

April 29, 2013

The 24/7 cycle of financial news and books on investment may sound important but, for the most part, they are best ignored.

 

Most of the time, the panicked messages I get from investors have to do with doom-and-gloom headlines or TV reports. Lately, I’ve been getting a lot of calls and emails about recently published books that have investors freaked out. Just as with the rest of the investment pornography, these books shouldn’t cause investors to abandon their investment plans.

Because of the nature of these books, the level of concern among investors goes up as they read them or hear their friends discuss them. This is especially true for those who have little to no training in finance and economics (which is true of most investors), so it’s important that we discuss the nature and value of these dire forecasts.

What most people fail to recognize is that many authors aren’t really in the information business. Instead, they are in the fame business. They know that you don’t get famous making “average” forecasts, just outlandish ones. For example, one of the more foolish books ever written was “Dow 36,000,” published in 1999 and written by journalist James Glassman and economist Kevin Hassett. It, along with such equally foolish books as demographer Harry Dent Jr.’s “The Roaring 2000s: Building The Wealth And Lifestyle You Desire In The Greatest Boom In History,” probably caused many readers to rush into stocks just as the bubble was about to burst.

Because bad news sells more than good, more often books are of the apocalypse variety. One of the best recent examples is the piece of economic pornography called “Aftershock: Protect Yourself and Profit in the Next Global Financial Meltdown,” which I was asked to read by some clients. It was one of the worst books I’ve ever read. But there’s a long history of such books (some by real economists) and most turned out to be dead wrong—which didn’t prevent the authors from writing sequels and investors from reading them and following their advice. Following is a great example.

Ravi Batra is a serious professional economist and an economics professor at SMU. And he’s a gifted writer. Like many other highly intelligent economists (and market strategists), his analysis is well reasoned. The only problem is that they are so often wrong—markets and economies ignore their forecasts. In 1988, his book “Surviving the Great Depression of 1990” was published, creating quite a stir and probably causing many investors to alter their investment plans.

 

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