Book Review: Oblivious Investing by Mike Piper

Mike Piper, the man behind the Oblivious Investor blog recently wrote a book, (it just came out May 1st) entitled Oblivious Investing: Building Wealth by Ignoring the Noise encapsulating his investing philosophy and was kind enough to send me an advance review copy.  Since I’m always happy to help a fellow blogger, I jumped at the opportunity to review his book.

Oblivious Investing

If you’re familiar with Mike’s blog, the thesis of his book will come as no surprise.  While the airwaves, magazine racks, and financial websites are full of information, advice, and statistics on the stock market, 99% of it is useless to the average investor.  Worse than being useless, most of this information will actually lead you astray, with dramatic negative consequences to your nest egg, if you pay too much attention to it.  Mike’s position on achieving investment success by ignoring the noise is very similar to my own (see my post What Matters In Investing), so I immediately took to his message.

The central idea of this philosophy can be boiled down to four simple steps:

1. Educate yourself on the basics of investing and various asset classes such as stocks, bonds, real estate, etc.
2. Devise an asset allocation and investment plan based on the research you’ve done, taking your own particular risk tolerance into consideration.
3. Construct a portfolio of low-cost mutual funds, preferably index funds (even if you think you can beat the market picking individual stocks).
4. Ignore the market, the financial media, coworkers, family, and friends when it comes to advice for your portfolio, logging onto your account only once a year to rebalance or position your portfolio more conservatively as your time horizon shortens.

The Book

The book clocks in at 120 pages including the appendix and is written in story form, unlike most investing books.  The story focuses on a 25-year-old woman named Shannon as she begins to save for retirement.  In the beginning, Shannon knows nothing about investing or the stock market and goes to her uncle Toby, who is set to retire relatively well-off at the early age of 55, for advice.  Over a series of conversations spanning a year, Toby gives Shannon advice on how to deal with investment losses, figure out which mutual funds to invest in, deal with well-intentioned advice from clueless coworkers, resist the temptation to time the market, and decide on an appropriate asset allocation.

Throughout the story, Shannon is tempted by many of the same things we are and makes many of the same mistakes, such as buying an individual stock on a hot tip.  Predictably, her results were about the same as ours:  she lost.  In the appendix, Mike includes some charts and graphs to reinforce many of the concepts introduced in the book.  One chart I particularly liked graphs out the return one would have earned by dollar cost averaging $100 per month into the market during the Great Depression, which is truly a worst-case scenario.  The result?  An investor dollar-cost averaging into the market from its peak in 1929 through the end of 1943 would have earned a return of 5.8% per year at a time when the market actually lost money.  Not a great return, but certainly not bad as a worst-case scenario.  Dollar cost averaging works!

A Great Primer For Beginners

While advanced investors can always benefit from the value of ignoring the noise being pounded into their head, I think beginners have the most to gain from reading this book.  It doesn’t have anything about correlation coefficients, alpha, or exotic asset classes but then, those things aren’t important for the average investor to know anyway.  For beginners, the importance of creating an investment policy, sticking to low-cost funds, and not trying to time the market far out-weighs the importance of more advanced topics.  Investing is truly an art where 90% of the benefits come from implementing 10% of the ideas properly.

Oblivious Investing would make an ideal gift for a recent college graduate or a reformed hyper-consumer getting serious about saving for retirement.  Coupled the classic book on personal finance, The Richest Man in Babylon (which does a great job explaining the “why” of prudent financial habits and not just the “how”), the information in this book, diligently applied, will get you 90% of the way there.  Sure, you could study more advanced topics and perhaps improve your returns slightly, but the work involved would be massive for such a small incremental improvement.

In fact, I think I’ll lend this copy to my mother (hi mom!).

Buy Oblivious Investing: Building Wealth by Ignoring the Noise from Amazon today!