One of the many reasons investors have been so whipsawed by the markets since 2007 is a lack of understanding about the dynamics at work between the financial markets and the economy.
In general, most of the experts in the field of economics haven’t done investors any favors in this regard. There have been hysterics by many over Fed policies and what they would mean for the financial markets yet not enough voices that offer objective or helpful views on the matter.
My problem with most economists is that (a) they spend way too much time trying to prove their intelligence, (b) their opinions are biased by their political beliefs and (c) they fail to connect the dots to show how or why the economic data they use does or does not matter to investors or relate it to average people in a tangible way.
This causes a ton of confusion for people without an economics background that don’t know what to pay attention to and what to ignore.
One of the few level-headed economic commentators I’ve been following on the subject is Cullen Roche over at the blog Pragmatic Capitalism.
Cullen’s new book, Pragmatic Capitaliam: What Every Investor Needs to Know About Money and Finance, is a collection of everything he’s learned about the relationship between portfolio management, the financial markets and the economy. It covers a wide range of topics to give readers a better sense of the interplay between the many different factors that affect people’s finances.
Roche cuts through the noise to provide a guide that people can actually understand. There’s no agenda or hidden motives behind his opinions. He doesn’t spend time covering political narratives or arguing about topics that have have no relevance to your financial decisions. He sets out to help provide perspective, something that’s generally lacking in the finance industry.
Although the subject matter can be complex depending on how it’s presented, Roche uses common sense language and useful analogies throughout to make his point. I always appreciate when intelligent people are able to make complex topics understandable to a wider audience. This is not as easy as it sounds.
While understanding the past helps you become a better investor, you also have to pay attention to the future. Roche describes in great detail the impact that globalized markets and economies will have on the future portfolio decisions. This is an area that I think is extremely important for investors to understand as globalization continues to re-shape the financial world.
But my favorite message from the book is one that I don’t thing gets enough attention in the financial blogosphere — the importance of investing in yourself. Here are a couple of quotes from the book ion the subject:
The best investment you’ll ever make is in trying to understand and maximize the value you can contribute to other people.
This means that most of us will make our true investments in things like our education, skills, training, and so on so we can provide something even more valuable for others.
Most people spend their time trying to increase their investment returns or save more money but end up ignoring their asset with the biggest potential — human capital.
I really enjoyed this book. It was unique, covered a wide variety of interesting material and I gained a new perspective on a number of important financial issues.
Check out Cullen’s book here:
Pragmatic Capitalism: What every investor needs to know about money and finance
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