Beat the Crowd: How You Can Out-Invest the Herd by Thinking Differently

CHAPTER 7 Put Those Textbooks Away

Does an MBA help you be a better investor? What about a CFA? Are finance professors great investors?

In fields like medicine, engineering and law, education is critical. But investing is a different game. Some of the greatest investors had little or no formal training. And some of the greatest thinkers and theorists were absolutely terrible investors.

I call this the Peter Bernstein Effect. Bernstein, who was a giant in the field of professional investment thinking and ideas and was a great guy, wrote a fascinating book, Capital Ideas (John Wiley & Sons, 2005), which traces Wall Street’s intellectual evolution. He profiles many of the scholars who contributed to investment theory, like Alfred Cowles, the forefather of the Standard & Poor’s (S&P) indexes. William Sharpe, of Sharpe ratio fame. James Tobin, who formalized the then-radical idea of goals-based investing in 1958. Paul Samuelson, the first US Nobel laureate in economics. And many more. Few (if any) of these great thinkers were great investors. Some were infamously terrible! They had lots of can-do—but no done-it.

Investing is something you learn more by doing than by reading. Just like baseball! Done-done it Yogi Berra didn’t go to baseball class when he was a kid. He just played street ball. You can go to investing school if you want, and that isn’t necessarily bad, but textbook theory by itself won’t get you anywhere but back to school—too detached from the real world. Success ...