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This review is from: A Fool and His Money: The Odyssey of an Average Investor (Paperback)

Mr. Rothschild did something in this book that you should never do. He took a year off to learn how to invest, and looked into every financial category available. As a result, he was soon inundated with advice that he often followed. Usually, he didn’t understand the risks of what he was doing, and he almost always ended up making costly and unnecessary mistakes. You will find this book a funny cautionary tale about the relevance of keeping it simple and focusing on what’s important.

The book is filled with short bits of advice that give you a flavor for its content.

Never buy the June call nor sell the October put simultaneously, unless you know what they are. This is a reference to a strategy for making money in very volatile stocks. The stock he used was not volatile enough, and he lost on the position.

‘Expert’ advice does not agree. So who can you believe?

Mr. Rothchild’s downfall was that he is an obviously intelligent, curious person who was too good at finding sources of information. Along the way, he met more different investment brokers, security analysts, professional portfolio managers, market makers, commodity traders, and options experts than you can shake a stick at. Although no one held his hand into a fire, he often tried out an idea that he heard about along the way. The salespeople were all trained to let the investor do whatever he wanted, so he was able to get himself into deep water in the process of trying these things. Someone should have pointed out that he could have learned the same lessons by simply taking a theoretical position on paper, and tracking the results.

One hilarious sequence has him changing hotels during a vacation to avoid the margin calls that came every few hours. He didn’t want his wife to find out that he had raided the household funds to float the first margin call. He could not meet the second one.

All the time this is going on, he has been telling his wife and friends how well he is doing. That was technically true for awhile, but did not last long.

Soon, his losses are so large that he was embarrassed to let anyone know. The larger the sum you’ve lost, the smaller the sums you’ll worry about. So he became incredibly stingy in every other part of his life.

Meanwhile, his wife’s account was doing very well with being handled by a stock broker that Mr. Rothchild decided not to use. This made him feel even worse.

Then, the crash in October 1987 happened, and his wife’s money was slashed, too. It was a tough year for the Rothchild family, all the way around.

After reading this book, you’ll be ready for John Bogle and his Common Sense about Mutual Funds. With this information, you can match the market inexpensively, spend little time on investing, and have limited risk of taking a large, permanent loss. Sleeping well is the best revenge.

After you read this book, consider your own psychology. How good are you at making rational decisions in an area where the value of what you buy can go up and down wildly? Are you likely to be attracted to the overly complicated parts of investing? Are you good at containing risk? Mr. Rothchild’s intelligence and access did him more harm than good. How can you apply his experience profitably to your own situation?

Protect your capital against losses for the best results!

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