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The fastest, easiest way to learn the principles of investing
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That Thing Rich People Do: Author Interview
Kaye Thomas talks about his book
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Kaye A. Thomas, author of That Thing Rich People Do, explains the thought process that went into this book.
Why do we need another book on investing?
I started out wanting to buy a book like this, not write one. I had three requirements in mind. It had to start at the very beginning, so it would be suitable for people who are just starting out in investing. It had to cover everything that's really important to know about the subject. And it had to be really short. I couldn't find a book like that, so I wrote one.
Why does the book have to be short?
There are millions of people who simply won't wade through 300 pages on investing. Perhaps they're too busy or they think the subject is boring or not all that important at this point in their lives. A longer book works for those who have the time and patience to read it, but offers no help for those who don't. Besides, keeping it short helps keep the focus on the most important points.
Aren't there other short books on investing?
Yes, but few of them are this short. And most books that cover the subject briefly are aimed at getting people to follow a particular approach rather than teaching the underlying principles. People have to understand how investments really work if they're going to stick with a good strategy for a lifetime.
Is this book just for beginners?
I hope not. Plenty of people, many of them smart and well-educated, manage their investments for years without learning that many of their assumptions about investing are incorrect. This book offers an easy way to fill gaps in your knowledge if you learned investing the way so many people do, by picking up bits of information here and there.
Where did the title come from?
It's from an episode of 30 Rock. Liz Lemon, the character played by Tina Fey, freaks out when she sees the bleak lifestyle of someone who doesn't care about money, and says "I have to do that thing rich people do, where they turn money into more money." The line made me laugh, and I thought it really hit the nail on the head.
What's in this book that readers wouldn't find elsewhere?
One concept would be something I call the prediction paradox, which is a theme throughout the book. You ask what would happen if people are able to predict something and realize it creates a contradiction. For example, if people can predict a stock is going to go down, you can't take advantage by selling ahead of time because there won't be any buyers. This tells us we shouldn't expect to find a reliable way to predict when a stock is going to go down. Similarly, if we had some way to predict which mutual funds are going to perform better than average, everyone would invest in those funds and the others would go out of business, leaving only funds that are above average. One of the keys to investing is to recognize when something is inherently unpredictable and follow a strategy that works in the face of that uncertainty.
I thought about all the people I've encountered who failed at investing and asked myself what were the root causes. It turns out there are four big ones, so the book stresses four key principles: adequate saving, sensible asset allocation, good diversification, and minimal expenses. Follow those four rules and you'll get good long-term results. This isn't the first book to talk about those things, but boiling everything down to four key principles makes it easier for readers to focus on what's important.
Isn't the best way to invest a matter of opinion?
Up to a point, yes, and that's why this book is less dogmatic than most. It explains the advantages of index investing but doesn't say that's the only way to go. It points out the risk of investing in the company where you work but offers some leeway on that issue. Most importantly, the book conveys enough understanding of the subject so readers can make their own judgment about how to manage their money.