Clever Geek Handbook
20 January 2026

Common Wealth

Recommendation

Famed economist Jeffrey Sachs manages to deliver pessimistic news in an optimistic way. Yes, the Earth faces dire threats from global warming, poverty, war, deforestation and mass extinctions. Yet Sachs asserts that these severe problems are manageable. Fixing them will cost $840 billion – a massive amount indeed, but, as Sachs argues, only 2.4% of the rich world’s gross national product. Sachs doesn’t shy away from politically touchy pronouncements. He argues against the U.S. war in Iraq and for legalized abortion. Still, throughout the fray, his book strikes the unlikely balance of delivering a message that’s both frightening and promising. BooksInShort recommends this book to anyone seeking insight into the world’s most pressing problems.

Take-Aways

  • As the world grows ever more crowded, chaotic and dangerous, the global ecology teeters on the brink of collapse.
  • Humans are consuming the Earth’s resources at an unprecedented pace.
  • Formerly poor nations – China, India and Brazil – are growing at a staggering rate, boosting incomes but also accelerating environmental damage.
  • Nearly all population growth will occur in poor nations that are least able to absorb new arrivals.
  • Human activity is changing the Earth’s climate.
  • Slowing population growth in the developing world is crucial to restoring the Earth’s balance.
  • Water is an increasingly scarce resource, and more and more a source of strife.
  • Meat is an inefficient, environmentally damaging way to feed the world.
  • The outlook is dire, but some reasons for optimism still exist: Humanity can fix the globe’s problems.
  • Redirecting the Earth so it can be healthier and less chaotic would require an investment of only 2.4% of the rich world’s gross national product.

Summary

The World’s Economy and Ecology Teeter on the Brink

The world has become an ever-more crowded, chaotic and dangerous place. Global populations are soaring, particularly in poor nations least able to feed and support burgeoning numbers of people. The global ecology is teetering near collapse. The global balance of power is shifting. As the 20th century marked the end of European dominance, this century will see the end of U.S. hegemony. China, India and Brazil are emerging as world powers. And America’s misguided forays into Vietnam and Iraq have proven the folly of unilateral decision making based on brute force. As things now stand, the world easily could plunge into a toxic brew of bloody conflict, abject poverty, natural disasters and widespread suffering.

“The defining challenge of the 21st century will be to face the reality that humanity shares a common fate on a crowded planet.”

To avoid this fate – which is likely if the world continues on its current path – world leaders must accept the fact that everyone on the planet shares the same plight. Rich nations can no longer ignore poor nations. The free market is no longer the best and only solution. Unfortunately, the risks are grave. Fortunately, solutions are at hand. Climate change and planetary catastrophes loom, yet sustainable systems for energy and development are available. The world’s population is exploding, yet simple cuts in fertility rates would stabilize the numbers. Many millions live in abject poverty, yet modest investments by rich countries would end the “poverty trap.” The planet faces six “Earth-changing trends”:

  1. Poorer countries are getting richer – The income gap between Europe and North America and the rest of the world is “converging.” Developed economies are growing slowly, but the economies of China, India and Brazil are booming.
  2. The world’s 6.6 billion population continues to grow – That figure needs to stabilize at eight billion by 2050.
  3. Most people now live in cities – The poor are leaving farms and crowding into cities.
  4. Asia will see the fastest growth – The balance of economic power will shift from the Western Hemisphere to the Eastern Hemisphere.
  5. Human activity will keep altering the world’s ecology – Human actions have caused global warming. On this crowded planet, each person’s decisions affect the natural world.
  6. The gap between the world’s richest and poorest will continue to widen – While some nations boom, millions of people barely subsist in sub-Saharan Africa.

Dwindling Resources

Humanity is depleting the Earth’s resources at a staggering pace. Using water, land and fossil fuels at the current rate is unsustainable and foolish. Yet there’s also a silver lining. By adjusting the use of natural resources, people can ration the Earth’s scarce resources for centuries. Consider fossil fuels. Traditional sources (oil, coal, natural gas) are finite, but they aren’t the only sources. The Earth holds vast stores of tar sands and oil shale, and the technology already exists to use them. The depletion of natural resources isn’t a new story in human history. Some 11,000 years ago, Native Americans hunted mammoths, horses and bison to extinction. The animals’ disappearance stalled the indigenous people’s population growth. With no horsepower, they had to survive by their own toil, so other parts of the world far outpaced their economic development. Today, humankind is repeating the Native Americans’ mistakes. As people have become richer, they’ve demanded more space and better diets. They cleared huge swaths of ecologically crucial land for cattle pastures. People are consuming far more scarce resources than they should.

“Human activity is...devoted quite explicitly to ensuring that habitat, water supply, nutrient flows and introduced species all serve human needs rather than the needs of other species.”

Water is a particularly important dwindling resource. Once-great rivers, such as the Yellow, Ganges and Rio Grande, no longer reach their erstwhile destinations. Global warming promises to worsen the globe’s water woes. Wet tropical areas will grow even wetter as heavier rains cause flooding. Dry areas will grow drier, and droughts will be more severe. It is no coincidence that some of the world’s poorest, least stable areas lack water. The Horn of Africa – Somalia, Ethiopia, parts of Kenya – has been such a bloody region, in part because water and food are so scarce. Israelis and Palestinians also have begun to battle over water, and shortages will continue to plague the Middle East, Central Asia, the northern China Plain and America’s southwest.

“We are...crowded into an interconnected society of global trade, migration and ideas, but also risks of pandemic diseases, terror, refugee movements and conflicts.”

Huge numbers of humans are taking a toll on the Earth in other ways. Fish are disappearing. Land animals are being squeezed out of existence. Wetlands are falling victim to “desertification.” Taking six steps could preserve much-needed biodiversity:

  1. Protect habitats – Create more national parks and habitats, protected marine areas and even privately run ecotourism sites.
  2. Avoid deforestation – When the world buys lumber from the Amazonian rainforest, it tells Brazil that it values deforestation. Instead, the developed world should pay poor countries not to cut down their trees. While the Kyoto treaty lets nations get paid for replanting forests, they have no incentive to avoid harvesting trees in the first place.
  3. Improve farm yields – Unwise farming practices consume more land than necessary. More productive farmland means fewer hectares cleared for crops, thus striking a balance between immediate food needs and longer-term ecological needs.
  4. Fertilize more carefully – Much of the fertilizer applied to crops is wasted. It runs off, creating fish-threatening algae blooms. Using underground fertilizer application methods would avoid much of the waste and environmental damage.
  5. Eat less meat – The citizens of a richer world want to eat meat, but meat is an inefficient way to deliver nutrition. Cattle consume vast vegetation. Producing one kilogram of meat requires feeding 13 kilograms of grains to a cow. The price of meat does not reflect this reality. Replacing meat with vegetable proteins is environmentally friendly – and a wise public-health move, given the developed world’s epidemic of obesity and diabetes.
  6. Embrace fish farming – Marine fisheries are severely depleted, but commercial fishermen keep using destructive practices. Just as India’s “green revolution” raised living standards, the world needs a blue revolution to increase fish farming.

Slowing the Population Boom

So many people are using unprecedented amounts of resources that they are depleting the planet’s natural provisions, from water to trees and beyond. To slow this rapid depletion, world leaders must slow population growth. Whether this is possible is a matter of constant debate. “Population optimists” argue that human ingenuity and technological innovation will allow the globe to adapt to an endless number of people. “Population pessimists” believe the only way for humans to survive is to continue to plunder and pillage the planet. Between them are those who realize that humankind can manipulate and ration natural resources and survive, but only by slowing the depletion of the Earth’s resources and the explosion in population.

“The goals are achievable...and at vastly lower cost and vastly greater benefit than is currently imagined.”

The developed world no longer is adding population. Fertility rates have declined to the point that its populations will hold steady. But populations continue to balloon in the poor world. Nine proven factors can slow population growth:

  1. Low infant mortality rates – When babies are likely to die, parents have more children to ensure that some survive. But, when they know their babies will live, parents have fewer children.
  2. Schooling for girls – Birth rates plummet when girls attend secondary schools. This education must suggest to girls that they don’t need to have babies early and often.
  3. Legal protection for women – In societies with lower fertility rates, women have greater opportunities to become educated, find jobs and secure financing for entrepreneurial ventures. As women become breadwinners, they have fewer children. Economic viability and further education also reduce domestic violence.
  4. Reproductive health services – In very poor countries, even couples who’d prefer not to raise large families have little alternative. Without contraception and knowledge of family planning, families cannot reduce their birth rates.
  5. More productive farms – When subsistence farms yield more, the farmer (in Africa, that is usually the woman of the family) is more motivated to focus on farming and to invest in her children, and less likely to have a big family.
  6. A move to cities – Children are assets to farm families who value labor. In cities, children become a liability.
  7. Legal abortion – Nations with legalized abortion see lower fertility rates and lower mortality rates for women who die from illegal abortions.
  8. Pension plans – Poor parents have many children to support them in old age. When people know the government will support them as elders, fertility rates fall.
  9. Social mores – In societies that expect women to begin having children at a young age, that is what women do. But public leaders can reduce fertility rates by helping to shift cultural values away from having large families, particularly with very young mothers.

Paying the Bill To Fix the World’s Problems

Solving the woes of climate change, environmental degradation and extreme poverty won’t be easy or cheap. But the solutions are in humankind’s grasp – and in the developed world’s budget. The rich world generates a gross national product of $35 trillion. Using only a tiny percentage of those riches would essentially fix the globe’s problems. Here’s the tab:

  • Slowing climate change by adopting sustainable energy – 1% of the rich world’s GNP, for a total of $350 billion, and 0.5% of poor countries’ GNP.
  • Help poor lands with climate change – 0.2% of rich nations’ GNP, $70 billion.
  • Conservation areas for biodiversity – 0.1% of rich countries’ GNP, $35 billion.
  • Fighting “desertification” with water management in poor areas – 0.1% of rich countries’ GNP, $35 billion.
  • Slowing population growth via wider access to reproductive health care – 0.1% of rich countries’ GNP, $35 billion.
  • Science for sustainable development – 0.2% of rich countries’ GNP, $70 billion.
  • Aid to help the poorest countries out of “the poverty trap” – 0.7% of rich countries’ GNP, $245 billion.
  • Total – 2.4% of rich countries’ GNP, $840 billion.
“When countries are struggling to break free of extreme poverty, the role of the state is clear: to help the population meet basic needs...to invest in agriculture and...core infrastructure...to provide the foundations for private-sector-led economic growth.”

In political terms, that’s a huge figure. But considering what’s at stake – the survival of humanity – the price tag seems affordable indeed. Opponents of any solutions to climate change, environmental degradation and runaway population growth will make countless arguments against any efforts to address these issues. Their arguments inevitably sound three themes. First, “futility,” that the problem can’t be solved. Second, “perversity,” the idea that trying to fix these problems can only make them worse. And third, “jeopardy,” that devoting resources to these issues will take attention and money away from other, more important priorities. Don’t be swayed by these pessimistic mindsets. These issues can and must be addressed, for the sake of humanity.

“Social insurance expands the concept of social protections beyond the most basic needs to include universal access to...health services...education...unemployment insurance...old-age pensions...insurance against various natural hazards and income transfers to households in the event of job loss, disability or extreme poverty for other reasons.”

You can do eight things to make a difference in fixing the world’s woes:

  1. Learn – Read journals such as Nature, Science and New Scientist. Take courses. Educate yourself about climate change, population growth and politics.
  2. Travel – Expose yourself to other people and the problems they face. Travel will remind you that everyone’s fate is interconnected.
  3. Start or join an organization – Whether your aim is to stop the spread of malaria, improve public health or pursue any of a number of other worthy goals, get involved through an organization of like-minded individuals.
  4. Inspire others – Spread the word about your cause in a way that gets others to act.
  5. Use social networking sites – The Internet can bring people together.
  6. Hold politicians accountable – Make certain your elected officials live up to their responsibilities to address these issues.
  7. Take the message to work – Become a voice for responsible business practices at your place of employment.
  8. Live the values you espouse – Make decisions in your personal life that reflect your commitment to sustainability.

About the Author

Internationally known economist Jeffrey Sachs directs The Earth Institute at Columbia University. He’s a special adviser to United Nations Secretary-General Ban Ki-moon on the U.N.’s Millennium Development Goals. Sachs also wrote The End of Poverty.

Read summary...
Common Wealth

Book Common Wealth

Economics for a Crowded Planet

Penguin,
First Edition:2008
 


20 January 2026

45 Things You Do That Drive Your Boss Crazy*

Recommendation

The coal mine canary was a low-tech but effective early warning device that miners used to detect dangerous poison gases in the mineshafts. Anita Bruzzese performs a similar warning function for the modern workplace. Since 1992, she has written about its various ills, as well as reporting on general workplace topics in her popular, insightful weekly column “On the Job.” To develop her book, Bruzzese culled through hundreds of letters she received from workers asking for advice about problems they encounter at work (many of which they create themselves). Bruzzese is a leading authority on all things office-related. BooksInShort suggests that she can teach you a lot about what constitutes acceptable – and not so acceptable – workplace behavior. This book is ideal for any employee who wants to know what mistakes to avoid in order to stay in the boss’s good graces and to get ahead at work.

Take-Aways

  • You are important to your organization and to your boss.
  • However, your bad behavior in the workplace can scoot you right out the office door.
  • Your boss can be your best friend or your worst enemy.
  • Control your emotions at work.
  • Treat your co-workers with dignity and respect.
  • Communicate with them in a professional manner.
  • Always dress and act appropriately at the office.
  • Eliminate bad work habits and attitudes before they eliminate you.
  • In the office, or on the road, never waste your time.
  • Give your all to the company.

Summary

No One Is Irreplaceable

Within your organization, you are a precious asset. Your organization spent valuable resources to train you in its procedures, and to familiarize you with its various programs and activities. But do not think that you are irreplaceable. No employee is. You must always perform at your optimum level at work, and refrain from letting your personal behavior, attitudes or actions compromise your job security, or your chances for better pay and job advancement.

“Bosses dislike having to deal with employees who behave as if they’re still second graders on the school playground.”

To these ends, work hard to please your boss. When they are on your side, you can move up the ladder quickly. When they are not, the only place you will move is out the door.

Here are 45 mistakes that would make any boss see red:

  1. “Treating the office like it’s your love shack” – Bonding with your co-workers is natural. However, avoid doing so in a romantic or sexual way. Forego office affairs. They complicate things and kill careers.
  2. “Punching the soda machine when you’re stressed out and ticked off” – To deflate stress, take desk breaks, eat lunch out and reconcile your personal issues.
  3. “Goofing off on a business trip” – Employees should handle themselves on the road as they do when they are in the office. Refrain from dressing sloppily, leaving files or laptops lying around, flirting with clients or spending hours and hours at tourist attractions.
  4. “Earning a reputation as a whiner, drama queen or general pain in the neck” –You have only one reputation. Don’t ruin it at work by “dissing” your co-workers or making them loathe your company. Avoid constant complaining, attention seeking, making selfish choices and unloading problems on your colleagues.
  5. “Discussing your personal beliefs at work” – You no longer live in medieval times. No one will burn you at the stake for your beliefs. Still, don’t try to shove your personal values and attitudes down the throats of your co-workers.
  6. “Telling dirty jokes and cussing on the job” – Telling off-color stories or cursing a blue streak in front of colleagues is grossly inappropriate. It also is incredibly stupid. To batten down any sailor talk in your office, get yourself a swear jar, set yourself a fine and pay it.
  7. “Having questionable personal integrity” – Do you lie or steal at work? Are you undependable? Do you always try to shift blame to others? Do you abuse your sick-day privileges? If so, do you really think people don’t notice? You better wake up and smell the coffee.
  8. “Blogging about your job” – Some eight million blogs now exist on the Internet. If you are an online venter, what is the chance that your boss will read your negative rantings about him or her, or the company? Is it really worth finding out? Don’t use your personal blog to put down your manager, co-workers or organization.
  9. “Having poor writing and spelling skills” – Research indicates that one out of three employees have poor composition skills. Since business involves a lot of report writing and similar communication, your boss is not going to like having to correct your grammar, spelling and composition routinely. To become a better writer, read more, practice word games, double check names and keep things simple.
  10. “Failing to write thank-you notes” – Send thank-you notes to people who do you favors and send you gifts. Failure to do so is rude. Even if the present is less than great, show your appreciation: “Thank you for the bag of buffalo entrails. What an interesting and unique holiday gift. I appreciate you thinking of me.”
  11. “Committing e-mail blunders” – Because e-mail is so efficient, making quick mistakes is easy, but these errors can haunt you, or even your heirs, for decades to come. After all, e-mails can last forever. When you compose one, be as circumspect as a lawyer. If you aren’t, you may need to hire one.
  12. “Failing to speak intelligently” – How you present yourself relates directly to how well – or how poorly – you will do at work. Therefore, learn to speak in an intelligent, forthright manner. You cannot get your ticket punched for job advancement if you are unable to speak intelligently to others in the office.
  13. “Wearing the wrong thing to work” – Some employees think that with the advent of “casual Fridays,” they can wear whatever they want that day, and even dress down during the week. Wrong. Your boss is held to account regarding how you and your co-workers perform, act and dress. So look sharp at work.
  14. “Behaving immaturely at company parties” – Companies do not abandon their standards of conduct at office parties. Any employee who thinks so is naïve. The rules still apply, even when the liquor flows. If you take the sensible approach and decide not to drink alcohol, but don’t want to field questions about it, opt for tonic water with a lime slice. In general, keep the lampshades off your head and act like you are still at work. You are.
  15. “Being disorganized” – Want to get ahead at work? Make people think that you are on top of things. You will create the opposite impression if your office is cluttered and disorganized. Research indicates that employees who are neat and keep their offices tidy receive promotions more readily than those who are not.
  16. “Being a poor listener” – Most people speak at a rate of 125-150 words per minute, but they listen at a rate of 400-500 words per minute. When it comes to being attentive to others, this “listening gap” can pose a problem: The mind disengages too easily. Make sure you don't “tune out” others at work, particularly your boss. Be smart. Listen and learn.
  17. “Losing sleep” – You need restful sleep to function properly. Get it. To recharge your batteries after a poor night’s sleep, try power naps or breaks that are quiet, peaceful or restful.
  18. “Using your personal cell phone too much” – Guess what? Work is a place for one thing: work. The most obvious clue that you are not working while at the office is when you jabber away on your personal cell phone. You wouldn’t spend your workday practicing your golf swing, so don’t spend it chatting with friends.
  19. “Acting like a boor at business meals” – Do you belch loudly during business lunches? Do you eat like you haven’t had any food for weeks? You know you’re in trouble when your boss suggests that you attend an etiquette class. Watch your manners during business meals and at all other times, as well.
  20. “Not appreciating co-workers” – Do you have a “Mom” at work? Someone upon whom everyone in the office depends to keep things running smoothly? How about a “Mr. Wizard” who can fix any technical problem. You will find these stock characters at most offices. Treat them and your other co-workers well at all times. You never know when you will need them. Plus, it is the right thing to do.
  21. “Failing to delegate” – As much as you might want to, you can’t do everything yourself. Try to do so and you are bound to fail. This will be a big problem for you and for your boss. Learn to delegate.
  22. “Being intolerant” – Discrimination in and out of the workplace is clearly wrong. With all of the antidiscrimination laws now in effect, it is also stupid. Everyone has the right to work, regardless of his or her race, gender, sexual orientation or similar factors. If you are biased, it’s well past time to change.
  23. “Disrespecting a mentor” – Mentors are there to assist you and to make your job easier. They can show you the ropes and teach you how to work more efficiently. In an office environment, mentors are like gold. Treat them that way.
  24. “Not getting to know others in the company” – Your boss’s reputation depends on his or her direct reports and the type of people that they are. If they are reclusive, even antisocial, this reflects poorly on the boss. Work is a social environment. Therefore, make it your business to meet your co-workers, including those in other departments. This will make you – and your boss – look good.
  25. “Giving feedback that is deliberately hurtful” – Results from a recent survey indicate that incivility is a major problem in the modern workplace. Nearly half of respondents report that they have thought about quitting their jobs because of calculated rudeness. Twelve percent of the 775 individuals surveyed did leave their jobs for this reason. Finding and retaining good employees is not an easy task. Your boss will not appreciate it if it is your disparaging comments that push your co-workers out of the company.
  26. “Fostering an offensive workspace” – Does your individual office space have a rank odor due to sweaty workout garb stored under your desk? Does annoying, loud music emanate from it all day long? Do you display inappropriate photos or posters? Your office is not your recreation room. It is company property.
  27. “Gossiping” – You cannot be a productive employee if you spend half the day gossiping at work. Plus, gossip can be highly destructive, particularly in the close confines of an office. Don’t do it.
  28. “Not giving – or accepting – an apology” – Did you make a mistake or hurt someone’s feelings at work? Saying that you are sorry for something you did or didn’t do does not diminish you. Often, it has the opposite effect. It makes you more human. So does gracefully accepting someone else’s apology.
  29. “Crying at work” – Registering honest emotion at work is healthy. But being overly emotional and crying is a problem. You cannot get ahead at work if people see you as a crybaby. Learn how to express your emotions differently.
  30. “Caving in to a bully” – Unfortunately, the work environment is often like the school playground. In both places, bullies abound. Unfortunately, bullying affects 16% of workers. Work is tough enough without bullies pushing you around every day. So stand up to them.
  31. “Failing to learn from mistakes” – Everyone makes mistakes. However, smart people don’t make the same mistakes over and over. If you make a mistake, don’t react too gravely. Admit to it, investigate it and learn from it.
  32. “Being unable to overcome obstacles” – Employees on the fast track accomplish their objectives regardless of whatever difficult barriers they encounter. Make this your style. Fight hard for what you want. Don’t be a quitter. You will never get ahead in life that way.
  33. “Having too much – or too little – confidence” – Are you arrogant and haughty at work? Or submissive and meek? Find a healthy middle ground. This will work well for you – and for those around you.
  34. “Neglecting to write things down” – Your boss doesn’t want to repeat things over and over. Write down everything that is important at work.
  35. “Asking for a raise you don’t deserve” – Many companies do not provide annual raises. If this is the case at your firm, your salary depends on the contributions you make, not on your time in grade. Earn what you get.
  36. “Lacking knowledge of current events” – Businesses cannot stay competitive and on the cutting edge if their employees are backward and out of touch. Keeping current is a vital work requirement for all employees.
  37. “Holding grudges” – Your boss wants you and your colleagues to work cooperatively as a team. This is impossible if you are spiteful toward a co-worker over some old slight or similar problem. Get rid of the grudges.
  38. “Giving lackluster speeches or presentations” – Do you get nervous when you make a presentation at work? If you do, your boss does, too. Fortunately, you can learn to eliminate your nervousness and speak with conviction. Do so.
  39. “Squandering time at seminars” – You company is making a major investment when it pays to send you out of town to attend a seminar or convention. Respect that investment. Pay attention and make sure your company gets its money’s worth from your involvement.
  40. “Skipping company-sponsored events” – Don’t do it. It’s a direct insult to your employer when you fail to attend a company event.
  41. “Ignoring the company’s goals” – If the company doesn’t achieve its goals and make money, eventually it will not have enough to pay your salary. Make the firm’s goals your goals.
  42. “Dodging meetings” – Company meetings are often dull. However, you can learn a lot from them, not only about the organization’s activities, but also about its internal politics. Plus, you get a chance to impress others – and thus your boss.
  43. “Not going beyond your job descriptions” – Your company operates in a tough, competitive business world. Your firm needs everything you have to offer. Bring all of your capabilities to bear on behalf of your organization.
  44. “Neglecting new co-workers” – Don’t haze new employees, help them.
  45. “Fighting change” – The more flexible and adaptable you are, the more valuable you will be to your employer.

About the Author

Anita Bruzzese writes the “On the Job” column, which has eight million weekly readers. It is published by the Gannett News Service and appears in USA Today.

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45 Things You Do That Drive Your Boss Crazy*

Book 45 Things You Do That Drive Your Boss Crazy*

*And How to Avoid Them

Perigee,
 


20 January 2026

The Smartest Investment Book You'll Ever Read

Recommendation

Daniel R. Solin’s handy book demonstrates why trading stocks actively is a great idea for your broker or financial advisor, but could be a very bad idea for you and your hard-earned savings. Solin’s investment method, while not presented as a fresh invention, is simple: He encourages you to set up a very low-cost account with a reputable company, allocate your assets in a mix of stock and bond indexes that represent the entire market, and regularly rebalance your portfolio to bring it back in line with your desired asset allocation. Solin’s virtue is his energetic, sometimes entertaining writing style, as displayed in 44 snappy chapters that avoid financial theory almost completely. He focuses on dollars and cents, and how best to keep them in your own pocket. BooksInShort recommends this smart guide as a primer for beginners or financially unsophisticated investors.

Take-Aways

  • Some money managers engage in “Hyperactive Investing,” carelessly using your money to try to select winning stocks and outperform the market.
  • However, almost no one can beat market returns in the long run.
  • Hyperactive investing benefits your financial advisors more than you.
  • Fees paid to brokers and financial advisors lower your returns.
  • Hyperactive trading may be entertaining, but it is a very risky casino game.
  • Instead, invest your money in a low-cost market portfolio of diversified stock and bond market indexes. That is where the “smart money” goes to grow.
  • Index funds yield an average weighted return on all the stocks or bonds in a broad index.
  • Index funds allow you to choose a preferred level of risk. Deciding how to allocate assets is the most important decision a “Smart Investor” makes.
  • Firms such as Fidelity and Vanguard facilitate “Smart Investing” in index funds.
  • Rebalancing your “Smart Portfolio” takes 45 minutes every six months.

Summary

“Hyperactive” or “Smart” Investing?

Sadly, millions of people believe that their brokers or financial advisors are privy to some secret that enables them to outperform the market, despite a large number of studies that indicate that it just isn’t so. Some financial advisors cleverly market their superior performance over a carefully selected time frame to get you to invest with them. They want to trade your money actively to generate fees for themselves. If you happen to make money as their client, they will entice you to invest more. However, if you lose money, they will point to the small print that says past performance does not guarantee similar future returns. Either way, they still take their fees. Their talk is powerful, but their performance is usually unspectacular.

“There are 100 million individual investors in the United States. They hold $8 trillion of stocks. More than $7.5 trillion of this money is invested in the wrong way.”

These “hyperactive” traders generally use either “market timing,” predicting crests and troughs in stock prices, or “stock picking,” choosing undervalued stocks in anticipation that their performance will improve. However, money managers who engage in hyperactive investing cannot consistently beat or time the market. The more expensive, exclusive products they sell are not superior to low-cost index funds, that is, funds that yield an average weighted return on all the stocks or bonds contained in a broad index. If you arrange your investments to get market returns, you will perform better than 95% of portfolios managed by professional money managers. That’s “Smart Investing,” and it works, based on certifiable data and market studies.

“There is little independent...scientifically valid evidence that anyone can successfully engage in either market timing or stock picking consistently over the long term...All the evidence concludes that the opposite is true.”

Using the Smart Investing approach, you can achieve low-cost market returns with 90 minutes of work every year. For example, by altering the mix of three Vanguard managed index funds, you can create a low-risk, medium-low-risk, medium-high-risk or high-risk portfolio. The three funds are Vanguard’s Total Stock Market Index Fund (VTSMX), Total International Stock Index Fund (VGTSX) and Total Bond Market Index Fund (VBMFX).

“Smart investors do not engage in stock picking. They know that it is a fool’s errand. Smart investors are not fools.”

If you use Smart Investing, you won’t need a broker or an advisor, you won’t have to worry about picking hot stocks and you will have almost no stress. Does this mean that you’ll never need a financial advisor? No. If you have a portfolio worth a million dollars or more, professional advisors can provide more value than they cost you. They can help you think through tax and estate issues that the average person does not face on the same scale.

How Most Brokers Make You into a Hyperactive Trader

Managed funds are all trying to beat some “benchmark index.” If they can’t meet their benchmarks, they do not provide any value to their investors. More than 90% of managed funds fail to beat or even equal their benchmarks over the long term. This means that on average Smart Investors who put their money in “passive” index funds will enjoy higher returns than “Hyperactive Investors.” Hyperactive money managers enjoy the higher fees and trading costs paid by their clients – usually around 1.5% per annum versus 0.35% for index funds. But Hyperactive Investors lose out. The reports they get state what the fund earned before costs and fees; they actually receive less. Why isn’t this truth more obvious? Many fund managers are very skilled at concealing information. The financial media where they advertise support their efforts. Financial magazines fill their pages with new stocks, picks and sensational returns. If they printed only the truth about returns and market indexes, they would have a hard time selling advertising, let alone writing new articles.

“Only 46% of the actively managed funds beat the index during the first five-year period, and only a pathetic 8% beat the index during the second five-year period.”

Of course, investors who pursue the “Hyperactive Strategy” have to take their share of the blame. Some folks enjoy gambling, and treat buying and selling stocks like a high-stakes casino game. Others believe in their own abilities far too much and only learn after the market beats them to their financial knees. Don’t be one of them. When you hear claims about doubling your money or sure bets in the market, just walk away. You worked too hard for your money to let someone else take it from you.

“Go ahead, ask your broker what the standard deviation of your portfolio is. If he or she can compute it for you, right there in the office, without asking for help, I will be stunned.”

But, you might ask, isn’t paying close attention and constantly attending to your investments, as you would a garden of exotic flowers, simply the responsible thing to do? No. Constant pruning and transplanting harms those flowers just as constant trading does your investments. However, your broker or advisor will be grateful whether you earn or lose money. The broker wins when you trade – not when you earn (or lose) money. Analysis of prominent brokerages has shown that those who advocated a hyperactive style of trading not only failed to give market-beating advice, they were the most likely to become entangled in legal difficulties. You should also research your financial advisors’ academic qualifications. Is their background richer in sales than in finance? If so, why would you trust them with your life savings? To avoid paying for an advisor altogether, invest in a market index fund that will provide you with market returns without the anxiety of trying to find a hot stock or mutual fund.

“Smart Investors never lose sight of the downside risk.”

When your broker recommends a fund to you, ask, “why that fund?” Too often, money managers recommend a fund because selling it is more profitable for them. Reading the fund’s prospectus will disclose the inducement paid to your broker. So, you are paying them for this advice, and so is the fund. Some brokerages have abolished fees and started charging a flat percentage of your portfolio’s value. That means you pay them whether they earn a return on your investment or not. What a great deal for them. Remember, every dollar you pay them in fees enriches them and leaves you with a smaller investment portfolio. Save the money you would have paid in fees and invest it in an index fund.

“Most investors should not invest in a hedge fund. For those who do, the investment should be limited to a very small percentage of their portfolio. Hyperactive brokers and advisors love them. The commissions are great.”

Check how much your advisors really know about your portfolio by asking what its standard deviation, or level of risk, is. Do they know? Can they calculate it right there in front of you? Or do they need to ask someone else? Conservative portfolios should have a standard deviation of no more than 8%. Moderately aggressive portfolios will have a standard deviation around 15% and very aggressive portfolios around 20%. Only specialists should invest in a portfolio with a standard deviation above 30%. Even if brokers can’t work out your standard deviation, you can be confident that they can calculate their fees quite accurately.

What Should You Avoid When Investing?

Asset allocation is the mix of stocks, bonds and cash (or cash equivalents) in your portfolio. The current fashion is to pour cash into stocks and minimize bonds. However, bonds move differently than stocks and help balance risk. Be careful about having too much of one and not enough of the other. Do not become so focused on the potential for higher upside returns that you fail to see the downside risk. You should also beware of funds that have different classes of shares. For example, some have A, B and C classes that vary in their associated fees, commissions and times when those dues are payable. If you decide to invest in these funds, be clear about your investing time horizon and how the fees will affect your return. Smart Investors do not put money in funds with different classes because they shun excessive fees. Avoid investing in brokerage house funds because market index funds usually trounce them.

“Every academic who has ever studied this problem has found two things that correlate with superior performance. One is low transaction costs. The other is appropriate asset allocation.”

Also avoid buying on margin, that is, using your existing shares as collateral against a cash loan to allow you to buy more shares. While your broker may extol the power of leverage, you need to be clear about the costs of borrowing and the risk of having to cover the margin if the equity declines. Hedge funds are also quite fashionable, but they are not for the average investor. If you cannot resist the urge, place only a miniscule part of your portfolio in these high-risk vehicles. Value stocks have been touted for many years, but they are highly volatile, with a standard deviation of more than 34%. A market fund will include these stocks while dampening their risk.

“Investors should own the entire market. By ‘the entire market,’ I mean a broadly diversified portfolio of investments in domestic and international markets.”

This common sense information may seem hard to come by, but the truth is out there. Authors like John Bogle and Burton Malkiel are very much worth reading. But new titles grab a lot of attention and their claims are sexier. The financial media need novelty and that means touting bad ideas simply because they are new. Economics journalist Jane Bryant Quinn called this emphasis on hot picks and easy methods for huge returns, “financial pornography.” If you read Bogle and Malkiel along with this book, you will see how simple Smart Investing really is.

“Nothing is more important than your asset allocation.”

Are you operating under the notion that the broker with whom you have entrusted your entire life savings is obliged to invest your money responsibly? Licensed investment advisors are, but brokers operate under the “Merrill Lynch Rule” that holds them to a different standard, and allows them to exploit you and turn you into a hyperactive investor. When your investment advisor recommends a hot pick, ask whether it meets the “Prudent Investor Rule.” This states that money managers should seek market returns rather than pursuing risky investments that might result in little return or loss. When you open an account with a brokerage read the fine print. Does it require you to settle disputes by mandatory arbitration rather than going to court? Do you trust their hand-picked arbitrators to be independent? Smart Investors almost never need the courts or arbitration of any kind.

The Four Steps of Smart Investing

The four simple and stress free steps to becoming a Smart Investor are:

  1. Pick your asset allocation mix.
  2. Open an account with Vanguard, Fidelity, T. Rowe Price or another similar service.
  3. Invest your money in the index funds that provide you with the right market coverage.
  4. Adjust your investments every six months to restore the right asset allocation.
“You can take control of your own investments with minimal time and effort – and by doing so you are likely to outperform the vast majority of these ‘investment professionals’.”

Depending on your tolerance for risk and your stage of life, you have to decide whether you want to allocate your assets in a low-risk, medium-low-risk, medium-high-risk or high-risk portfolio. You can fill out a questionnaire at a number of different Web sites to help you determine where you fall in the spectrum. Remember, the risk is not just about seeking higher returns, it is also about exposing yourself to more possible loss. The low-risk portfolio had an annual average return of 9.22% and it experienced a loss of 1.69% in its worst year during the period 1970-2004. The high-risk portfolio returned an average of 10.69% and its worst single-year loss was 18.70% during the same period. The other categories achieved returns between these figures.

“So who still believes markets don’t work? Apparently it is only the North Koreans, the Cubans and the active managers.” [ – Rex Sinquefled]

Many firms, such as Fidelity and Vanguard, have made it quick and easy for Smart Investors to open accounts. They have a variety of products and tools you can use to reach your investing objectives. T. Rowe Price is another no-load firm with great products, but you have to invest in more funds to accomplish the coverage you want. Each of these companies facilitates investing in smart money. For example, if you wanted to invest $50,000 at Vanguard to create a medium-high-risk portfolio, you would put 42% or $21,000 in the VTSMX, 18% or $9,000 in the VGTSX, and 40% or $20, 000 in the VBMFX. These three funds expose you to the total U.S and international stock markets, and balance them with a bond market index. After six months, the value of these three funds will probably drift one way or the other. You can bring them back into the 42-18-40 balance by investing more to bring the balance in line, or you can sell those that have gained and buy some of those that have fallen. Rebalancing to get your investments in the right ratio takes 45 minutes twice a year.

If your primary retirement investments are in a company administered 401(k) plan, invest them in index funds. However, also look at the fees being charged on your investments and how much your plan administrators are churning the assets your funds hold. Complain to your HR department if the funds you need aren’t offered at your firm.

Remember these five things:

  1. Do not invest with brokers and advisors who push a Hyperactive Investment style.
  2. Do not believe you can pick stocks or time the market or actively trade stocks.
  3. Don’t get caught up in the hype machine pushed at you by the financial media.
  4. Smart Investors expect long-term returns from 7% to 11%.
  5. If you build a “Smart Portfolio” using whole market indexes you will outperform most funds in the long term.

About the Author

Daniel R. Solin, a securities arbitration lawyer and speaker, is a principal at Academic Wealth Management. He also wrote “Does Your Broker Owe You Money?”

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The Smartest Investment Book You'll Ever Read

Book The Smartest Investment Book You'll Ever Read

The Simple, Stress-Free Way to Reach Your Investment Goals

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