In order to review a book, one obviously has to read it first. I have to confess; I did not finish this book. But let me explain… Many books have one or two great ideas that frankly could be illustrated in a couple of pages, but this could not be turned into a publication and then be sold for bucket loads of profit. So what tends to happen is that authors stretch the content out for about another 200 pages (in this case, another 440 pages) and go into extensive detail, giving more examples than one can count and generally boring their readers to death.
That said, what I did read of this book was enough to ensure I understood “the three questions that count”, so I am able to comment on the concept.
Question one: What do you believe that is actually false?
As investors, we hold many truths, but this book suggests we need to examine them closely to see if they really are true because if they are not, we’re being hoodwinked and it’ll cost us money. Furthermore, if we believe things to be true that are not true, then very possibly so do most other investors as we’re likely to have got the truths from the same place.
Examples of nontrue truths are;
Budget deficits are bad for the economy (stats prove this to be false);
High PEs are bad (back-testing shows that high P/E stocks often perform best);
and the local market tracks US markets (maybe a little over the short term, but not over any longer time frame).
Question two: How can I fathom what others find unfathomable?
In other words, you need to know something that the market doesn’t know, or at least ignores. This ties in directly from question one – once we have worked out what the market is getting wrong, we need to work out how we can profit from it and focus on issues that do correlate.
In short, the way to fathom the unfathomable is to continually crunch data with no bias, and start to test things that are held to be true and see if they really are true. Ask the supposedly stupid question and see what the answer really is and be careful of the media as it often perpetuates incorrect information.
Question three: What the heck is my brain doing to blindside me now?
Fisher calls the market “The Great Humiliator” if we – as investors – allow issues such as pride, ego, overconfidence, fear and the like to get in the way of making decisions that need to be made clearly and without bias.
So, the bottom line? In my view, Fisher rambles on and his attempt at behavioural science is especially weak. However, he makes a good case and the first three chapters are well worth the read.