The Indomitable Investor: Why a Few Succeed in the Stock Market When Everyone Else Fails by Steven M. Sears is a thoughtful, well-paced survey of the post-crisis market landscape. This is not a book that could have been written a few years ago. Readers here will know Sears for his coverage of the options markets for Barron’s, and he brings the same even-handed tone always exhibited there to this book.
The Indomitable Investor pursues several important and familiar themes, like why average investors do so poorly, and all the ways that financial services companies, financial advisors, the media, and even markets themselves are aligned against them. There are no conspiracy theories here, just honest assessments of the risks and hurdles that investors face today.
Sears also holds up examples of model individuals and the investing principles they follow. He gives practical suggestions, like how to verify an advisor’s credentials, how to think about tail risk, how to think about market cycles, and even tips on the use of indicators like VIX and the SKEW index. A rarity in financial writing, he also peppers the text with genuine wit and cultured insight, with references to Shakespeare, Diogenes, and Frazer’s Golden Bough. There is a lot of good advice here, and it is accessible to a general reader.
In the final chapter, Sears presents something that you’ll almost never see in a book about investing: policy proposals. This was a really fascinating read. The U.S. federal government should, he says:
- appoint an “investor laureate” to serve the nation by educating investors and by publishing at least one report each quarter giving a view of the markets;
- require banks and brokerage firms to allocate a percentage of their advertising budgets to fund industry-wide educational programs;
- merge the SEC and CFTC; investigate and develop ways to make markets more resilient against flash-crash scenarios.
These are all reasonable, and the SEC/CFTC merger is long overdue. Sears mentions that Sharpe ratios are fine for those who know how to use them, but that we need to make investing accessible to individuals who don’t. (At some point, you start to wonder why this particular public good is thrust incessantly upon individual workers. We don’t ask people to learn about water sanitation, or power line repair, or how to pave roads. You can imagine an alternate universe in which the cautious management of public investments is treated as a public good, but there is a massive, for-profit water sanitation industry, complete with lauded Warren Buffetts who only get accidental diarrhea once every few years.)
If I have one criticism of the last part of the book, it is that Sears makes his case so well. While individual investors with the right mix of wealth, determination, intelligence, and luck might push their way toward success, it hard to imagine how the average middle-class worker can ever hope to find a peaceful retirement in these kinds of markets. Sears ends on a dark note:
Regulation is the balance between the market and the government. Over time, the market tends to win, which is why it is critically important to learn how to effectively navigate the market, to be self-reliant, to be skeptical, and to be resilient. In the United States, even the President serves no longer than eight years, but Wall Street reigns forever.
It’s hard to disagree with this assessment. As a society, that’s the message we’ve decided to send each other when it comes to the financial system: you’re on your own. No one is going to help you if you stumble, many people are out to get your money any way they can, and we’re not going even try to stop them. Jon Corzine is still at large; Madoffs and Wassendorfs are around every corner. Some people think that’s how the world ought to be: an unending Hobbesian war of all against all, with a night-watchman state in place to prevent outright murder, but only that. Sears convincingly makes the case that, where the regulation of Wall Street is concerned (although he doesn’t put it this way, these are my words), we’ve been spending most our lives living in a libertarian paradise. Whether you agree or not, or think this is actually a kind of dystopia, the same course of action is necessary in the short term: you had better learn the markets or be ravaged by those who do.