A Wealth of Common Sense by Ben Carlson Book Review

A Wealth of Common Sense: Why Simplicity Trumps Complexity in Any Investment Plan by Ben Carlson is the last book in my personal finance resolutions for 2020 list of personal finance and investing books to read. Liquid from Liquid Independence recommended this book. Here’s my A Wealth of Common Sense book review.

I bought this book on Amazon because I was waiting too long to borrow it from the library. It didn’t really help that all the libraries closed down for a few months during the COVID lockdown. It was a bit pricier than I would have liked to pay for a book, but I got the Kindle version so it was cheaper than a physical copy. Of course, after I paid for the Kindle version I got a notification from the library that the book was ready for pick up.

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Who is Ben Carlson?

Ben Carlson is a CFA and a manager of institutional portfolios at Ritholtz Wealth Management. He is more notable for being the founder behind the blog A Wealth of Common Sense. I haven’t been reading his blog, but after reading this book, I will definitely check it out from time to time.

He has written a few books, with the most recent one being Don’t Fall for It: A Short History of Financial Scams.

He has a Twitter account @awealthofcs and has almost 130,000 followers.

Ben Carlson is just shy of 40 and I’m quite impressed with his maturity, common sense, and wisdom that is very when reading the book A Wealth of Common Sense.

What a Wealth of Common Sense is About

A Wealth of Common Sense is about investing, and exactly why it’s so difficult for people to stick to their investment plan and beat or even keep up with the market. He kind of talks about investing in relation to more of the behavioural aspect rather than the technical aspect of investing.

In the first chapter, Ben Carlson talks about the comparisons between the institutional investor and the individual investor, and the pressures (external) that institutional investors face. Good long term behaviour and patience is an equalizer in the markets- and it is difficult to beat investment professionals at their game.

Then, Ben Carlson talks about how (contrary to popular belief), the market does not actually increase by 7% annually. It’s 7% annually on average. A lot of people have this expectation (including myself when I first started investing) that they will get around 7% annually and are disappointed when they are down 21% one year and up 14% another year. The 7-8% benchmark annual stock market returns is actually not linear growth.

He talks about how it takes patience and discipline to be a long term investor, especially when your short term instincts take over (instincts like selling when you see red in your investment portfolio).

In A Wealth of Common Sense, Ben Carlson states asset allocation will be the most important investing decision that you make. When you diversify, you admit that you don’t know what will happen in the future in terms of which asset classes will perform well and which will not.

Another aspect of investing that the author emphasizes is important is emotional intelligence rather than than intellect. Being able to talk yourself down from selling everything when the market crashes is very important– and you won’t know how you will react until you actually experience it.

There were some great quotes in the book, and I’m going to share some of my favourites here below:

Great Quotes A Wealth of Common Sense

“In sports they say you can’t control your talent but you can control your effort. In the investing world, you can’t control the markets, but you can control your emotion.”

“The bulk of portfolio growth in the first two decades of investing will come from how much money you save.”

“The only benchmark that matters is achieving your personal goals, not beating the market.”

“What draws most people in terms of financial advice is a sense of authority and confidence.”

In finding a financial advisor, most people preferred the most confident appearing financial advisor-“extreme, overconfident predictions as opposed to those who were more levelheaded.”

“Financial advisors are managing investors rather than investment managers. They are also there to manage your emotions.”

“Outsource to a financial advisor if you don’t have the time, expertise, or emotional control to implement an ongoing financial plan.”

“Saving money will always trump the best investment strategy”

What I liked about A Wealth of Common Sense

One thing I really liked about A Wealth of Common Sense is that he emphasized that the only benchmark that should matter to you is achieving your own personal goals, and not beating the market.

I like this because it provides some validation since I have not been beating the S&P500 index (or even remotely close) since I have exposure to the TSX, bonds, etc. and not just the S&P500.

Also, he states that investing essentially boils down to ‘regret minimization’ which I think is very true.

I also liked that he had footnotes, data, and charts to back up his claims.

At the end of the book, Ben Carlson distills the essentials of investing into some very simple steps with actionable steps. One of which is where he asks you to look in the mirror. If you don’t see Warren Buffett don’t attempt to have the same performance he has earned over the years, but instead work on emulating his emotional intelligence and long term outlook.

What I Didn’t Like About a Wealth of Common Sense

Really there was nothing other than the high price (the physical copy of the book is like quite expensive). It was an easy read and gives you a boost of confidence to go back in there and ‘keep calm and invest on’ so to speak.

Hope you enjoyed my A Wealth of Common Sense book review! I would definitely recommend this to someone who is interested in investing. This further validates that keeping your portfolio simple is important.

Stick with low cost funds and keep investing, keep being disciplined.

For further investing realted reading, here are some of the best dividend investing books.

Have you read A Wealth of Common Sense by Ben Carlson?

What’s your Wealth of Common Sense book review?