Book Review: Unshakeable
Unshakeable is the latest book by Tony Robbins and Peter Mallouk, it became a #1 New York Times Bestseller. He collated in the book a number several facts to support some ideas about how to think about money investing and financial freedom. Most of the data and some of the strategies are applicable to the United States, however, the common lessons he learned from expert investors are applicable to almost any investor.
Most of the technical aspects of this book were not new to me as I had previously read The Intelligent Investor by Benjamin Graham and The Little Book of Common Sense Investing by John Bogle, the latter explains many of the ideas that Robbins presents in his book. He provides invaluable advice on the psychology of investing and developed some interesting concepts.
My top learnings from this book were the following:
On average corrections have occurred about once a year since 1900: the point he makes here is that if we pay attention to financial news and the drama used to describe volatility and predictions in the stock markets we can be emotionally affected and that can affect our thinking and decisions. But if instead we study the facts, we know what to expect, he adds that in the U.S. on average corrections have occurred about once a year since 1900 therefore there’s no need to make emotional decisions about where there’s a correction because that is expected. He makes an analogy with the weather; we always know that winter is coming so when the weather gets cold there’s no surprise.
The greatest danger is being out of the market: staying in the stock market long enough will produce returns with the magic of the compounding, the key is to think long term. JP Morgan did a study where they found that 6 of the 10 best days in the market over the last 20 years occurred within 2 weeks of the worst 10 days, therefore selling out of emotion can be costly for investors in the long term as the miss the recovery period.
He presents a study that shows that from 1996 to 2015, the S&P 500 returned an average of 8.2% a year. Investors who missed the top 10 trading days during those 20 years had a return of 4.5%, almost half of the market. Once again, investing long term pays off because history shows that the economy grows over time.
Finding an advisor: he provides a general guide for selecting a financial advisor, some of his points are applicable mostly to the U.S.
One suggestion he makes is to check out the advisor’s credentials, which is not a common practice for most of us, we get financial advice and we don’t even question if the advisor is qualified, same as we probably don’t do with our dentist or doctor. This doesn’t guarantee high quality advise but we would expect credentials as a minimum.
Ideally a financial advisor shall provide advice not only in investment strategies but also in saving money on taxes, mortgage, insurance, etc.
It’s essential that they have track record of performance with previous clients like us. In an anonymous survey, the Journal of Financial Planning found that 46% of advisors had no retirement plan of their own!
Making sure that there’s an alignment between they advisor’s philosophy and ours so that we don’t hire one who is trying to beat the market while we have no intention to do that.
Diversification: there are 4 ways to diversify according to Burton Malkiel, a Princeton University professor:
Diversify across different asset classes: putting money in several asset classes: real estate, stocks, bonds, not just in one.
Diversify within asset classes: don’t spend all your money in the same stock, choose various companies. This is commonly seen in real estate.
Diversify across markets, countries and currencies around the world: diversify the risk across multiple economies.
Diversify across time: risk can be reduced by investing systematically over time as we don’t know when the right time to buy is. Through dollar-cost averaging we’ll increase our returns.
Chapter 8 was the one I found more insightful because he goes deep into the psychology of investing, this the part we need to master the most otherwise we can undermine the best strategy in the world if we are not able to manage our emotions. Robbins says that our brains are wired to avoid pain and seek pleasure, and this applies not only to investing but to all areas of our life.
“ “Neuroscientists have found that the parts of the brain that process financial losses are the same parts that respond to mortal threats””
He presents a series of behavioral mistakes that some investors do and a solution to them:
Seeking confirmation of your beliefs: Confirmation bias can be dangerous because one thing that can happen is that we like one stock and our brain is wired to seek out information that validates what we already believe. It’s wise to keep our mind open and flexible to change direction if necessary.
Robbins also talks about the endowment effect which is another emotional bias in which investors place greater value on something they already own, they lose objectivity. This can stop them from buying something that will provide a higher return. Therefore, it’s important to see both sides on each investment.
This is why the best investors seek qualified opinions that differ from theirs because they know they are vulnerable to confirmation bias.
Mistaking recent events for ongoing trends: this is called recency bias which means that in our minds we tend to give more weight to recent experiences when we evaluate what may happen in the future. According to David Swensen “individuals tend to buy funds that have good performance. And they chase returns. And then, when funds perform poorly, they sell. And so, they end up buying high and selling low. And that’s a bad way to make money”.
This may also explain why investors don’t buy stocks when they are low because they only focus on recent performance, but they don’t study the historical cycles.
A solution for this is to prepare an investment success checklist that contains clear goals, strategy and what to watch for when making an investment. This could be shared with a sophisticated financial advisor who could help stick to the plan.
Greed: it’s very tempting to go off track when other investors seem to be getting higher returns than we are, but the wisest decision is to aim for sustainable long-term results.
““The stock market is a device for transferring money from the impatient to the patient” ”
The stock market can produce in investors the same effect as casinos do, when we win our bodies release endorphins and want to avoid the pain of losing. This can be reinforced by financial media where speculation is promoted.
Guy Spier, a renowned value investor, says “when you check your stock prices or fund prices on your computer every day, you’re feeding candy to your brain”. “You get an endorphin hit. You have to realise it’s addictive behavior and just stop doing it. Move away from the candy”
Some suggestions for this are: checking your portfolio only once a year, avoid financial TV and disregard research produced by Wall Street firms.
Guy recommends creating “a more wholesome diet" by studying the wisdom of patient investors such as Warren Buffett and John Bogle. This results in feeding your mind with the rationale that will make it easier for you to think and act long term.
Negativity and Loss Aversion: we all have something called negativity bias which is the tendency to recall negative experiences more intensely than positive ones. As cavemen this is what helped us remember that fire hurts, that some fruits could poison us and that it was dangerous to fight with certain animals.
This also affects the way we invest because people remember vividly events such as the market crash during the most recent global financial crisis. Although we intellectually know that these times are be best to buy to build long-term wealth, our memories of previous negative experiences would stop us from doing it. In addition to that, there’s a part of the brain called the amygdala that acts as a biological alert and sends fear signals to the body when we are losing money.
The psychologists Daniel Kahneman and Amos Tversky demonstrated something called loss aversion which is the term to describe that financial losses cause people twice as much pain as the pleasure they receive from financial gains.
The best solution for market corrections is to be prepared by having the right asset allocation, having a clear why you’re investing in each asset class and if possible having a reliable financial advisor to talk to before making decisions out of fear.
The last chapter of the book is titled Real Wealth. This is where Robbins talks about the significance of wealth building and though this is something that each individual must decide for themselves he emphasises that making money for the sake of is not fulfilling, there has to be a big picture purpose behind it that adds meaning to our actions. We may have long term plans with our families, charities or serving others in some way.
In order to close the gap between where we are now and the quality of life, we desire he explains we need to master 2 skills:
The Science of Achievement: he describes 3 steps that can enable us to achieve what we want in life
Focus: when we focus our thinking to what we want and we constantly see it in detail in our minds, our brain activates the reticular activating system which is a mechanism to direct our attention to whatever is going to help us achieve our goal.
Massive Action: this is about not only having an execution strategy but also continuously refining it to become more efficient. One way to accelerate this is to study other people who have done it before.
Grace: have appreciation for all the opportunities but also for the very small things.
The Art of Fulfillment: this is what connects our heart and soul with our achievements, mastering the inner world is as important as mastering the outer world. This is explained in 2 principles:
You must keep growing: everything in life either grows or dies, this is a task we need to do non-stop if we want to have fulfillment because that sense of progress and growth can’t be obtained purely by having financial wealth. Therefore, it’s important to develop ourselves, this may bring with it unintentionally even more financial wealth because we’ll be providing more value in our work or business.
You have to give: when he asks people about the most fulfilling aspects of their lives, they always talk about sharing with others. He’s met billionaires that no matter how much money they make they have no fulfillment, contrary to what some people may think money is not the answer to this quest. Fulfillment comes from a sense of growth and contribution and when some people reach the point where they have more than enough money to live they may find themselves with no ambition.
“ “You make a living by what you get. You make a life by what you give””
Overall, the book is great to bring facts and advice from experts regarding some of the myths and misconceptions about wealth creation. Depending on what you’ve read before you may find some of the information very basic but still fundamental. Becoming Unshakeable is about educating yourself by studying concepts, tools, facts, history and modelling others so that you can create strategies that will give you financial certainty no matter what the economy does. Have a purpose, think long term and start Now!