Scott Reed’s Top 40 Rules of Investing is a useful primer for the new investor, and, at a slim 83 pages, it’s an easily digestible resource for more seasoned clients.
Reed’s folksy style and straightforward prose ease the reader through the do’s and don’ts of investing. Like one of his heroes, Warren Buffett, Reed is a staunch believer in compound interest’s return on money, so he repeatedly stresses that the earlier one starts saving and investing, the bigger the pot for college costs, housing and retirement.
Reed is chief executive officer of Hardy Reed LLC, a registered investment advisory firm founded in 2006 and based in Tupelo, Miss., with $972.6 million in assets under management and advisement.
Why 40 rules?
“I chose 40 rules because I loved listening to Casey Kasem’s Top 40 hits of the week every Saturday when I was young; 40 rules seem to be enough for one book,’’ Reed writes.
Reed’s number one rule, hence the most important: “You Will Never Be Poor If You Have True Friends,’’ in which he cites the friends and strangers who helped his family rebuild their Tupelo homestead when it was wrecked by a tornado in 2014.
“I am writing a book of rules for investors. One will surely be to make sure that your advisor has your best interest as their primary goal. This certainly is what happened to me and my family this week. The first rule of investing is to invest in your friends. I know that may sound corny but it is absolutely number one.’’
Rule number two equally emphasizes the personal: “Getting Involved Benefits Everyone,’’ i.e., get involved in your community.
“You will notice that this rule seems to have just as little to do with traditional investing as rule number one. But before you start to believe that I have lost my edge, let me explain,’’ Reed says.
He then offers this theory about how community involvement translates into better investing:
“Volunteering forces people to use their rational, cognitive mind to solve problems. It allows them to see the success that comes from managing in the role of a fiduciary and that is the critical benefit for investors.’’
The rules that follow are more conventional guides to succeeding in investing, and they are enlivened by Reed’s earthy charm and common sense.
Rule number three is “Know Who You Are Working With.’’ Here, Reed explains the difference between the duties of stockbrokers, insurance brokers, consultants and advisors, and says, “Finding someone you trust is critical to your ability to stay the course with your plan, but surely you can find someone you trust who is actually doing what you need them to do. That is the Holy Grail for the investor.’’
Other rules emphasize that “the investment business is a ‘reversion to the mean’ business,’’ so investors must put together a strategy “that they can believe in for a very long time.’’
In his rule “Interest Is a Weapon,’’ Reed says “Interest is what makes millionaires and paupers,’’ and he contrasts “the miracle of compound interest’’ when it is a return on one’s money, with oppressive debt from credit card interest, “the most negative aspect of your financial life.’’
To neophytes and veterans alike, Reed insists that investing can be as hard as it was for him to learn how to properly tie a tie.
“A lot of investors think the hard part is finding good investment opportunities. I would say that is one of the easier things to do. The hard part is knowing when to sell, when to hold and when to buy more. Investing is hard; you need an expert to help you get it right.’’
Reed advises to “rely on empirical evidence and historical data to determine how best to invest;’’ and that all investors must assess how much risk they are able to tolerate, with this result: “the only way I know to maximize your returns over time is to find your true comfort zone and stay there.’’