Carl Richards on Investing, Emotion and Simplicity

Carl Richards, founder of Prasada Capital and a weekly contributor to the New York Times’ Bucks blog, recently took some time out of a busy schedule to talk to Portfolioist. The topic: how investors can get a handle on their own investments.

The full interview can be seen below, but here are a few of the topics Richards covers:

  • The importance of simplicity.
  • How individual investors fail to match in their own portfolios the returns of the very  investments they hold. (We panic and sell low, and too often buy high.)
  • Professionals suffer from a “false sense of precision that risk is like a dial you can turn” and exactly match an investor’s tolerance to their investments.
  • You must trust your gut when it comes to how much volatility you can stand. How comfortable are you with the ups and downs of the stock market over the past decade?
  • Deciding how much to put into equities is the toughest choice any investor must make.
  • It’s very hard, but very important, to be introspective. One of the best things you can do is look at your own historical brokerage statements to get a true picture of how you’ve done and what types of investments you’re really comfortable with.

Richards’ drive for simplifying complex topics lead to an interesting side line: drawing diagrams and charts that capture core investment concepts. We featured one of his doodles on the impact of human emotions on the markets in an earlier post. He’s gotten so good at capturing these ideas in pictures, it’s become a trademark, and now even a business line.

Below the video link are copies of two of the particular drawings Richards mentions during the interview. Please add your comments to the conversation too. How are you simplifying your approach to money and assessing your risk tolerance these days?

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Here are some of the books on investing and money that Richards recommends. In addition to these he likes Winning The Loser’s Game by Charles D. Ellis for anyone interested in learning more about index investing .

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