OSCAR WILDE ONCE made this observation: “Education is an admirable thing, but it is well to remember from time to time that nothing that is worth knowing can be taught.” In other words, the only way to truly learn something is through experience. When it comes to investing, this is easier said than done because learning through experience can be expensive. As Warren Buffett once quipped, “It is good to learn from your mistakes. It’s better to learn from other people’s mistakes.” How can you square this circle? Wilde and Buffett each make good points. I believe both education and experience are key to learning more about investing. How might you approach that? Let’s start with education. Finance books and articles could fill a library, but there’s no need to read them all. Instead, I’d focus on four important concepts. 1. History. The one thing about the stock market that’s predictable is its unpredictability. New crises frequently come along, and each is different enough to give investors renewed anxiety. In dealing with these crises, what’s most important? In my opinion, it’s perspective. Good investors have a sense of market history that can help them navigate crises better than other investors. To learn history, you might consult this list of past market crashes. While it’s useful to study U.S. history, this list is global, going back to the Dutch tulip craze in 1637. Lists like this can help us appreciate an unavoidable reality: that crises have always been a feature of investment markets, and likely always will be. While this fact might seem unnerving, knowing this can help us better weather future events. The investment consulting firm Callan provides another great resource: Its Periodic Table of Investment Returns helps investors appreciate the largely random nature of markets and thus the futility of making predictions. For a more comprehensive study of market history, turn to William Bernstein’s 2002 book The Four Pillars of Investing. One of the four pillars is dedicated to history. As Bernstein puts it, markets periodically go “barking mad.” But by studying history, investors have “at least a fighting chance” at recognizing and understanding the madness when we see it. A second edition was published in 2023. 2. Psychology. I believe understanding market psychology is as important as studying market history. Benjamin Graham’s The Intelligent Investor is a good place to start. In a preface to the book, Warren Buffett notes that he first came across Graham’s book 75 years ago: “I thought then that it was by far the best book about investing ever written. I still think it is.” Why? Graham explains market psychology by way of a parable. Mr. Market is a fellow who can’t control his emotions. Sometimes he’s rational, Graham says, but sometimes “his enthusiasm or his fears run away with him.” Mr. Market’s behavior is representative of the market as a whole. That’s why, Graham says, investors “should neither be concerned by sizable declines nor become excited by sizable advances.” 3. Statistics. How should we think about star investors who seem to be able to beat the market? In his book Fooled by Randomness, retired investor Nassim Taleb offers this illustration: “If one puts an infinite number of monkeys in front of (strongly built) typewriters, and lets them clap away, there is a certainty that one of them would come out with an exact version of the Iliad.” Taleb acknowledges that the probability is “ridiculously low,” but he uses this idea to explain why we should never be too impressed by investors who manage to beat the market. In short, Taleb ascribes this to random chance. Each year, there will always be investment managers who end up way ahead, but there will be very few, Taleb points out, who are able to beat the market multiple years in a row.  Taleb’s book is 20 years old, but more recent data still confirm his argument. Each year, Standard & Poor’s publishes its “Index vs. Active” report comparing the performance of actively managed funds to their benchmarks. In any given one-year period, somewhat more than half of active funds underperform. But over longer periods, upwards of 80% or 90% of active funds lag behind. 4. Simplicity. Retired money manager Peter Lynch commented that investing “is both an art and a science,” but added that “too much of either is a dangerous thing.” To illustrate Lynch’s comment, I recommend the book When Genius Failed. It tells the story of a group of Nobel Prize winners who started a hedge fund based on highly quantitative strategies. While the fund was successful, their combined pedigree and early accomplishments led to an overconfidence in the system they’d built. The result was a financial meltdown so severe that the Federal Reserve stepped in to stabilize the situation. The lesson: While complex investment strategies may seem compelling, I believe simplicity for most investors most of the time is a more reliable strategy. For more on that point, you might like a book titled The Simple Path to Wealth. Another recommendation: Longtime journalist and investment manager Barry Ritholtz recently published an entertaining volume titled How Not to Invest. The book is a field guide to avoiding the worst of what he calls bad ideas, bad numbers and bad behavior. The idea is to keep things simple. What about Oscar Wilde’s comment that we need to learn through experience? There’s truth to it. In addition to this recommended reading, I suggest that investors—especially those just getting started—experiment a little. What should you buy? To answer this question, we can look to Albert Einstein. At one point in his life, Einstein owned a small sailboat which he named Tinef—German for “piece of junk.” Because it wasn’t very seaworthy, he often ended up on the rocks. But Einstein continued to sail the Tinef, even refusing a motor that a friend bought for him. He preferred wandering and exploring, even if it didn’t always end well. If you want to learn more about investing rather than by reading about it, I suggest taking a page from Einstein’s book. Explore a bit. If you have a favorite product, try buying the company’s stock. Interested in cryptocurrency? You could put a few dollars into one of the new bitcoin exchange-traded funds. In short, you might explore some of the investments that—according to the data—aren’t necessarily recommended. As long as the amounts are modest, I believe this is an effective way to learn. Adam M. Grossman is the founder of Mayport, a fixed-fee wealth management firm. Sign up for Adam's Daily Ideas email, follow him on X @AdamMGrossman and check out his earlier articles. [xyz-ihs snippet="Donate"]

WE WANT OUR STOCKS to behave like bonds, and our bonds to behave like cash investments. That leads to all kinds of portfolio contortions—some of them damaging to our investment results. Remember, risk is the price we pay to earn higher returns. Many folks want those higher returns, but they’re anxious to avoid risk. Chalk it up to loss aversion: We get far more pain from losses than pleasure from gains. Result? Think about stock-market strategies like purchasing equity-indexed annuities and writing covered call options. Equity-indexed annuities capture part of the market’s upside while guaranteeing against losses—assuming the buyer owns the annuity for long enough. Meanwhile, writing call options allows folks to collect extra income in the form of option premiums, providing a small buffer against market declines, but the price is a cap on potential stock-market gains. As investors look to limit losses, however, the biggest portfolio contortions tend to revolve around bonds, not stocks. The strategies employed typically involve favoring individual bonds over bond funds, and then holding those bonds to maturity. This can add a fair amount of complexity, especially if folks build elaborate bond ladders, with each rung designed to cover a particular year’s spending. No doubt about it, there’s some reward for this complexity. If we buy an individual bond and hold it until it matures, we know exactly how much interest we’ll receive each year and how much we’ll get back upon maturity. Sound appealing? My advice: Before buying into the notion that bond funds are riskier than individual bonds, and that holding individual bonds to maturity eliminates risk, we should ask ourselves four questions:

• Bailing early. Where’s the certainty if life intervenes, as it often does, and we’re compelled to sell our individual bonds before maturity? How easy will it be to sell the bonds in the secondary market, and could we receive far less than the bond’s par value?
• Worrying about pennies. If we’re willing to own stocks and run the risk of steep short-term losses, should we really get hot and bothered because we don’t know precisely what a bond fund will be worth when we’ll need our money back in, say, 10 years?
• No safety in numbers. Are we really reducing our financial peril if we trade the diversification of bond funds for the single-issuer risk of an individual bond? Is the added risk involved worth it, given that the return of an intermediate bond fund will likely be similar to that of an intermediate individual bond of comparable credit quality?
• Losing to inflation. Where’s the certainty in knowing that each of our individual bonds will be worth $1,000 upon maturity, but we have no idea what the purchasing power of that $1,000 will be?

To be sure, the risk of individual securities is reduced if we stick with Treasury bonds, which most experts believe carry scant risk of default. Worried about inflation? That can be addressed with inflation-indexed Treasurys and Series I savings bonds. Still, I’ve never owned an individual bond, except a $75 EE savings bond I won for finishing second in a 5k road race. Why not? I’m not that concerned that my bond funds might be worth a few percent more or less than I’d hoped when it’s time to cash out. Why would I? Heck, I’ve lived through two 50%-plus stock market declines during my investing career, so modest fluctuations in bond prices hardly seem worth the worry. Meanwhile, I simply don’t want the hassle and complexity of dealing with individual bonds, including Treasurys and savings bonds, and I sure don’t want to bequeath that sort of portfolio to my family. Given all the complaints I’ve read about dealing with TreasuryDirect, and especially cashing in Series I and EE savings bonds, I’m glad I made that choice. But many readers, I know, strongly disagree. Jonathan Clements is the founder and editor of HumbleDollar. Follow him on X @ClementsMoney and on Facebook, and check out his earlier posts. [xyz-ihs snippet="Donate"]