Title: Oblivious Investing: Building Wealth by Ignoring the Noise
 

Author: Mike Piper
 

The Premise

Told as a parable-like tale, Oblivious Investing introduces you to Shannon, a young woman in her 20s who wants to start investing her money but doesn't know how. She decides to contact her financially savvy Uncle Toby for advice, and he proceeds to lay out the tenets of what he calls "oblivious investing."

At 113 pages, not including appendices, Oblivious Investing is a pretty quick read. In fact, you can learn almost everything you need to know about Oblivious Investing from the four-page Introduction. The rest of the book exists to attempt to walk the audience, the newbie investor, through some of the questions, mistakes, doubts, trials and tribulations of someone starting out in personal investing.
 

How Oblivious Investing works (from the Introduction)

The "simple, two-part strategy" Piper proposes:

1. "Invest heavily in stocks via diversified, low-cost mutual funds."
2. "Hold onto those funds for decades at a time, ignoring all the short-term fluctuations in the market." (p. 3)

This is also known as the "Buy and Hold" strategy, which is a fairly well-known investment strategy. As Piper notes, Oblivious Investing "isn't exciting. It isn't original. It is effective." (p. 3)

How can the oblivious investor be so sure of this strategy? Piper suggests that such confidence comes from a study of the stock market's historical performance. You may be familiar with the disclaimer, "past performance is not an indicator of future results." You might be wondering, then, why we should pay attention to the past performance of the stock market in order to determine why oblivious investing should work.

The difference, Piper argues, is that we're looking at the stock market as a whole, not just at a single stock or a single mutual fund. He writes that the best way to determine a good investment strategy is to study what has and hasn't work before. By doing so, he says, we learn the following:

1. Over short periods of time, stock returns are extremely volatile and unpredictable.
2. Over longer periods of time, however, this volatility decreases substantially.
3. Over a long enough period of time, stocks (as a group) have nearly always outperformed bonds.
4. Inflation – almost unnoticeable over a period of just a few years – has a very significant impact over an investor's lifetime.(p. 2)

But if Oblivious Investing is just a fancy name for the age-old "Buy and Hold" investing strategy, why did Piper write this book? Why does he feel it necessary to explain something as simple as "have a diversified investment portfolio and hold it for a long time"?

Well, because, Piper purports, Oblivious Investing can be a lot harder than you might think. It requires you, the investor, to block out all of the "noise."

If you follow the Oblivious Investing strategy, you have to figure out how to ignore news about how poorly the stock market did today, this month, or this year. You have to ignore people telling you how great this or that new stock is. And, possibly hardest of all, you have to ignore people (including friends and family) calling you crazy for ignoring all of the stuff that you're ignoring. All that matters to the long-term, oblivious investor are the four lessons listed above. (p.4)
 

What does Piper get right?

One of the things that I especially like about Oblivious Investing is how easy to understand it is, without being patronizing. Piper's character, Shannon, asks many questions a new investor might need or want to know, and her Uncle Toby is more than happy to answer them.

Oblivious Investing was published in 2009, which means that Piper takes the 2008-2009 Recession into consideration as he lays out the oblivious investing strategy. He uses the Recession as an example of the kind of noise you might get in the course of your long-term investment plan.

He also uses the Recession as an example of how investing automatically through a downturn can benefit you (this is called dollar cost averaging) by jumping a few years into Shannon's future to see how her Obliviously Invested portfolio has worked for her.
 

What does Piper get wrong?

The biggest issue with Oblivious Investing is that it is a strategy for long-term investing success that is based on an assumption. Oblivious Investing is based on the assumption that the stock market will continue to function, on a basic level, as it has always functioned.

Is this assumption wrong? We can't know.

Does the fact that Oblivious Investing is based on an assumption mean that you shouldn't follow the principles and tenets laid out by the author? No. If we assume that the stock market will continue to function as it has always functioned, Oblivious Investing is a solid investment strategy. Much more reliable than picking individual stocks or trying to beat or time the market, Piper argues repeatedly in "Part Two: The Noise."

It's true that Oblivious Investing is an investment strategy based on an assumption about the future performance of the stock market. More importantly, however, is that every investment strategy having to do with the stock market makes the same assumption.

The important thing to recognize is that the assumption exists, and there is no guarantee that it will hold true. That is the risk you take in investing in the stock market.

Piper's thesis is this: if the stock market performs the way it has always performed, Oblivious Investing is a smart strategy for building wealth.
 

So what makes Oblivious Investing different or better than one of the other thousand personal finance books out there?

The best thing about Oblivious Investing is the straight forward way the concepts are laid out and explained. If you read Oblivious Investing, by the time you are finished, you should have a solid understanding of the "Buy and Hold" strategy for growing your money by investing it in the stock market, and some good tools to drown out "the noise." Piper also does a good job of explaining investment risk and the various ways you can deal with risk.

I have read no other book on investing that has explained so clearly and so thoroughly the basics of "Buy and Hold" investing, including the common questions and challenges that all new investors have.
 

Conclusion

The engaging and straightforward writing style makes Oblivious Investing a quick, informative read. If you wanted to get one book that would get you started on understanding Investing without overwhelming you with information, Oblivious Investing is the book I would suggest… after completing the Education Cents course on Saving and Investing of course. :)