Investment guides come and go, but the best advice stays the same

John Maynard Keynes © Getty images
John Maynard Keynes: money is not an end in itself

New year, new financial you. If you have spent the past few days determined to improve yourself with a good book on financial advice, you are clearly not alone. You also wouldn’t have been alone at almost any point in the past 300 years. Over this period, books about money — spending, saving and multiplying it — have likely sold more “than any other subject after religion”. So says the introduction, quoting historian Lendol Calder, to a neat little leaflet called The History of Financial Advice: Finders Guide. You can pick this up at Edinburgh’s Library of Mistakes and then spend a few happy hours wandering through the books mentioned within.

Start in the 18th century with the stockmarket in its infancy (think coffee houses) and flick through Richard Hayes’ The Broker’s Breviat (1734), one of the first books aiming to be a practical guide to “stocks, bonds, annuities, any number of shares and lottery tickets”. Then, try Thomas Mortimer’s Every Man His Own Broker (1761), one that really got the genre going. It educates and flatters the reader at the same time, says the Finders Guide, offering the promise that a “secret world will be laid out for the reader. All they have to do is buy the book.” The 19th century follows this lead.

In the UK there were specialist books about how to invest in railways; in foreign public debt; and in “working foreign mines”, one of which Benjamin Disraeli knocked out anonymously. In the US, there were more. Mix up any combination of “plain truth”, “secret of success”, “art of”, “Wall Street”, “investing” and “fortune” and you will have discovered a 19th century book title.

Come the 20th century, things get a bit more complicated. There’s a divergence of stockmarket philosophies between those who believe in fundamental analysis (valuations) and those who believe in technical analysis (patterns and indicators). But still the books keep coming — hundreds of them — and with remarkably similar titles to those of the previous 100 years. The year 1929 was barely a blip on the publishers’ schedule, and by the 1970s — my favourite era of financial advice books, when some 30% of Americans held equities — it really was boom time for money books.

“Can you afford to be without this man’s advice?” asked the blurb on the back of Howard J. Ruff’s How to Prosper During the Coming Bad Years (1979). The long-term answer turned out to be an emphatic Yes, since Ruff carried a portfolio jammed with gold and tinned food into Paul Volcker’s inflation-killing tenure at the Federal Reserve. But at the time, many tens of thousands of people thought it was No. How to Prosper was a bestseller several times over.

The Finders Guide is part of a project called The History of Financial Advice, in which three academics have read 300 years’ worth of financial books, “so you don’t have to”, they say. Having done so, they ended up with one clear question. Given that the books mostly say much the same thing, have said much the same thing for 300 years and that there is precious little evidence that the “how-to-beat-the-stock-market” genre in particular offers any value at all, why are so many money books bought?

Peter Knight, a professor at the University of Manchester, Nicky Marsh, a professor at the University of Southampton and Dr Paul Crosthwaite at the University of Edinburgh reckon it is all about using them to create fictions about the future. The very act of buying books such as these help us “refashion our own identities”. It gives us the gratifying, if temporary, sense that we are the kind of people who are equipped to deal with speculation and money, whether you read the book and act on it or not — the kind of people who can take control. Money books, says Dr Crosthwaite, are bought as “ self-help books”.

Take a look at the back of How To Make Money in Wall Street (1974) by “television’s top financial expert”, Louis Rukeyser. “Many people are afraid of Wall Street”, it says. “They wouldn’t think of investing in stocks and bonds because they… have no confidence in their abilities to decide for themselves and can’t understand the money markets anyway. Are you one of those people? If you are, you need to read this book.” We buy these works for the same reasons we buy multiple diet books, when one reasonable one would surely suffice. The good news is that, while I haven’t read all the 300-odd books the academics have, I have read a lot of them. And I can distil much of it down for you, so that you can skip the buying, reading and short-term self-esteem-building bit yourself.

First, buy stocks that represent high-quality companies available at reasonable prices. Then, sell them when that is no longer the case. Ignore your emotions as you do this. As George Goodman put it in The Money Game (1968): “The stock doesn’t know you own it. All those marvellous things or all those terrible things that you feel about a stock or a list of stocks or an amount of money represented by a list of stocks, all these things are unreciprocated by the stock or the group of stocks.”

Second, ignore short-term predictions. Here’s Rukeyser on making them. “The only guarantee I can make is this: it will sometimes be right.” Third, diversify. T.S. Harvey in What Shall I Do With My Money? (1849) says: “Let not any rest content with merely one safe investment.” Fourth, remember few fortunes are easily won. “Just remember that there are only two kinds of people in Wall Street: those who have made mistakes of their own and the liars”, cautions Rukeyser.

Fifth, watch for other people’s incentives. They are rarely the same as yours. Beware the man who wants “you to be constantly changing the situation of your own money”, says Mortimer in his 1761 classic. That change is unlikely to be to your advantage — overtrading never is. Sixth, don’t get obsessed. Know whether to “take the Game or leave it alone”, says Goodman. “There are many other and more productive outlets for time and energy.”

And, finally, remember that money is a tool for living a good life, not an end in itself. Here’s John Maynard Keynes making one of his many forecasts about our better futures in 1930: “The love of money as a possession — as distinguished from love of money as a means to the enjoyments and realities of life — will be recognised for what it is… one of those semi-criminal, semi-pathological propensities which one hands over with a shudder to the specialist in mental disease.” Happy new year.

• This article was first published in the Financial Times.