Why musicians and other artists should care about investing. And what they should know.

These days, my album is in the final, final stages of production, so I don’t have much to write about with regard to my progress. For all intents and purposes, the album is done. All that remains for me to do is to finish recording a song called Water Under the Bridge and finalize mixing on all tracks. Then it’s off to mastering and replication and... who knows?

So let’s talk about something else... how about investing?

Still with me? Awesome!

I’ve been a bit of a stock geek since 1997, and whenever I bring up the subject of stocks or even finance in general with musicians I know, I am always surprised by how little they know or care or involve themselves in the subject. My blathering about P/E ratios, risk, dividends, load vs. no load mutual funds, etc. all draws blank stares and elicits the tell-tale fidgetiness of the bored. Maybe if all my investing moves had made me super rich, people would be more interested, but they have not. Or maybe it’s that I feel kind of self conscious talking about my successes, whereas I love to describe my failures in bloody detail. Regardless, let me take this opportunity to try to express in the best way possible why musicians (and everybody else, for that matter) should care about investing and what they should know.

Investing? Gawd, how boring. Let’s play some rock!

I disagree, investing is kinda cool, but that’s beside the point. Here’s why you should care:

- If you don’t invest, the best you can ever hope for in terms of thickening your financial cushion is to save as much as possible each month and reap the paltry rewards of bank interest rates (minus fees and other charges). At best, your interest payments will keep your money almost even with inflation; at worse, your money will lose value, a lot of value.
Consider: Right now, your best interest rate is going to be about 1%, most likely a lot less. And with inflation running at roughly 3%, every day your money sits in a bank account, it’s losing value. That said, if you’re simply not willing to take the risk of any sort of investing, putting money in the bank is better than nothing. Remember, though, nothing is risk-free, even in the good ol’ U.S. of A.

- If you do invest, you will have to accept some ups and downs, but several decades of data show that you will have a better chance of seeing your money grow if you invest it in stocks and bonds than if you do not. You will also have to be willing to part with your money for awhile and to be willing to the stay the course when the market tanks. It is not easy.

But where should invest? In what? With whom? Can’t we just play some rock?

Luckily, this is easy. Based on the many books I’ve read (see below), there are only a few things you need to know, especially if you would rather rock than parse the mysteries of the market.

1) Invest in index funds. You should choose “no load” funds that offer an expense ratio of less than .5%. Vanguard is by far your best source for such funds. Index funds simply track groups of stocks and are considered passive in that no one is actively picking stocks for you. Over time, index funds consistently beat managed funds (funds in which a money manager actively buys and sells individual stocks and/or bonds).

2) Diversify. In other words, don’t buy all tech stocks or all oil. Also, don’t put all your eggs in the US basket. My suggestion is would be to allocate some money to other parts of the world (there are index funds and ETFs that let you do this).

3) Talk to a financial planner (someone who will help you set goals and educate you on how to reach them) and who charges by the hour and NEVER hire a financial manager (someone who will invest your money for you). No financial manager worth squat will be available to you unless you have $30 million or more to invest, and even then, I wouldn’t do it.

4) Above all, do not try to time the market and do not buy individual stocks UNLESS you are willing to devote a lot of time to your efforts. If you can’t read a balance sheet, can’t be bothered with stuff like P/E ratios, PEG, P/S ratios, yield, cash per share, debt per share and on and on and on and on, STAY AWAY FROM THE THE CASINO OF INDIVIDUAL STOCKS. And it is a casino, more fun than Vegas, I think, and more dangerous because you are playing with real money (if you’re not investing at least $1000 per stock, forget it, your transaction costs (costs per trade as a percentage of your total trade) will be too high.

5) For a service, call Vanguard. Don’t bother with anyone else, I’m very serious about this.

Further reading.

If you are willing to head my advice and buy only index funds through Vanguard, there is only one book you should read. It’s called The Wall Street Self-defense Manual: A Consumer's Guide to Intelligent Investing, by Henry Blodget, and it will make you feel very, very good about your decision to pursue a passive investment strategy based on low-cost index funds. Henry Blodget is a crisp, clear, entertaining writer who speaks from experience and from the heart (cynical, though it may be). Follow Henry’s advice and be done with it. Spend your time writing songs, practicing, reading about the music business -- not picking stocks.

Also, remember, you are the best investment you can make. Invest your time and money in things you think will earn you a return on your dreams (gear, studio time, travel, a wedding ring for your significant other, fitness, etc.).

Below, is an abbreviated list of the books I’ve read on investing. Only consider reading them if you are willing to become like me (not recommended): more than a little obsessed with stocks, willing to pay for good research (Next Inning and Motley Fool Stock Advisor are the only two I can personally recommend, but beware, The Motley Fool will BURY you with marketing spam and lots of other shit, very off-putting, but their advice is good,  I think) and checking stock prices on your phone several times a day when the market is open.

The Snowball, by Alice Schroeder
The best book written, so far, on the greatest investor in history. Main thing you’ll learn: you’re not Warren Buffett -- and probably don’t want to be.

Fooled By Randomness, by Nassim Nocholas Taleb
I don’t think I finished this, it’s awfully technical (for me). Main thing you will learn: the patterns that Wall Street claims to see are not patterns at all, but random series of events.

The Black Swan, by Nassim Nicholas Taleb
I read this pretty fast, but was annoyed the whole way through by Taleb’s smug arrogance and shitty writing. Main thing you will learn: the thing no expects will happen, happens.

The Warren Buffett Way, by Robert Hagstrom
I read this when I first started investing and it remains a solid read, but... Main thing you will learn, you should have read The Snowball instead.

Buffett, by Roger Lowenstein
Considered to be the definitive book on Buffett. Main thing you will learn: The Snowball is the definitive book on Buffett.

Reminiscences of a Stock Operator, Edwin Lefevre
Great fun and packed with the amazing language of time long gone. Like watching an old movie. Main thing you will learn: you can make a LOT of money as an obsessive stock watcher; you can also lose a lot and if you can’t deal with it, you shouldn’t bother with the whole game.

Investing. The Last Liberal Art, by Robert Hagstrom
Being a liberal arts major, I had to read this and I am glad I did. Main thing you will learn: investing can truly be a liberal art, as you seek to learn about all sorts of things (concrete usage in China, advances in nuclear power, Moore’s Law) and draw parallels and conclusions that lead you to purchase certain stocks or ETFs.

The Zurich Axioms, Max Gunther
A blast to read but dangerous. Main thing you will learn: there’s no such thing as investing, it’s all speculation. Also, play for meaningful stakes, and you will only really learn anything when you bet real money.

Mad Money, Jim Cramer
A disorganized, unpersuasive tome of tripe. Main thing you will learn: JIm Cramer is good at selling books.

Buffetology, by Mary Buffet, David Clark
Claims to explain Warren Buffett’s stock picking secrets. Main thing you will learn: should’ve read The Snowball.

The Essay’s of Warren Buffett, by Warren Buffett
A collection of the annual letters written by Buffett to Berkshire hathaway shareholders. Main thing you will learn: Buffett can write clearly and well about deeply complex stuff, making it all seem quite clear -- if still a bit over your head.

The Intelligent Investor, by Benjamin Graham
Benjamin Graham taught a young Warren Buffet about investing and Buffett has called this book “the best book on investing ever written.” Main thing you will learn: it’s not about making money, it’s about preventing loss. Plus, investing “intelligently” is mind-bendingly hard work.

Against the Gods: The Remarkable Story of Risk, by Peter L. Berstein
Making money in the stock market and countless other markets, is basically all about how much are you willing to risk and what’s it worth to you based on your assumptions of what you could earn should things pan out the way you expect. This incredible book tells the tale of how people learned to measure and control (to some extent) risk. Main thing you will learn: the whole concept of risk management is new and remains a very, very thorny problem.