I Unpacked My Library and Rediscovered an Important Stock Market Lesson
In a digital age where everything lives in the cloud, I’m doubling down on physical books. Here’s why — and what 20 years of data revealed.
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As I unpack the last of my library after a move from Denver to Austin, the shelves are filling again. Every spine triggers a memory. I remember not just the title, but the specific insights each book delivered. The funny thing is that surrounding yourself by books reaps continual dividends.
I have an eclectic library of books on a wide range of topics including leadership, decision-making, financial derivatives, technical analysis, real estate, philosophy from Epicurus and Marcus Aurelius to Karl Popper, Voltaire, and Carl Jung, marketing, systematic trading, statistical analysis, psychology, physical health, and a deep collection of Judaic and Torah texts.
Some volumes are rare and signed by the authors, others are simply the ones that survived repeated culls because they still deliver long-term value.
I have been an avid reader and journaler for decades. My handwritten journals — reams of them — cover problem-solving, personal philosophy, business decisions, investing, trading, and logic to solve investor issues.
Looking at the physical books does something electronic storage never can: it resurrects the knowledge.
The ideas come alive again through proximity and recognition. Having the books around you creates a quiet form of osmosis, but only if you have actually read them and continue to apply what they contain.
I am ruthless about what stays in my library.
Books with short shelf lives get donated or sold. The keepers are the ones with permanent meaning. I underline, highlight, and write in the margins of the ones that matter most. After multiple moves and culls, fewer and fewer leave the collection. Each time I place one on the shelf, the knowledge returns.
While unloading my library, I ran across reams of paper with all of the details of a large research project I undertook while everyone was running for cover due to the Covid outbreak. It was spurred by my books, so I wanted to unleash my primary research muscle to get answers to questions I wanted to learn first hand to improve my process of trading and investing.
The Covid Return and Risk Research Project
During the early months of Covid I made a conscious decision to dig deeper into research I had long wanted to complete. One major project involved the entire Russell 3000 universe of stocks, one by one. I spent a couple of months examining what return-and-risk profiles were actually possible across different time horizons — one month, three months, and one year.
I defined risk in units of average true range over the relevant horizon so everything was measured consistently. The period I studied ran over nearly 20 years of data, ranging from January 3, 2000 through December 31, 2019. The results were sobering.
For anyone who has listened to the more aggressive claims floating around the industry proclaimed by traders and investors boasting about their systems, the data fully and clearly shows that many advertisers of systems and trading schemes are truly full of hot air blowing smoke.
I looked at the range of optimal trades one could make in stocks over various time frames. For example, what was the maximum achievable reward-to-risk over a one-week, one-month, three-month, or one-year holding period? What were the distributions and how accurate would your model need to be to achieve various return-to-risk ratios?
What the data showed is that you must be an excellent forecaster, way above average in order to hit that fabled target of 3-to-1 reward/risk ratio. It also showed that some of the giant return-to-risk ratios advertised were a truly rare outcome.
For example, getting a 15-20 times risk appears roughly once every 10 years in a given stock. The 50th percentile — a “good” trade if you somehow managed to capture it perfectly — was 2.28 times risk. Claims of consistently capturing three times risk look optimistic when you see that you fail to reach that level more than half the time under random conditions. Even strong fundamental work that produces 60% accuracy is already exceptional.
When I filtered for long-side breakouts on various time horizons, the picture improved. A solid filtered trade could reach about 4.67 times risk. A handful of outliers stretched to 16-18 times. Those big winners matter disproportionately. If you truncate them early, you forfeit the very outcomes that allow a strategy to pull ahead of the indexes.
Another key finding is that if you try to manage risk tightly, your accuracy will go down significantly and you will be pulled out of a lot of great investments. Cutting risk tight usually ends up making your percent profitability less than or equal to 38% of the time being right on a profitable trade. Tight risk truncation increases the number of losers — that is simply the nature of the distribution. Positions that get stopped out on volatility often recover later. Without a clear re-entry process, you miss the move.
Beating buy-and-hold without leverage is difficult. Once a portfolio holds 30, 40, or 50 names, it begins to behave more like the market itself. Concentration and disciplined risk control become essential if the goal is meaningful outperformance.
The work reinforced my conviction in systematic approaches built on factors that have worked over long periods — quality, dividend growth, and technical momentum, among others. Maintain enough diversification to manage risk, but not so much that the big winners are diluted into irrelevance.
Knowledge, Consistency, and the Books Themselves
A professor I once watched put it cleanly: the primary driver of success is knowledge. The next is how consistently and frequently you apply that knowledge. Quantity and quality of knowledge matter, but so does the habit of returning to it.
Physical books support both. They sit in plain sight. They remind you. They make it harder to drift. Digital files disappear into folders and forgotten drives. The tactile presence of a well-chosen library keeps the ideas circulating and the discipline alive.
My practical recommendation is simple. Buy more books. Read the ones that carry lasting value rather than temporary noise. Keep the keepers close. Write in them. Return to them. The combination of durable knowledge and consistent application is one of the highest-leverage edges available to any investor or trader.
The shelves are almost full again. The knowledge is coming back online. That is worth more than another terabyte of storage.
I’d love to hear your comments. Do you love books? What books mean the most to you and why? How has having them around you improved your life and your finances?
