Winning the Loser's Game (5th Edition) by Charles D. Ellis

In the first chapter of Winning the Loser's Game, Ellis states that in a winner's game, the outcome is determined by the correct actions of the winner. In a loser's game the outcome is determined by mistakes made by the loser.

He sites the scientific study of professional tennis versus amateur tennis as an example. The scientist found that in professional tennis 80% of the points are won and in amateur tennis, 80% of the points are lost. Brilliant shots and exciting rallies are rare in amateur tennis. Instead the ball is all too often hit out of bounds or into the net, and double faults at service are very common. Rather than focusing on adding speed to the ball, and aiming closer to the line to improve the game and win points, amateurs are just concentrating on hitting the ball back and trying not to lose the point.

As a long time amateur tennis player, this analogy really hits home. Unless, I've got a big lead, I usually stick to the same game plan, and the outcome comes down to who makes the least amount of unforced errors.

Investing for retirement, however, is much more important than winning the weekend tennis match. So if your long term investment plan is well below your target, or if you are a new investor who has shied away from equities after the 2008 crash, you might want to pick up a copy of Winning the Loser's Game.

According to Ellis, there are 5 levels of investing:

1. Setting the overall investment strategy and asset mix;
2. Equity mix and proportions thereof;
3. Active versus passive management;
4. Specific fund selection;
5. Active portfolio management - selecting specific stocks and executing trades.

The further down the list you go, the more expensive and time consuming the investment strategy becomes, and the least likely to add value.

If your time horizon is long-term 20-30 years, there's no point in trying to time the market. Stick with low commission index funds and ETFs for the majority of the equity portion of your investments rather than focusing on winning stocks. In the long run, the time and money spent on stock picking and market timing is unlikely to add value to your portfolio, and may hinder the results.

The book discusses many aspects of investing including asset mix, risk, inflation, policy, and performance measurement. Always focus on the endgame as opposed to the short and near term market swings.

Super Trader by Van K. Tharp

Super Trader - Make Consistent Profits in Good and Bad Markets by Van K. Tharp is a four step program to help traders develop a business plan that will allow them to make profits in any market environment - bull, bear, and sideways.

The four step program involves:

• self assessment of personal beliefs that will determine your personal trader psychology;
• developing different trading systems to suit your personal trader psychology under different market conditions;
• understanding and incorporating position sizing into the trading system in order to manage risk; and
  
• developing a personal business plan to guide your trading success.

That may sound pretty simple however, in order to maximize trading performance under different market conditions, we need to track setups(systems) in a vigorous fashion. Do you have any idea what the ratio of expectancy to the standard deviation of R for each of your trading setups? Yeah, exactly. And how could knowing these stats make a difference in your trading? Well, if we take any random setup, we might determine that the setup has a much higher expectancy in strong bull trends, but a very low expectancy in sideways markets. So we want to develop different trading setups for different market conditions. Tracking market trends and applying the right setups will greatly enhance trader performance.

The book emphasizes matching trading setups with individual trader psychology. What does that mean? If your primary objective is capital preservation and you have a low tolerance for losses and draw downs, you'll want to focus your trading on setups with higher expectancy which will mean fewer trades. In order to develop a workable business plan, traders have to do the exercises in the book, including tracking setups with live trades in order to develop meaningful sample data. Once the business plan is complete, the trader has a road map to success.

Highly recommended!