I am quite engaged in the CFA Institute Research Foundation, which is a great resource for investment practitioners to learn about investing. The discussions we have time and again are focused on the best media to deliver content to our readers. There is a clear trend towards consumption of information through digital media and away from reading. While those who do read, continue to do so for about 1.5 hours a day on average according to the US Time Use Survey, the percentage of people who read on an average day continues to decline in all age groups. Despite the protestations of grumpy old men like me, it is not just Millennials who switch from reading to watching videos, podcasts and webinars. The main reason for this trend is that watching a video or listening to a podcast takes less time than reading a book or a paper and is often more entertaining.
But with the increased consumption of “concentrated information” like summaries of books, videos or podcasts, people no longer take in peripheral or auxiliary information that provides a deeper understanding and context. This is a shame because in my experience, it is this seemingly redundant information that turns you into a better investor.
Take for instance the education of investors. The CFA certification is a globally recognized certification for investment professionals. The certification requires students to pass three pretty tough exams that test them on a large body of knowledge. In order to study for the exam, one has to read a curriculum of books and papers comprising more than 1,000 pages – or one can buy summaries of the curriculum from commercial vendors which are about one fifth of the length. Back when I took my CFA exams, I was part of the tiny minority of students who did not use the commercial summaries but worked through the full curriculum. And I didn’t regret it because I could easily answer exam question that other students thought “came out of left field”. Instead, these exam questions simply covered peripheral knowledge that was not covered in the summaries but in the full curriculum.
Throughout my entire career, this peripheral knowledge has provided me with a competitive advantage as an investor and researcher. After all, if your goal is to beat the market with your investments, you have to do something different than everybody else. But if you only know the core body of knowledge that everybody else knows, how are you supposed to come up with ideas that set you and your investments apart? All the great investors I know read a lot because they have such an intense passion for investments and markets that it has become a lifestyle for them. And as I have explained in a previous post, they don’t just read about the latest market developments, they read far and wide in and around their field of expertise.
Traditionally, a lot of successful investors read a ton of material every day. So, reading was a necessary condition for being successful as an investor but not sufficient. As people read less, it becomes increasingly a competitive advantage for those people who read a lot. Studies show that the medium you read influences your ability to comprehend and retain information. If you read a paper book, you understand the contents more and can recall them better than if you read the same text on an ebook or as a pdf on your computer. Similarly, listening to an ebook or a podcast is inferior to reading a text because we remember less of the content after a short while. Thus, reading books and papers in physical form rather than digitally (or listening to a brief summary of the contents) helps you build your crystallized intelligence. And the interaction between your fluid intelligence and your crystallized intelligence is what makes you innovative and gives you a competitive advantage.
Percentage of Americans who read for leisure
Source: American Time Use Survey.