Niche, or be niched. That is the subtext of The Passion Economy. The text focuses on eight rules for running a business with intense enthusiasm. Examples: Pursue intimacy at scale; only create value that can’t easily be copied; fewer passionate customers are better than a lot of indifferent ones; know what business you are in (it’s probably not what you think); and never be in the commodity business, even if you sell what other people consider a commodity.

The subtext (niche) is more interesting than the text (passion). For advisors, the biggest risk is to be in the commodity business, undifferentiated from the competition in value delivery and pricing. Adam Davidson, the creator of NPR’s “Planet Money” podcast, shows how advisors can thrive by leveraging a certain kind of intense passion. “Niching” may be the best hope for advisors: cultivating a segment of financial services that they can serve with intimacy, insight, attention, automation and, indispensably, passion.

Key Chapter

Chapter 2—“The Rules of the Passion Economy”

Key Takeaways

• You can never have a niche too narrow, but you can rush to your niche too quickly.

• Pricing is your value. Too often an afterthought, it should be at the very center of your business.

• You’re selling a story, and it better be a true one.

• At least once a year, go through your existing client base. You should expect to find that about 10% of your clients are no longer appropriate for the firm. 

• Realize that your pay may come in forms other than money.

The Biggest Bluff is, like Moneyball, a “sports” book that has become popular among investment professionals. The “sport” this time is poker, and even more than Moneyball, The Biggest Bluff is really about how to make decisions and how to discern value in places others aren’t looking. What started out as a stunt (can a 36-year-old woman with a doctorate in psychology but absolutely no experience in poker win a professional poker tournament?) morphed into a deep dive exploring themes of luck, randomness, self-mastery and decision-making that have only incidentally to do with poker.

The book recounts how Konnikova persuaded Erik Seidel, arguably the best poker player in the world, to teach her. What intrigued Seidel is the same pitch that will intrigue advisors: Konnikova wasn’t interested so much in the money as in seeing if poker could illuminate the fundamental question facing advisors: how to disentangle the skills (stock picking, market timing) from the luck (pure random chance).

The book’s most entertaining and maddening episodes recount Konnikova’s battle with the misogyny of the poker world. She is frequently the only woman at the table, and the men are keen to undermine her. It’s thrilling to see her use the men’s sexism against them. For example, she learns that men players are 6% more likely to bluff a woman. She watches their hands instead of their faces. Men hate to be seen losing to a woman; they tend to fold against a woman who shows strength.

Advisors will resonate to the book’s lessons about the attributes of success. The first attribute is knowing how to think: Focus not on the outcome but on the process. Process alone is the path to victory. Finally, a lesson all advisors will recognize: You need to lose. Losing is the only way to learn to win.

Key Chapter

Chapter 8—“A Storytelling Business”

Key Takeaways

• The equation of luck and skill is, at its heart, probabilistic. How could you ever hope to separate the random from the intentional?

• Can a deep understanding of the human mind win out over the mathematics and statistical wunderkinds of the poker table? It’s as much a test of life philosophy as anything else.

• Successful funds in any given year are mostly lucky. There is general agreement among researchers that nearly all stock pickers, whether they know it or not—and few of them do—are playing a game of chance.

• The benefit of failure is an objectivity that success simply can’t offer. If you win right away—if your first foray into any new area is a runaway success—you’ll have absolutely no idea if you’re really just that brilliant or if you got incredibly lucky.

Taxpayers fund the government. That must be true, right? The government has no money of its own. Wrong, says Stephanie Kelton, former chief economist on the U.S. Senate Budget Committee. The prevailing view has shaped the long-held understanding that deficits (the difference between what a government spends and what it takes in) are inherently bad and irresponsible. In The Deficit Myth, Kelton dispels six key myths to argue that public deficits can be healthy for an economy. For readers who experience heartburn from public debt (what the government owes to borrowers) soaring above 100% of GDP, economists who advocate Modern Monetary Theory (MMT) prescribe The Deficit Myth as an antacid.

MMT rejects the conventional view that taxpayers fund the government. Instead, the government funds taxpayers. The federal government is unlike households. The U.S. dollar comes from the U.S. government, and it can’t come from anywhere else—not legally, anyway. To make this point, Kelton asks us to join her in the board game Monopoly. “The game can’t begin until someone is put in control of the currency. The players don’t pony up the money to get the game underway.” Only when players receive $200 can the game begin to generate economic activity like buying property, paying rent and—wait for it—paying taxes. The bank can never go broke. The official rules of Monopoly actually say that if the bank runs out of game currency, “the banker may issue as much more money as may be needed by writing on any ordinary paper.” This is exactly how the U.S. Treasury and Federal Reserve Bank manufacture money and for exactly the same reason. In part, so people can pay taxes. 

Are deficits evidence of government overspending? Another myth. Suppose the government spends $100 into the economy but collects just $90 in taxes. We label the difference “the government deficit.” But just because we can name something doesn’t mean we understand it. The book shows that Uncle Sam’s deficit creates a surplus for someone else. “That’s because the government’s minus $10 is always matched by a plus $10 in some other part of the economy.” 

Households and businesses are users of money. Governments are issuers of money. All of Kelton’s arguments derive from this understanding. In tight chapters, the author dispels the myths that deficits are evidence of overspending; will burden the next generation; crowd out private investment; make the U.S. dependent on China and other countries; and that entitlements are propelling us to an unavoidable fiscal crisis. 

The Deficit Myth is an eye-opening book that will make readers reconsider some deeply held but perhaps unexamined beliefs about money and deficit. If you can join Kelton on this journey, her radically bold new understanding of how to build a just and prosperous society will resonate with you—a view she describes in the final chapter of the book. 

Key Chapter

Chapter 1—“Don’t Think of a Household”

Key Takeaways

• The idea that taxes pay for what the government spends is pure fantasy. The federal government itself—not the taxpayer—is at the center of the monetary universe and finances all government activity.

• Taxes are there to create a demand for government currency.

• Inflation is evidence of overspending. Nations such as the United States, Britain and Japan have low inflation despite high deficits.   

• Billionaires should be taxed not to fund the Treasury but to distribute wealth and income to protect the health of our democracy.

• MMT isn’t a blank check. It doesn’t grant us carte blanche when it comes to funding new programs. An analytical framework, MMT is about identifying the untapped potential in our economy.

There will come a day when a prospect wants you to know that it’s important to them that their investments be local.

For potential clients who care deeply about supporting the communities they live in and prefer shifting their buying, banking and investment practices to support locally owned businesses, investing in the stocks and bonds of Fortune 500 companies is a turnoff. Yet many advisors today cannot do much for these prospects. Most are well positioned to serve the wealthiest cohort, but few firms have the flexibility to serve younger investors of modest means who want to see their investments work locally. Until advisors position themselves to actually take on such clients, they can recommend this book. 

Michael Shuman is co-founder of Candide Group, an RIA that helps investors put their money to work for Main Street. Shuman is clear that patronizing local businesses and banks is good; there can be significantly more positive results when people invest locally. Furthermore local investors do not pay a penalty for doing so. Shuman demonstrates that returns for local investments are on the same order as more traditional investments. 

The core of the book introduces two little-known methods investors can use to invest tax-deferred dollars locally: the self-directed individual retirement account and the solo 401(k). The appeal of these two methods is that they can be done independent of a commercial bank or investment professional. Investors can make all the key decisions to keep their investments local.

In plain language, the book guides readers through the task of selecting a custodian, negotiating fees and navigating the myriad rules that govern these instruments. Like all IRAs, investors can take withdrawals at 59½ and must begin withdrawing funds at 70½. A website called The Next Egg puts in one place all the tools needed to create and apply these investments. 

Key Chapter

Chapter 5—“Introducing DIY Accounts”

Key Takeaways

• A good local investor must be a good investor in general.

• Faced with two investment opportunities, one local and the other not, each expected to deliver the same return and carrying the same risk, you should always choose the local investment, because you will enjoy a social return on top of your private return.

• Don’t just wait for local investments to come your way—invite them!

• If you have a self-directed IRA, the creation of an LLC gives you greater checkbook control over how your investments flow.

You think you know what money is. Your clients certainly expect you to. But do you, really? Jacob Goldstein, the co-host of NPR’s “Planet Money,” maintains that money is a social construct based on equal measures of want, need and innovation. For most of history, people equated money with cash or currency, and Goldstein does a great job tracing the many physical forms money has taken.

To the extent that cash circulates and is trusted, it’s because everyone in an economy agrees to circulate and trust it. In the 1830s, the U.S. had 8,370 different kinds of paper money in circulation. Merchants consulted a publication called Thompson’s Bank Note Reporter to determine whether a particular note presented by a customer would be redeemed for gold or silver. 

These days, money is almost a total abstraction, existing only in digital form in virtual bank accounts around the world. Economists estimate that only 8% of the world’s currency exists as physical cash. The book describes a growing number of nations where cash has almost totally disappeared. 

Innovation around money happens in fits and starts, often responding to crises in society. The best chapters in the book describe how the Federal Reserve System emerged from a series of crises or “panics.” The section on the gold standard is particularly instructive. The book reviews the evolution of such new forms of money as the euro and bitcoin. It concludes with a gloss on modern monetary theory as espoused by the economist Stephanie Kelton, whose latest book, The Deficit Myth, is represented elsewhere on this list.

Key Chapter

Conclusion—“The Future of Money”

Key Takeaways

• The social part of money—the “shared” in “shared fiction”—is exactly what makes it money. 

• For modern money to work—to have banks, and a stock market and a central bank—there needs to be tension. Investors, bankers, activists and government officials all need to be arguing over who gets to do what and when.

• We celebrate people who create jobs, but in the long run, we get richer by destroying jobs—by figuring out how to do the same amount of work with fewer people. 

• The way we do money now is undemocratic.

In the same way nature abhors a vacuum, the financial services industry abhors friction. Enter a group of innovators—Simon calls them misfits—who collectively introduce fintech solutions in response to the friction that banks, brokerages and ratings services have accepted as business as usual. Why was it so hard to move money from one individual to another? Enter Venmo. Why was it so hard to lend money to strangers? Enter LendingClub. Why was it so costly to wire money across international borders? Enter WorldRemit. Does creating investment allocations for clients really justify high fees? Enter the robo advisors Betterment and Wealthfront. 

All of these fintech apps could have been developed by the banks and brokerages. But the incumbents were too busy protecting their turf and fearful of cannibalizing their revenue streams. So the innovation, and billions of dollars in value, flowed to outsiders, often from startup founders who thought differently and couldn’t fit in typical corporate structures. In other words, misfits.

The Money Hackers dramatizes the development of eight fintech apps, introducing the founders and how they first encountered the friction in financial services and what they eventually did about it. These stories, well told and with illustrations, are the heart of the book. It teaches advisors to look less skeptically on the misfits toiling thanklessly in their offices. Listen to them. They may be onto something.

Key Chapter

Chapter 9—“The Empire Strikes Back”

Key Takeaways

• Recognize the opportunities the next wave of fintech disruptions will bring.

• Fintech apps demonstrate that stand-alone, single-purpose tools are better at their one task than multifunction tools. 

• Friction takes the form of time costs, high fees, lack of automation and central choke points.

• Follow the development of some of the larger-than-life characters behind the fintech movement.

Financial scams abound, and clients are not always the targets—advisors get ensnared, too. This book puts us on notice that it’s not just other people who get duped.

The truth is, we all make mistakes with our finances, especially when scammers weaponize greed. Don’t Fall For It explores some of the most sensational frauds and fraudsters in history. The goal of the book is twofold: to entertain and educate, and to help readers avoid making harmful mistakes. Each chapter examines different frauds, perpetrators or victims of scams. These engrossing, real-life stories include discussions of how these frauds were carried out and insights on spotting the six warning signs of fraud before you become a victim. 

This is a short, breezy read written by someone in the wealth management business. Ben Carlson is director of institutional asset management at Ritholtz Wealth Management. His descriptions of the conditions when fraud flourishes (Chapter 7) are eerily represented in the plot of The Glass House, the novel about a Madoff-like Ponzi scheme reviewed elsewhere in this list.

Key Chapter

Conclusion—“Six Signs of Financial Fraud”

Key Takeaways (the Six Signs of Fraud)

• The money manager has custody of your assets.

• There is an aura of exclusivity in the pitch.

• The strategy is too complicated to understand.

• The story is too good to be true.

• The returns are consistently positive.

• You are told exactly what you want to hear.

In 2013 the French economist Thomas Piketty released Capital in the Twenty-First Century, a blockbuster that argued that global inequality is baked into capitalism and will, inevitably, worsen unless stern measures are taken. Now comes Piketty’s Capital and Ideology, which, at more than 1,000 pages, could be twice as effective at half the length.

Piketty’s defense is that without such an exhaustive account of the ideologies that have sustained inequality in the past, those who are intent to combat inequality will be overmatched. As a result, readers get chapter after chapter of examples and data from societies around the world, past and present, demonstrating just what a formidable force inequality has always been. 

Piketty sees inequality as a social construct supported by human institutions. The major insight is that combatting inequality requires not technocratic nor economic responses, but a sobering confrontation with ideology and politics. If you like charts and tables and an index longer than some books, Piketty delivers more value per dollar than any other author.

Key Chapters

Introduction and Conclusion

Key Takeaways

• The solution to inequality is a “participatory socialism” in which capitalism is gradually abolished via a progressive income tax and a tax on inherited wealth. The proceeds are redistributed in the form of a basic income and a “capital endowment” for every citizen.

• The goal is to “make ownership of capital temporary.” Doing so achieves the “true social ownership of capital.” 

• With income and inheritance taxes set to tax the richest people on the planet at 60%-70%, it would be possible to finance a radically egalitarian economy.

• If society can’t sell its citizens on going along with a given kind of inequality, then that society is going to collapse.

First published in 2015, The Incredible Shrinking Alpha, is out in a new and expanded edition. If alpha—outperformance against appropriate risk-adjusted benchmarks—were shrinking in 2015, the lesson of the update is that sustained alpha today is practically impossible. Any apparent evidence to the contrary is luck. It’s worth revisiting this subject because proponents of alpha claim that recent volatility due to the COVID pandemic offers active managers opportunities to surface previously unidentified risk factors.

Nonsense, the new book argues. It is challenging to find active managers adding something that surpasses an appropriately factor-adjusted index. The authors offer four reasons: First, the amount of money chasing alpha has increased. Second, because alpha is a zero-sum game, the pool of counterparties that can be exploited has been shrinking. Third, as the competition is getting smarter, it’s getting harder to be better than average. Fourth, much of what we’ve called alpha over the years is really market beta.

Readers who want theoretical support for these assertions will find them in an excellent discussion of The Capital Asset Pricing Model, a construct that measures whether an active manager outperformed because of better stock selection and/or market timing versus simply lucking out by buying riskier stocks. The authors describe the three-factor model needed to tease out skill from luck. The bottom line: It’s virtually impossible today to beat the market when low-cost ETFs and mutual funds are available to emulate whatever secret sauce an active manager might advance. Going forward, cost control is the name of the game.

Key Chapter

Chapter 5—“Why Do Investors Ignore the Evidence on Actively Traded Stocks?”

Key Takeaways

• Alpha is outperformance against appropriate risk-adjusted benchmarks.

• When you combine a shrinking pool of sources of alpha, and a shrinking pool of victims, with an increasing supply of funds chasing alpha, the amount of alpha left to go around has been plummeting. 

• Investors should avoid active strategies, instead choosing “passively managed” (structured) investments.

• The surest way to win a loser’s game is to choose not to play.

The Glass Hotel begins and ends with the mysterious disappearance of a woman from a container ship at sea. The mystery is gradually explained by the fallout from a massive Ponzi scheme that touches each character. The novel illuminates some of the themes—trust, fraud, risk, hope, strategy—explored by the nonfiction books elsewhere on this list.  

Canadian novelist Emily St. John Mandel asks us to confront the fact that each of us is much less splendid than we think we are. The novel explores the porous boundaries between good and bad, greed and guilt, rich and poor and the realms of the past and present.

Much of the story is told through the eyes of Vincent, a young woman (named after the poet Edna St. Vincent Millay) who becomes the trophy pretend-wife of a recently widowed and extremely wealthy hedge fund manager. Jonathan Alkaitis also owns a hotel—the better to ensnare wealthy guests to invest in his fraudulent funds. Alkaitis is modeled on Bernie Madoff. WealthManagement.com readers will appreciate the skill with which the author describes the workings of the Ponzi scheme and how carefully cultivated greed alone kept investors from recognizing its manifest fraudulence. 

Alkaitis recounts his downfall from prison, where he is serving a life sentence for his crimes. It’s rare to get such a poignant perspective from a fraudster who recognizes his sins, yet reaches for some grace. Maybe that’s why, though his staff was equally criminal, Alkaitis insists in court that no one but himself was culpable. We hear from Alkaitis’ employees in a brilliant chapter called “The Office Chorus” how they view the inception and unraveling of the Ponzi scheme. We all think we’re good around the margins of the bad.

Readers of Station Eleven, Emily St. John Mandel’s previous bestselling novel, about a pandemic, will recognize some of the characters in The Glass Hotel. Read the novels in any order. Both are that good. 

Key Chapter

Chapter 14—“The Office Chorus”

Key Quotes

• “We had crossed a line, that much was obvious, but it was difficult to say later exactly where that line had been.”

• “Do you know what I’ve learned about money? I was trying to figure out why my life felt more or less the same in Singapore as it did in London, and that’s when I realized that money is its own country.”

• “There’s this other level, this whole other level of money, where it’s this whole other thing, like this secret game or something and only some people know how to play.”

• “‘It’s possible to both know and not know something,’ he said later, under cross-examination, and the state tore him to pieces over this but he spoke for several of us actually, several of us who’d been thinking a great deal about that doubleness, that knowing and not knowing, being honorable and not being honorable . . .” 

Has any client—anyone, really—asked you as an investment advisor how you invest your own money? Joshua Brown, the co-founder and CEO of Ritholtz Wealth Management, notes in his introduction that over literally thousands of TV show appearances, podcasts, and conversations, not one person has asked him how he invests his own money. This book, written with Brian Portnoy, founder of the Shaping Wealth financial wellness platform, asks 25 investment professionals to answer that elusive question. Given how private most people are about their finances, the result is a powerfully revealing glimpse into the financial practices of some of the most thoughtful wealth managers in the industry.

Commonalities quickly emerge. When dealing with their own money, advisors are aggressive savers, skeptical of debt, and keen to exploit programs such as Health Savings Accounts and 529 College Saving Plans. Advisors are much more focused on reducing taxes than on reducing fees. While there are exceptions, most advisors sharing their stories say that seeking alpha is simply not worth the effort. Other takeaways from these sometimes very moving stories: money scripts matter, money is an expression of identity, process trumps expertise, no one has to figure it out all alone, and, indeed, money can buy happiness. Most agree that it’s a mistake to hold too much cash and treating the personal residence as an investment.

Most of all, this book reminds us that advisors are human. Many of them came from families where money was a struggle. We learn that while many advisors know what to do, they often deviate from best practices. Emotion, we learn, operates within the beating hearts of investment advisors. 

Key Quotes

• “I would not hire someone to manage my money if they did not invest at least some of their own money the same way.”

• “Our goal isn’t to be coldly rational; just psychologically reasonable.”

• “I like being paid dividends, as a true stakeholder in a business should. I call it mailbox money”

• “What I soon came to believe was that dividends are the purest mechanism for shareholder return.”

• “I have yet to meet any person whose primary focus in investing is minimizing fees, who is also a happy, well-adjusted, enjoyable person to be around.”

• “I believe the quest to squeak out a few extra basis points of return is a waste of time for the typical Main Street investor, myself included.”

• “I wonder if the greatest trick the devil ever played on investors is making them think it is the investing part that matters most.”