Dollars and Sense: How We Misthink Money and How to Spend Smarter
Dan Ariely and Jeff Kreisler
Harper Collins, 258 pages, $27.99

When it comes to managing money, most of us are stupid. That’s the sad but persuasive lesson of this book. For advisors, the book offers some tips for dealing with clients who are convinced they’re rational stewards of their money. But it doesn’t let advisors off the hook. It turns out that experts routinely make the same money mistakes as rookies. The book’s major contribution is helping readers calculate opportunity costs: the benefit of an investment compared to other valuable ways the money could be used. That’s the best way to think about any spending or investment decision. One key takeaway: clients discount the future less when it’s described as a specific date on the calendar. For example, if you want a client to really invest in their own retirement, it’s far more effective if you suggest they plan for retirement on, say, December 15, 2048 instead of “30 years from now.” Dollars and Sense is a book that advisors can recommend to clients who need a lesson in how to think about money. Read it before they do.

Getting Back to Business: Why Modern Portfolio Theory Fails Investors and How You Can Bring Common Sense to Your Portfolio
Daniel Peris
McGraw-Hill, 294 pages, $32.00

It’s difficult to overestimate the importance of the Modern Portfolio Theory, a framework created in 1958 that with mathematical rigor took investing out of the dark ages. This book takes the heretical position that after half a century, MPT has outlived its usefulness and is leading both retail and institutional investors astray. The biggest criticism that Daniel Peris, Senior Portfolio Manager at Pittsburgh-based Federated Investors, levels against MPT is that the framework as it has evolved encourages speculating in prices rather than investing in businesses. Peris is all about dividends. Getting Back to Business argues that investors should judge investments by distributable cash flow—how much real cash money each investment generates. Peris makes a compelling case on how MPT is a failed investment paradigm because it’s a theory of numbers for people interested in numbers, rather than a theory of business investment for people interested in business. Investors, he suggests, are better served by ditching MPT and its focus on capital gains and concentrating instead on income generation through distributions. The conclusion says it best.

The Trust Mandate: The Behavioral Science Behind How Asset Managers Really Win and Keep Clients
Herman Brodie and Klaus Harnack
Harriman House, 207 pages, $99

This professional book attempts to answer a question that has vexed every advisor: why does a client choose one asset manager over another, especially when the two are, on paper at least, almost indistinguishable? Yet, distinguish is what clients do every time they make a decision. In The Trust Mandate, the authors investigate the drivers of these selection decisions. They quickly dismiss the familiar follow-the-money rule, the theory that past performance explains the flow of assets to and from asset managers. The book cites repeated research covering the period 2006 to 2013 to demonstrate that the top performing managers were not the ones who attracted the most assets. The same goes for termination decisions. So, what is the main question that the selector hopes to answer? The question, the authors suggest, goes to the literal heart of trust: “How can I be assured that on any given day you have my best interests at heart?” Ability is rarely an issue at this point. Clients want to be convinced the manager is both willing and able to act in their interests. The book considers how asset managers can construct high-trust relationships one decision at a time.

The Warren Buffett Shareholder: Stories From Inside the Berkshire Hathaway Annual Meeting
Lawrence A. Cunningham and Stephanie Cuba
Harriman House, 225 pages, $24.99

A thousand years from now, archeologists will speculate on the influence of the mythical figure named Warren Buffett. The evidence will be fragments of thousands of books spreading his wisdom. The 2018 list includes two books about Buffet. If, like me, you’ve always wondered about what it’s like to attend the legendary Berkshire Hathaway Annual Meeting but never made it to Omaha, The Warren Buffet Shareholder may be the next best thing. The book collects dozens of short essays on the company’s annual meeting, written by investors, analysts, partners, journalists, and celebrities such as Vanguard’s John C. Bogle. If you’ve worried that you’ve missed something life-changing by not attending, this book provides the answer: You have. Has there ever been an enterprise whose stakeholders have teamed up to write a book celebrating their shared experience? And the reason can be summed up in two words: Buffett and Munger (though it really comes one word). All the essays remind readers of Buffet’s simple investing philosophy: know the difference between price and value, asset allocation, diversification versus concentration, and the commitment to near-permanent ownership.

Invested: How Warren Buffett and Charlie Munger Taught Me to Master My Mind, My Emotions, and My Money (with a Little Help from My Dad)
Danielle Town and Phil Town
William Morrow, 336 pages, $24.99

When advisors want to educate clients on the fundamentals of investing as inspired by Buffet and Munger, this book is a good resource. Danielle Town is the daughter of celebrated financial author Phil Town (Rule #1 and other investment bestsellers). Despite this, she says she managed to grow up without learning a single useful fact about managing money. After burning out as a lawyer, Danielle realized her financial life was as bankrupt as her career. She determined to regain her financial freedom and with the help of her father, Danielle developed a 12-month program to practice the principles of value investing handed down by Buffett and Munger. As a guide to learning the fundamentals of investing, Danielle is a humble and accessible companion. Along the way, the reader learns with Danielle that investing doesn’t have to be fearful or complicated. In truth, the hard part is mastering one’s emotions and identifying the values that focus each investor’s program for financial independence. This may make for a good gift for clients with kids.

Factfulness: Ten Reasons We’re Wrong About the World – and Why Things Are Better Than You Think
Hans Rosling
Flatiron Books, 352 pages, $27.99

Advisors deal in facts. Some financial professionals may believe that they have a little better grasp of the facts than their clients. In Factfulness, the Swedish statistician Hans Rosling suggests that experts such as financial advisors overestimate their ability to discern a reliable, fact-based worldview. In fact, experts are as vulnerable to the same basic instincts that prevent people from seeing the world as it is. These instincts range from fear (we pay more attention to scary things), the availability heuristic (we pay more attention to facts that are readily at hand), the size instinct (standalone numbers often look more impressive than they really are), to the gap instinct (most people fall between two extremes). Take the news media, by focusing exclusively on disasters and failures, it distorts the reality in almost all areas—from crime rates to maternal mortality to poverty—conditions around the world are indisputably improving. Newspapers could have in fact run the headline, “Number of People in Extreme Poverty Fell by 137,000 Yesterday,” every day for the past 25 years. But they never do.

Capitalism Without Capital: The Rise of the Intangible Economy
Jonathan Haskel and Stian Westlake
Princeton University Press, 278 pages, $29.95

There is nothing more dangerous to advisors than never questioning assumptions and lazily relying on what they already think they know. Capitalism Without Capital deserves a place on this list because it compels advisors to reconsider what seems like a settled question: the difference between tangible and intangible assets. By showing that capitalism can be measured without counting up all the capital, the authors demonstrate that an intangible-rich economy behaves differently from a tangible-rich one. If that sounds academic, they ground the thesis in the real world, such as explaining why companies like Uber, which controls neither profits nor tangible assets, is so appealing to investors. Chapter 4 discusses the four distinguishing S’s of intangible capital—Sunk costs, Scalability, Synergies, and Spillovers. The four S’s are a useful way to see the evolution of a new economy and its impacts. The recent and worrying concern about income inequality is predicted by the growing importance of intangibles. Why are traditional banks gradually losing influence? Why haven’t historically low interest rates spurred more economic growth? Capitalism Without Capital points to some answers.

The Geometry of Wealth: How to Shape a Life of Money and Meaning
Brian Portnoy
Harriman House, 194 pages, $19.99

If only wealth management obeyed the laws of geometry. Using triangles, circles, and squares, Portnoy diagrams the postulate that shaping a life of money and meaning can be as neat as a Euclidian proof. To be fair, Portnoy is less interested in maximizing his utility than in laying out a philosophy of how money figures into a happy life. His key insight is that wealth, properly defined, is “funded contentment.” The book suggests we are wealthy when we accept self-stewardship of our conception of wealth instead of outsourcing the definition of success to the culture at large, which always points to those who have even more. This leads to an unsatisfying spin on the hedonic treadmill. Chapter 6 (Setting Priorities) makes good points on investment goals (be less wrong), retirement (a flow goal, not a terminal goal), and the concept of nest eggs (a distraction).

Thinking in Bets: Making Smarter Decisions When You Don’t Have All the Facts
Annie Duke
Portfolio/Penguin, 231 pages, $26.00

As champion poker player Annie Duke reminds us: A bet is nothing more than a decision about an uncertain future. It’s the same with investing. In both cases, decision makers have incomplete information. In both cases, it’s difficult to learn from past decisions because some cards remain hidden. The value of this book is not in what Duke has to say about making decisions that turn out right, but the wisdom in divorcing decisions from outcomes. Here’s the key takeaway: In investing, as in poker, sometimes the soundest most rational decisions just don’t work out. Thinking probabilistically remains an investor’s best course, but luck always remains a factor. She asks clients to not make the mistake of using adverse results alone as proof that their advisor made a bad decision. One way to unlink the connection between decisions and outcomes is by mentally moving regret to the front of that chain. Check out page 188, which introduces the 10-10-10 model. This model starts every decision with the question: “What are the consequences of each of my options in 10 minutes? In 10 months? In 10 years?” For advisors, she recommends the question stated in the reverse: “How would I feel today if I made this decision 10 minutes ago? Ten months ago? Ten years ago?” Success is not guaranteed, but probability is the way to bet.

Clusterpuck: a B.S. Incorporated Novel
Jennifer Rock and Michael Voss
Wise Ink Creative Publishing, 192 pages, $15.95

When the executives of the fictional B.S. Incorporated last granted us an appointment (see The Ten Best Business Books of 2016), the office copier manufacturer was in the throes of a meltdown over transitioning BSI from a company that actually made things to a producer of little more than tax shelters. This new outing is a standalone effort featuring two characters Wealth Management readers will remember from the previous novel as communications functionaries heroically toiling in an organization where dysfunction is an aspirational goal. In the first chapter, the company’s co-CEOs are seemingly killed in a team-building sweat lodge mishap by a charlatan executive coach. The interim CEO seems perversely interested in a mysterious joint venture with a Canadian company involving an even more mysterious private equity firm. Our heroes discover that the interim CEO has a secret interest in the PE firm and has shorted his own company because he intends to sabotage the joint venture. Will decency triumph? Will ethical business leaders prevail? Without giving away too much, we can report that the good executives end happily, and the bad executives end unhappily. That, Oscar Wilde reminds us, is what fiction means.