Outsmarting the Crowd, Bogumil K. Baranowski - Book Summary

With clever and coherent wording, Outsmarting the Crowd offers readers valuable advice from an experienced investor, Bogumil K. Baranowski . The book also outlines the strategic path, emphasizing the rules to follow to build, maintain, and promote wealth throughout life.

Who should read this book?

  • Students majoring in business or finance;
  • Anyone who wants an overview of the investment sector;
  • Those who are burning the will to get rich.

About the author

Bogumil K. Baranowski is a New York-based investment specialist with over 10 years of experience. He is the founder and portfolio manager at Tocqueville Investment Fund Management.

What does this book have for me? Learn the path to becoming a great investor.

There are countless books that give you the secrets to becoming a successful investor, and the basic message of all of them is “buy low, sell high” – a buzzword in the investment industry. private. But do you really understand the meaning of that phrase?

If the answer is "no", don't worry because the following summary pages will not only provide the most thorough and easy-to-understand explanation for the above phrase, but also provide a lot of other useful information. You outline a successful investment plan.

Through this summary, you will discover why:

  • Investing won't make you rich overnight;
  • Markets are like trains;
  • Buying stocks is quite similar to buying an umbrella.

Equity ownership is owning a part of a business in return for a grant to finance its operations

Are you ready to invest in the stock market? The best place to start, then, is to learn about stocks – they are not simply pieces of paper with prices written on them.

In fact, each stock represents a part of a business, and when you buy shares, you are actually buying a part of the company. So, in the same way that entrepreneurs own a business outright or share ownership with other partners, as a shareholder you can own shares of a company.

But while entrepreneurs and partners work day in and day out to manage the business, as a shareholder you don't have any responsibility for managing the company and can sell your shares. whenever I want.

As a result, stocks are truly valuable pieces of paper, and many businesses make their shares widely available to the public. This is a strategic decision that depends on the size and financial needs of the company. All businesses rely on finance, but some entrepreneurs use their own savings while others grow with initial capital from the contributions of family and friends, like the founders of Google. did.

As a company grows, the company fund needs to keep up with the pace as well. After all, having grown enormously large, the company was faced with two choices about how to raise the large amount of capital needed to run its day-to-day operations and make investments:

One is a loan from a bank, as the average person would do to buy a car or a house. Of course, this money, plus accrued interest, needs to be repaid.

The second is equitization, which means dividing the ownership of the company into shares and selling them on the stock market. This option is different from a loan because the company never has to repay the money. Instead, the stockholders who own the stock will receive a dividend, or can sell it to other investors in the hope of making a profit.

These are the basics of stocks, and now it's time to learn value analysis and the secrets to becoming a successful investor.  

Investing requires reason and the right timing – don't let your emotions take over

If you've ever read the financial news, you probably won't forget the feeling of being bombarded with tons of information, both positive and negative. Headlines like “Google stock hit a record high” or “Oil dumped” were so rampant that some investors struggled to keep up with the media frenzy.

However, sound investing needs reason, not emotions. Let's say you own shares of Starbucks and one day the press says that the value of the company's stock drops by 10% in a single day. Emotions will prompt you to sell stocks to avoid “standing on a sinking ship,” but don't listen to them.

Instead, if you look closely at the situation, you will see this 10% loss as an opportunity to buy more shares at a lower price, and this company has great potential.

But just reason is not enough because investment also requires the right timing. You need to know when to go against the majority: buy when everyone sells or sell when everyone buys.

The moment comes when extreme emotions are taking control of financial markets. For example, when the dot-com bubble hit in 2000, investors poured into internet companies like Pets.com and WebVan. However, the truth gradually emerged. These companies had no business model, produced no revenue and were forced to go bankrupt.

Another good example is the global financial crisis of 2008 when financial markets crashed due to mass panic. During this period, the shares of even the most prosperous companies depreciate.

Through these two events, we see an opportunity to profit by thinking differently from the crowd, namely: by selling in 2000 when expectations and enthusiasm peaked, or buying in 2008. when a crisis occurs.

“The time to buy is when blood is spilled on the streets.” - Baron Rothschild

(The time to buy is when there's blood in the streets.)

Successful investing is the result of discipline, patience and only spending money you don't need

Perhaps in a certain dream, you see yourself becoming rich overnight. However, even the most successful investors like Warren Buffett can't build a fortune so quickly.

In fact, being a good investor means training yourself with patience and discipline. Making hasty investment decisions will only set you up for failure. The truth is that it often takes months, or even years, to make a profitable investment decision.

For example, in the past, Facebook ran into trouble soon after going public, and a few years later the stock price dropped dramatically to a quarter.

But patience and discipline also have a downside. Part of it will spread the fear that you are missing out on an investment opportunity. For example, if the market is up 20% this year and your investment fails, you may feel like you wasted your money.

These feelings are very natural. But in reality, there are so many stocks that trade on the stock market that the financial markets offer a multitude of opportunities. Financial experts often compare missing an opportunity in the stock market to missing a train – another one is bound to come!

Ultimately, discipline also means not betting the money you need. If you invest the money you use to pay off your mortgage, it's hard to avoid fear. Fear, an invisible force that can entice people to make irrational decisions, is an investor's worst enemy.

Therefore, to avoid making bad choices based on irrational fear, you only use money that you know you won't need in the next three to five years. Please keep the rest safely by sending savings.

Realize your expertise and constantly enrich your knowledge

Being aware of when to go against the crowd is essential to investing well, and the most effective way to stand out from the crowd is to strengthen your arsenal of knowledge every day. But before you do, you need to know what your investment capacity lies in.

Warren Buffett, one of the most successful investors on Wall Street, often refers to the concept of a circle of competence - a hint that helps you know what you are good at so that you can focus on developing that strength. .

Let's say you know pharmaceutical companies very well. Your knowledge will be an advantage to invest in this field. But you may also be attracted to stocks in industries you have little to no knowledge of. Above all, avoid these stocks and only invest in what you know. Remember, the circle of competence can grow over time as you continue to learn about new investment opportunities and other industries.

In fact, continuing to learn, expanding knowledge will provide a huge advantage in investment for a very simple reason: most people today don't have it. According to a report by the Research Center Pew, 23% of Americans never read a book in 2014. That number was just 8% in 1978.

Knowing a little about accounting can help you read a company's financial statements, but you need to know the world around you to understand what these numbers mean in an economic and financial context. current politics. Therefore, regular, regular reading is a must to become a successful investor.

You also need to remember that part of an investment career is learning from your mistakes. So, if you sell a stock too late and lose money, the best thing you can do is analyze the situation. That way, you can pinpoint exactly where you went wrong to limit the chances of it happening again.

Strong investment decisions depend on simplicity and selectivity

Coming up with a complicated investment strategy may seem tricky, but the truth is, the real wisdom lies in keeping things as simple as possible. So focus only on what really matters.

For example, when evaluating a company, there are countless criteria to consider: brand image, financial performance, reputation of the management team, etc.

To stay focused, stick to the Pareto Principle , also known as the 80/20 Rule . Here's how the rule works:

In the nineteenth century, the Italian economist Vilfredo Pareto found that 80% of the land in Italy was owned by only 20% of the population. Based on this observation, he deduced that in many cases 80% of the effects come from 20% of the causes.

This principle applies to investing: stick to the metrics that matter most to you and ignore the rest. After all, there are only a few factors that will drive a stock up.

Being selective is another way to increase focus. So you shouldn't buy everything a little bit, but rather choose stocks that fit your profile.

In short, you need to apply filters . When Warren Buffett considers an investment, he uses these four questions:

First, do you understand the business? You shouldn't invest in a company that sells a new technology product that you don't know anything about just because it looks cutting-edge.

Second, does this company have long-term potential? Some industries are fads but others, like food or healthcare, are more important.

Third, do you trust management? This is a simple question because working with a CEO who has previously bankrupted several companies is alarming.

And, finally, is this price affordable? In other words, if you think this stock is overpriced, keep looking for other opportunities.

Carefully select stocks among competing companies whose movements can be predicted

There are thousands of companies whose shares are being traded on the market. To sift winners from losers, investors need to know how to ask the right questions.

When valuing a stock, it's best to act like a five-year-old — constantly asking questions like: Why do people love or need this company in their lives? Why do people consume their products? Is this company selling innovative, revolutionary products or is it just a popular startup trend that will fade away?

You should also ask: Why is now the right time to buy? For example, major corporations like Nike, Exxon and Microsoft have existed for decades, so why should you invest in them today? Because, perhaps they are just tapping into a new and promising market or determine to maintain a profitable long-term trend.

Another tactic for finding companies with a true competitive advantage is to identify one or more attributes that help them outperform the competition. One of these attributes is pricing power – it's easy for a company to raise prices while retaining its customers.

Apple is a prime example. When the company launches a new iPhone, it doesn't even consider the competitor's pricing. Instead, they set their own prices based on the perception that consumers crave Apple products and are willing to pay a premium price for them.

Finally, you should steer clear of companies where change is difficult to predict. In fact, there are many ways to detect the possibility of incurring heavy losses in the near future due to this vulnerability. The two evaluation criteria are price competitiveness and the ups and downs in technology. Kodak company - an icon of the photography industry is an example. The explosion of digital photography caused demand for film products to plummet, leading to the unfortunate bankruptcy of Kodak.

On the contrary, some companies can adapt well to changing trends. For example, Coca-Cola is no longer just a carbonated beverage company, it has expanded its production line to include many other drinks to be able to meet the ever-changing needs of consumers.

The market is as volatile as the probability of a coin toss so the best bet is the one for the long haul

Today, financial markets go up and down, unpredictable fluctuations. These changes can be traced back to the mood swings of investors.

The reason is probably because at present, investors receive too much information, even rumors and gossip from the mass media. In the face of information overload, they overreact by buying and selling quickly. As a result, investors today only keep stocks with them for very short periods of time.

For example, in the 1960s, the average person held a stock for eight years. Nowadays, people usually sell them after only six months. The quick buying and selling also contributes to the high volatility of financial markets.

Therefore, it is very important to keep a cool head, and you should not pay attention to the daily fluctuations of stock prices. Let's say you just invested a lot of money in stocks. You will tend to check your stock price movements on a daily basis.

But prices rarely go up every day, and even a small drop can trigger you to sell too soon. Instead of checking prices on a monthly or yearly basis, you should give the companies you invest in the time needed to execute on their long-term growth and business strategies.

Once you are immune to market volatility, you will begin to profit. That's because buying stocks is a bit like buying an umbrella.

If you walk around New York on a rainy day, you will find countless vendors selling low-quality umbrellas at exorbitant prices. But if you also walk on that street when it's sunny, those umbrellas will be sold for half the price.

Now let's apply it to the reactions of "suffering" sellers when the market doesn't work the way they should. Smart investors will take advantage when others panic and are selling at any price because this is the best time to buy stocks at a bargain price.

The wise investor must take safety high – buy cheap, lower your expectations and diversify your stocks

Investing may seem like it's all about making money, but the truth is, good investors focus on not having to lose money. And the best way is to buy cheap.

When you buy a high priced stock, you expose yourself to the possibility of huge losses if the price drops. Obviously, this damage will be limited if you buy cheap stocks.

Imagine stocks like students. There are trusted friends, always getting A's, similar to your expensive stocks, and everyone knows they're awesome. Besides that there are good students but there are a few temporary problems: this is a cheap but valuable stock.

Perhaps they missed class a few times or failed a test. However, these stocks have greater potential because the imperfections make them much cheaper than they really are.

So buying cheap is key, but it's also important to be wary of your own expectations because you can't predict the future. Instead of expecting that the best outcome will come, you should build scenarios that don't rely on the company in every situation. This requires you to be realistic and determine if a company can deliver high returns even under imperfect conditions.

Tesla is an example. Some speculators bet the company's next model will be a huge hit, but a wise investor will only buy stock in the company if the company plans to build a healthy business based on it. on humility, but lasting success.

And finally, before embarking on your investment journey, remember to diversify your stocks. After all, the less experience you have, the harder it is to understand the specifics of any given field.

Thus, the greater the diversity, the smaller the impact will be if one of your stocks crashes as the rest of your portfolio limits the damage. For example, if you only invest in banks, your entire portfolio will collapse if a banking crisis occurs.


The main message in this book is:

If you're new to investing, you might think that the stock market is a way to change your life overnight. But the truth is that investing takes patience, discipline, and reason. By drawing up a strategic plan and being mindful with your investments, you can build your potential portfolio and achieve the wealth you've always dreamed of.

Give advice:

Accept your mistakes .

One great thing about investing is that you don't have to be right all the time. Even if you make a mistake with a few investments, you can still profit from the rest of your portfolio. So accept your mistake and realize it's not a death blow. You can even use these failures as inspiration to learn and do better next time.