Michael Lewis Investment Advice – 10 Actionable Tips
Michael Lewis is the best-selling author of books like Moneyball, The Big Short, Liar’s Poker, and The Undoing Project. While several of his books are specifically about the financial industry, the through line of Lewis’ works is investigating revolutions in data analytics.
Although Lewis isn’t known for his investing prowess, the time he’s spent in and around the financial world for his writing makes him an authority within the financial industry. In this article, we’ll take a look at 10 pieces of Michael Lewis investment advice for everyday investors.
Let’s get started!
Michael Lewis Investment History
Michael Lewis got his start in finance as an analyst at Salomon Brothers in 1985. However, he left the industry just a few years later and wrote Liar’s Poker, his first book, about the evolution of mortgage-backed securities based on his experiences at Salomon.
Lewis turned again to writing about the financial industry after the 2008 financial crisis. His book The Big Short, published in 2010, explored investors like Michael Burry who saw the housing collapse coming. In 2014, Lewis published Flash Boys, about the growth of high-speed trading and the inequalities it caused in financial markets.
Michael Lewis Investment Advice
Michael Lewis is better known for writing about the inner workings of the financial industry than for his own prowess as an investor. That said, he has insightful advice for investors looking to get ahead in today’s complex market environment.
1. Stick to Index Funds
The first thing Michael Lewis tells investors is that they should stick to buying index funds. “I think the best way [to invest] is a low-cost index fund,” says Lewis. “I do not think people really should be making individual stock picks with their savings. I think that’s generally been demonstrated to be not such a good idea.”
According to Lewis, most of his own money is invested in index funds from Vanguard.
2. Or Invest in Berkshire Hathaway
Lewis does offer an exception to his index fund rule: he believes that Berkshire Hathaway is always good investment. The reason, Lewis says, is that “I’ve always felt that if things get really bad, the market tanks, he’s always in a very good position to take advantage of the situation.”
Lewis also recommends reading Warren Buffet’s annual letter to shareholders since they’re written in a way that’s accessible to non-experts.
3. Focus on Making Money First, Investing Second
Another piece of advice Lewis offers when it comes to investing is that “less is more.” He suggests that investors should set up their investment “in a basically simple way and then go about your business of making a living.”
If you’re not a financial expert, it’s better to spend your time making money and putting it in passive investments than spending a lot of time trying to outwit the market.
4. The Key Decision is How Much to invest
Lewis also says that, once you’ve chosen a few index funds to invest in, the main decision you need to make is “how much is in the stock market, and that’s it.” Speaking about his own investing style, Lewis says his approach is to “try not to think about it at all.”
Notably, Lewis doesn’t offer more detail on how investors should figure out what portion of their savings they should put into the market. For help with that decision, he suggests talking with a financial advisor.
5. Lean on Your Own Analysis
When allocating your money and choosing funds, Lewis stresses that it’s essential to do your own homework. “Experts make mistakes,” he says, “and analyzing data can help prevent gut calls that become bad decisions.”
That lesson is a theme in Lewis’s writing. In Moneyball, for example, Lewis found that using data to find undervalued baseball players was much more effective than relying on traditional scouts and managers. Shortly after Lewis’ book was published, nearly every Major League Baseball team switched to using data analytics to assemble their rosters.
6. Write Down Your Ideas
Another practice that’s helped Lewis develop ideas over the past 30 years is simply writing down his ideas as they come to him. “Every few months,” he says, “I go through that pile [of ideas], and it will be all new for me.”
The same strategy can work for investing. Have an idea about a company or an emerging market trend? Write it down and come back to it a few months later with fresh eyes to see if it’s worth exploring in greater depth.
7. Every Model Comes with Risks
One of the reasons that experts can be wrong, says Lewis, is that it’s virtually impossible to create a perfect model of what’s going on inside a company or inside the market. Even if a financial advisor is able to perfectly tailor all of their expectations, “you never know what you don’t know.”
That means that investors need to be able to live with uncertainty. Use data to make the best decision possible, but don’t assume that using data means you’re right.
8. Don’t Trust Certainty
If you’re looking for a financial advisor, one way to know that you’ve got someone you can trust is if they admit to the uncertainty that’s everywhere in financial analysis. On the other hand, “if that person exhibits total certainty about his predictions, you know you have a problem,” says Lewis.
9. Don’t Be Afraid to Ask Questions
Throughout Michael Lewis’ career, he has been open to asking questions, even basic ones. His “gift,” says Lewis “is not being afraid to seem a little ignorant…Many times, I don’t know anything when I walk in” to a story. That’s made all the difference in his books, since asking seemingly simple questions reveals hidden assumptions.
Asking basic questions when investing can have the same effect. If you look at an investment from the perspective of a novice in the field, you’ll be more likely to notice what assumptions go into an analysis. From there, you can look deeper at the assumptions to see if they’re likely to hold true.
10. Be Willing to Follow Your Ideas
Another reason Michael Lewis’s career has succeeded is that he’s always been willing to follow his ideas. Many of his books began first as magazine pitches, and as he dove into reporting the stories, he discovered just how deep they ran.
Being willing to pull on threads and explore beyond the surface can pay off for investors as well. Whether it’s finding an undervalued company or identifying an emerging market that’s only beginning to develop, following your ideas can help you spot opportunities that the broader market hasn’t yet realized.
Conclusion: Michael Lewis Investment Advice
Michael Lewis has written a handful of best-selling books that look deep into the inner workings of the financial system. While Lewis largely sticks to passive investing, his career and approach to writing offer a number of useful lessons for investors wanting to dive deeper into the market.