Reading a book is a true investment. You need to be sure the time and energy costs are worth the knowledge and entertainment return you receive.
Yet, book reviews are usually pretty bad, especially investing-book reviews. Online bookstore “ratings” are often based on generic star systems and flooded with questionable opinions. And professional book critiques are few and far between today—it’s rare to find a great review for a book you might be considering, and they often skew toward a topic important to the reviewer, not you. There are even apps and services that give you the “essence” of a book in a few short notes. However, none of these ultimately give readers what they need: a trustworthy appraisal of the real costs and benefits of a book they’re interested in.
Our podcast, The Well-Read Investor, lives by the mantra: “May all your reading profit your mind and your money.” The idea is to bring meaningful conversations to investors about authors with thought-provoking ideas to enrich our investing knowledge and global awareness. But with all the reading we do, there are far more books and ideas worth discussing than the podcast can cover. So we developed the price-to-literacy (P/L) ratio: all an investor needs to know if a book is right to read. Here’s how it works.
We take our inspiration from the price-to-earnings, or P/E, ratio. In this traditional market-valuation metric, a company’s stock price is divided by its earnings to give investors a sense of what they are paying per unit of earnings. The P/L ratio is similar: how much does a book cost relative to what you get out of it? Price is more than just money: it’s time and effort. Some books are short and easy to read, while others are turgid and verbose. We attempt to calibrate those things to give you a true sense of “price” for reading a selected book. Then, we do the same with the “earnings” or value you can attain: that’s the “literacy” part. More than just ideas, we judge practicality, personal growth and learning opportunities beyond just investing.
A P/L value of “1” is neutral, where the cost equals the gain in knowledge. A book with a P/L greater than one is expensive and a recommended “SELL” (e.g., it costs more to get the ideas than the value they deliver). Books with P/Ls less than one are cheap and a recommended “BUY.” There are three metrics for both price and literacy, each judged on a scale of 1 to 5.
Assign a value to each of these metrics, sum them up in the price and literacy columns, and simply divide by six! It’s a lot of fun to put any book into this rubric. You can do it too! Make your own P/Ls and compare them to ours! And send us your P/Ls and book suggestions to firstname.lastname@example.org or on our Twitter @wellreadpod, or on Instagram @wellreadinvestorpod.
Price: (On a scale of 1 to 5, low values are “cheaper” and higher values are “expensive.”)
Literacy: (On a scale of 1 to 5, higher numbers mean more value.)
Here’s hoping all your reading profits your mind and your money!