Must-Reads For Investors
Investing No Comments »We asked dozens of pros what they pull off the shelf again and again
When I got my first job covering financial markets in the early 1980s, I didn’t know a thing about stocks and bonds, an inconvenient fact I failed to mention to the editor who hired me. In something of a panic, I called an acquaintance who had a PhD in economics and a high-paying job on Wall Street. “What should I read?†I asked. “Two books,†he said. “That’s all you’ll need.†His recommendations were A Random Walk Down Wall Street by Burton Malkiel and The Only Investment Guide You’ll Ever Need by Andrew Tobias. I’ve read dozens of finance and economics books since then, but those two have always stood me in good stead.
Of course, the investing world has changed vastly in the interim. Back then, 401(k)s didn’t exist, let alone online trading, exchange-traded funds, and the ability to buy stock in Russian and Chinese companies. Just 13% of Americans owned stocks in the early ’80s; now more than half the population does.
We asked dozens of professional investors what books they think will best serve the individual investor today. What tomes do they turn to for inspiration, guidance, and understanding? What authors have stood the test of time? “You want books that give some perspective about managing wealth over the long term,†says Andrew Lo, finance economist at Massachusetts Institute of Technology’s Sloan School of Management. “That’s the single biggest challenge for an aging population today.â€
Against the Gods: The Remarkable Story of Risk
By Peter Bernstein (Wiley)
Risk is a rich word with many shades of meaning. How much financial risk are you willing to take? What risks do you want to avoid? Bernstein, the dean of finance economists and a philosopher of risk, published in 1996 this fascinating history of the concept and how managing risk is the essence of investing. “The revolutionary idea that defines the boundary between modern times and the past is the mastery of risk: the notion that the future is more than the whim of the gods and that men and women are not passive before nature,†writes Bernstein. For example, in one chapter he eloquently details how Nobel laureate Harry Markowitz, while a graduate student at the University of Chicago, mathematically illustrated the power of diversification to lower risk and increase returns, and why it’s the “nearest an investor can ever come to a free lunch.†Bernstein manages to bring these abstract notions to life.
Extraordinary Popular Delusions and The Madness of Crowds
By Charles MacKay (Harriman House Classics)
Ah, if only more investors had read this during the heady dot-com boom. They might not have lost their nest eggs in eToys or online grocer Webvan Group. First published in 1841, MacKay’s book is a powerful portrayal of those times when investors abandon reason and succumb to mass mania, e.g., tulipmania in 17th century Holland. In the preface to the 1932 version, the famous investor Bernard Baruch captures the book’s spirit by quoting the poet Friedrich von Schiller: “Anyone taken as an individual is tolerably sensible and reasonable — as a member of a crowd, he at once becomes a blockhead.‒
A more modern classic, originally published in the late 1970s, is Manias, Panics and Crashes: A History of Financial Crises, 5th Edition by Charles Kindleberger and Robert Aliber (Wiley Investment Classics). In this latest edition, Kindleberger, with the help of international economist Aliber, deals with a number of later asset price bubbles, such as the Japanese economy in the 1980s and the tech-stock boom of the 1990s. “By reading it you’ll see the extent to which human nature doesn’t change, especially when it comes to the emotion that tends to drive investing and speculating and fear and greed,†says Edward Yardeni, chief investment officer at Oak Associates, an Akron investment firm.
A Random Walk Down Wall Street, 9th Edition
By Burton Malkiel (W.W. Norton)
In this classic, first published in 1973, Princeton University’s Malkiel translates the quantitative, highly abstract insights of modern finance theory into everyday language. He taps into a colorful vein of financial history to bring alive the capital markets. Malkiel argues that in this extremely competitive global arena, trying to beat the market is a fool’s game that is hazardous to your wealth. Instead, his mantra is diversify and invest in index funds.
The last part of the book is a practical guide to managing money, covering everything from limiting Uncle Sam’s take to evaluating choices in the fixed- income markets. “It separates all the hype about money managers doing better using evidence that many of them don’t, and that you really have to pay attention to fees when you look at your portfolio,†says Jeremy Siegel, finance professor at the Wharton School.
Investment Policy: How to Win the Loser’s Game, 4th edition
By Charles Ellis (McGraw-Hill)
A longtime consultant to institutional investors, Ellis distilled a lot of experience for individual investors in this book, which was first published in 1988. He uses a number of analogies to explain his investment philosophy, including tennis. He argues that you win in tennis by not making a mistake, by keeping the ball in play until your opponent errs. The same holds for investing.
Source: www.keepmedia.com 10-07-2006
For more resources, click here
Tags: A Random Walk Down Wall Street, Burton Malkiel, The Only Investment Guide You’ll Ever Need, Andrew Tobias, Massachusetts Institute of Technology’s Sloan School of Management, Peter Bernstein, Harry Markowitz, University of Chicago, Extraordinary Popular Delusions, Madness of Crowds, Charles MacKay
Powered by Qumana