Books constitute capital. -- Thomas Jefferson
The only way to ensure a happy retirement is to become an investing autodidact.
"Autodidact" is a good 50-cent word for a self-educated person, and it's basically what individual investors are forced to become these days. We are increasingly responsible for managing our own retirement plans and fund investments, yet most of us receive no formal education in prudent investing -- or even an informal education from our retirement-plan sponsors and advisers.
How are investors expected to manage their financial destiny when they are woefully uninformed? Go out and buy a few good how-to books. A few well-chosen investing books -- provided you read them, of course -- may turn out to be the best investments you ever make.
I get asked this question quite often: What are the best investing books to buy? The books listed in today's column are the ones I suggest most often. Some make the list because they are timely; others because they are timeless. You may not find a specific mutual fund or stock tip in the thousands of pages of reading material, but you will be equipped to make better-informed decisions for the lifetime of self-directed investments we all face.
Here, then, is the course list for the Investing Autodidact. You don't have to read them all, but it would be a big mistake to not read any of them.
Book 1: Common Sense on Mutual Funds
By John Bogle
If mutual fund investors should purchase just one book, this -- published in 1999, at the height of the bull-market mania -- is it.
founder Bogle has spent a lifetime looking out for the best interests of the individual investor, and that sensibility turns up on every page.
Common Sense on Mutual Funds
, whose title is a deliberate allusion to Thomas Paine's treatise on British tyranny, takes aim at the abuses and problems of the mutual fund industry and repeatedly hits the mark. A few key themes are repeated: High fund costs are fatal to your retirement hopes, index funds are the smartest way to invest and simplicity is the best strategy.
Book 2: The Intelligent Investor
By Benjamin Graham
Value investing legend Graham's last update of his classic text for the lay investor was published in 1973, three years before his death. When I first read the book in 2000, his intelligence, warmth and wisdom were very much alive -- and his sage guidance seemed entirely more relevant than the slew of investing books that season. Consider his "double caveat" on investing in IPOs: First, they have special salesmanship behind them, and second, they are sold under "favorable market conditions" -- favorable for the seller, not the buyer. The book remains a useful guide for learning about value investing in funds or stocks. This year, venerable
columnist Jason Zweig updated the book for the latest edition, adding contemporary commentaries after each chapter.
Book 3: A Random Walk Down Wall Street
By Burton Malkiel
Princeton professor Malkiel first published this book in 1973, making heretical comparisons between Wall Street and monkeys throwing darts. Wall Street has been throwing darts at Malkiel's book ever since, but few have stuck. The Eighth Edition, published this year, still touts the efficient market and the virtues of index funds. It also adds a funny, incisive postmortem on the dot-com boom -- what he calls the greatest bubble of all time -- that fits embarrassingly well among his retellings of the Dutch tulip craze of the 1630s and the Roaring Twenties. However, it's not all academic: The book features a great life-cycle guide that walks fund investors through a life of investing.
Book 4: Stocks for the Long Run
By Jeremy Siegel
Siegel's book is clearly the handiwork of a revered Wharton professor: It houses 200 years of analytical data on stock and bond returns. Happily, it still manages to be a very easy read, loaded with insights on historical returns, what they mean for future returns and how you should invest accordingly. As the book's title suggests, stocks and/or stock funds should constitute the majority of investors' portfolios. The book also offers up-to-date information on exchange-traded funds and on return-enhancing investment strategies.
Book 5: Against the Gods: The Remarkable Story of Risk
By Peter Bernstein
This is the book that is least likely to impart specific investment advice, but in many ways you will learn the most about the nature of risk and investing. Bernstein, an economic historian, author, researcher and successful investor, walks readers through millennia to discuss how our efforts to quantify risk evolved -- from a 16th-century Italian gambler who aimed to quantify the risks of craps to modern notions of the game theory, commodities futures and the stock market. Measuring exactly how this book will make you a better investor is a thorny question best left to the characters that populate the book, but rest assured, reading the book will make you a wiser investor.
Book 6: The Four Pillars of Investing
By William Bernstein
Bernstein is a doctor by training, and it's evident in the way he eviscerates Wall Street and conventional wisdom. Individual investors will learn a great deal about how different forces align to undermine one's long-term goals -- ranging from investor psychology to a lack of knowledge about market history to the trillion-dollar financial services industry that wants to pilfer as much of your money as it can. Of special note for investors are sections about how your broker and your mutual fund are not your friends. Meanwhile, Bernstein offers handy assistance on building a diversified portfolio.
Book 7: Making the Most of Your Money
By Jane Bryant Quinn
While many of the books on this list serve as epic treatises on a particular investment philosophy, personal finance columnist Bryant Quinn's Bible-length book is the dog-eared how-to book you pull off the shelves when you have to sit down and do something with your money. It is an invaluable resource with straightforward sections, including "How to Pick a Mutual Fund," "Saving More Money" and "How to Use Bonds." Bryant Quinn makes a monumental effort to cover everything you'll ever need to do with your money -- college, investing, banking, home-buying, you name it. It's a great go-to guide for money and investing decisions. And you don't have to read the thing cover to cover to benefit.
Book 8: The Successful Investor Today: 14 Simple Truths You Must Know When You Invest
By Larry Swedroe
Swedroe has written four books -- including the excellent
What Wall Street Doesn't Want You to Know
-- which read more like intelligent, impassioned arguments to get you to do the right thing. His latest book, just out this month, takes aim at the fund industry, the media, excessive fees, the lack of investor education and more -- all in an effort to
inform investors about the virtues of index funds, diversification and long-term investing
. It's a fast, entertaining read that will make you a smarter investor.
Book 9: The Great Mutual Fund Trap
By Gary Gensler and Gregory Arthur Baer
Consider this entry the cautionary tale. Gensler and Baer take large portions of the mutual fund industry to task for hitting investors up with hidden fees, getting bogged down with conflicts of interest and chronic underperformance. The authors lambaste fund managers for their inability to beat the market, and tout the virtues of exchange-traded funds and index funds. It is a timely piece of investing agit-prop that serves as a fine wake-up call to naive investors.
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