travesty wrote:If you were to recommend three books for a relatively new investor to read, in the general area of financial planning and portfolio building, which would they be, and (optionally) why?
There are many good books, but I think the single most important concept to convey is the power of compounding. I think it was Einstein who called it the 8th wonder of the world.
Darrell Greenwood wrote:travesty wrote:If you were to recommend three books for a relatively new investor to read, in the general area of financial planning and portfolio building, which would they be, and (optionally) why?
The first book that should be read by anybody who is investing is:
A Random Walk Down Wall Street
Darrell Greenwood wrote:"A Random Walk Down Wall Street, written by Burton Malkiel, a Princeton economist, is an influential book on the subject of stock markets which introduced the random walk hypothesis. Malkiel argues that asset prices typically exhibit signs of random walk and that one cannot consistently outperform market averages."
NormR wrote:Strangely enough, the book convinced me that the EMH/CAPM was a load of crap. Keep an eye out for the graph that shows the markets not at all behaving according to theory.
Darrell Greenwood wrote:NormR wrote:Strangely enough, the book convinced me that the EMH/CAPM was a load of crap. Keep an eye out for the graph that shows the markets not at all behaving according to theory.
Possibly, but the hypothesis that "...asset prices typically exhibit signs of random walk and that one cannot consistently outperform market averages." is not a load of crap.
NormR wrote:The quote requires a bit of parsing.
If the random walk part = Gaussian, then it is a huge pile of crap. Btw, what is a sign of randomness? Seems like it either is, isn't, or one doesn't know. Then we get into the question of how one can really know that something is random. But when it comes to the markets, enjoy the momentum which is a big counter example.
Consistency is also an odd requirement. After all, the market does not consistently outperform X (where X can be another benchmark, fund, etc.)
Overall, it's a very bad mental model. Bogle's CMH is much better. IMHO
I'm always looking for good books to recommend to people who want to manage their own investments. I like to see excellent design, clear writing and as little jargon as possible. Here are three I like, written by Canadian authors who are self-taught and work outside the industry. All are in soft cover. All are short (less than 200 pages)...
The simple way to boost long-run returns is to raise the weight of riskier assets in the portfolio. The more complex but better rewarding approach requires leverage. Within each asset class, buying the riskiest assets almost invariably gives worse long-term returns than levering up lower volatility assets. Even across asset classes, investors can reduce portfolio volatility by smart diversification and then convert improved risk-adjusted returns into higher raw returns by applying moderate leverage.
Investors with a long time horizon can exploit it by over-allocating to illiquid asset classes and reaping related illiquidity premia. Other possibilities include contrarian market timing and opportunistic reinsurance underwriting.
Active investors may try to add value through skillful security selection and market timing, either in house or externally. [Note: This book is written for institutional investors.] Even when markets are not fully efficient, they are competitive enough to make the task challenging. Building an active management culture and resources internally is not easy, nor is it easy to identify consistent outperformers among external managers.
Reducing fees and other implementation costs is often the easiest way to enhance net returns....
ghariton wrote:Antti Ilmanen, Expected Returns: An Investor's Guide to Harvesting Market Returns.
The result is 550 very dense pages of advice on active investing. But he covers a lot of ground in a very informative way. To give you an idea, the bibliography is 24 pages in rather small type -- and he references all of that in the text.
Lots of insights. But the organization of the book is less than clear, and the result is that there is some repetition. Plus it becomes obvious that the author's mother tongue is not English... [Note: This book is written for institutional investors.]
gsp_ wrote:Thanks for the review but this thread was about recommendations for a relatively new investor. I doubt .1% of that subset could get through this book.
Spidey wrote:The Four Pillars of Investing by William Bernstein
What Works on Wall Street by James O'Shaunessy
Stocks For the Long Run by Jeremy Seigel