Monday, January 4, 2010

Urge Overkill

In the arena of financial writing Burton Malkiel and Charles Ellis are considered two of the heavyweights. Malkiel is famous for writing A Random Walk Down Wall Street and Ellis is the bestselling author of Winning the Loser's Game. Now the two have teamed up together and co-authored The Elements of Investing. I first saw The Elements of Investing in an ad in Barron's a few weeks ago and then Money magazine just printed an excerpt from the book in their January issue. I thought I'd take a flier on it because the article in Money was interesting, but that's about as far as it goes because a little advertising and some decent PR work suckered me in for what was a very disappointing book. I knew when I bought it that it was a beginning investor's book, but there are a lot of investing primers out there that even an experienced investor can get a few pointers from - this is not one of them.

The first thing that struck me about the book is how puny it is. It's a sparse 150 pages about the size of a paperback with very large page margins which translates into not very much in print. I bought it sight unseen on Amazon and assumed it would be full of all sorts of facts and figures, but there is very little of the sort. What the authors give you is some common sense advice about saving for your future and an endorsement of investing in index funds. That's the essence of the entire book and Burton Malkiel and Charles Ellis keep repeating their investing principals throughout the entire tome. A big problem here is that both subjects have been done much more effectively by Suze Orman with her books on personal finance and John Bogle with his texts about index funds. For the same price as The Elements of Investing you can pick up a copy of John Bogle's The Little Book of Common Sense Investing and come away much more the wiser.

Both John Bogle and The Elements of Investing caution investors about the evils of trading too frequently and the benefits of diversification. That's why they champion index funds. I've talked about index funds at length in other posts, so I won't rehash old material, but they are the best way to go for investors with a long-term time horizon and the need for a hands off approach to wealth creation. If you are a new investor and wish to broaden your horizons with some reading then you can not go wrong with "The Little Book" series which has been published over the past year and a half. Along with John Bogle's The Little Book of Common Sense Investing, Joel Greenblatt, Louis Navellier, Christopher Browne, Peter Schiff, Jason Zweig and Pat Dorsey have all contributed very good books in the series. You can buy them on Amazon for about $11 each.

If you are a beginning investor and are on a budget and can only afford to purchase one investing book, I would highly recommend Jim Cramer's Real Money by James Cramer. No matter what you think about Jim Cramer the television personality, Jim Cramer the writer is very good and he is an experienced investor and hedge fund manager. The book isn't as kinetic as his show Mad Money on CNBC and he explains how to value stocks. He even gives a plug for index funds if you are leaning towards the laissez-faire approach. Jim Cramer's Real Money was originally published in 2005 so it is relatively new and has recently been reissued as a mass market paperback. Although I would caution you about watching his show because perhaps he trades too much, his book puts things in perspective so anybody can understand it in clear concise language. You can't go wrong with this one.