Another year is drawing to a close. You’ve met some insane project deadlines, juggled a hectic working life with an equally hectic social life, and maybe burned the candle at both ends.
With the holidays close by, hopefully you’re finding ways to slow down. What better way to relax than with a great read, preferably under dappled sunlight. In today’s non-stop, round-the-clock existence, reading for pleasure is an indulgence.
If you’re keen to learn more about investing and personal finance, here’s some suggestions from the Clover team to get you started. These books deliver the sort of investment wisdom that might otherwise take decades, and bitter experience, to acquire.
From all of us at Clover, we hope you have a wonderful and relaxing holiday.
The Little Book of Common Sense Investing: The Only Way to Guarantee Your Fair Share of Stock Market Returns
by John Bogle (John Wiley & Sons, 2007)
Of the countless investment books written over the past twenty years, few match John Bogle’s ‘The Little Book of Common Sense Investing’ for simple, easily absorbed insights into the essence of sensible wealth creation.
Vanguard, the investment management firm that Bogle founded, created the world’s first index fund for individual investors in 1976 based on a single premise; that active investing (trying to pick winning shares and avoid losing ones) wouldn’t outperform a simple buy-and-hold strategy of investments tracking an index (such as the S&P/ASX 200 Index in Australia). That the majority of actively managed share funds fail in their quest to outperform, especially after fees and taxes, lends considerable weight to indexing as the smarter path to financial freedom.
Bogle takes the reader on a fascinating insight into the world of investment management, using numerous examples to demonstrate how ‘the relentless rules of humble arithmetic’ impacts active investment management, with higher fees, costs and taxes more than offsetting any (likely transitory) outperformance.
Bogle’s ability to combine hard-nosed analysis with an approachable writing style makes for an informative and entertaining read. To those who aim to outperform by picking stocks (or paying an advisor or fund manager to do so), his advice is simply this: don’t look for the needle in the haystack — simply buy the entire haystack instead (in the form of low-cost index funds).
One of the more interesting elements in this book is the range of quotes from other highly regarded investors at the end of each chapter (a section Bogle self-effacingly titles ‘Don’t Take My Word for It’). A quote from the great Warren Buffett, himself one of a select few to have consistently outperformed the market, captures the essence of Bogle’s thesis: “A low-cost index fund is the most sensible equity investment for the great majority of investors. My mentor, Ben Graham, took this position many years ago and everything I have seen since convinces me of its truth.”
As with other titles in ‘The Little Book’ series, this book is a relatively short, easy read. Put it on your Christmas reading list and benefit from the wisdom of one of the world’s most influential investors.
by Thomas Stanley & William Danko (Taylor Trade Publishing, 1996)
What do self-made millionaires drive? If the first thing that comes to your mind is a brand new Mercedes, Lexus or BMW, you might be surprised. The average American millionaire drives a used Ford pickup truck, owns no luxury watches, and doesn’t have a wine collection. It’s what they save, not what they spend that makes them wealthy. These individuals have certain traits that make them ‘Super Accumulators of Wealth’ according to Stanley and Danko.
This book, first published in 1996, was one of the earliest to systematically analyse how individuals build substantial wealth over time and was based on a twenty-year study of Americans with a net worth exceeding $1 million. Stanley and Danko investigate a number of factors that influence an individual’s propensity to become wealthy, including varying lifestyle expectations of different professions, cultural influences and individual attitudes to the future versus the present.
Despite the fact that it was first published more than twenty years ago, ‘The Millionaire Next Door’ remains just as insightful and relevant today, primarily because the fundamentals of wealth creation have remained the same; live below your means in order to have a viable flow of savings, direct these savings into productive assets that will increase in value through time and invest for the long term.
by Charles Ellis (John Wiley & Sons, 2016)
Charles Ellis is the ultimate investment industry insider. Graduating with a Harvard MBA in 1963 he headed straight to Wall Street to begin a lifelong career in investing. He later earned a PhD and started Greenwich Associates, an investment analytics and consulting firm that he led for some 30 years.
Ellis recounts the transformation of the investment industry over the past 50 years, from one dominated by institutions that had superior information and research insights relative to the individual investors they traded against, to one in which there is no discernable information advantage for the tens of thousands of highly trained analysts, math PhDs and computer scientists working for global institutions all trying to out-invest each other.
Ellis first wrote about this diminishing ability for professional investors to beat the market in a 1975 journal article that formed the basis for his classic book ‘Winning the Loser’s Game’. Things haven’t got any easier in the intervening years.
In The Index Revolution, Ellis reiterates the key messages from his earlier work and makes a compelling case as to why index investing is the best strategy for the vast majority of investors today. He explains what indexing is, how it works, and why it’s the only way to consistently grow wealth in a market that has become extremely efficient at pricing securities.
Note: if indexing is old news to you, then skip this book, you already know the message
by Larry Swedroe and Andrew Berkin (Buckingham Publishing, 2015)
Whether you are a professional investor or somebody just curious about investing, ‘The Incredible Shrinking Alpha’ is one of the best investing books you can read in terms of return on time invested, packing a wealth of information within its four chapters.
The central premise of the book is that the ability of professional investors to generate ‘alpha’ (industry jargon for beating the market after accounting for the risks taken) has been steadily reducing over time due to a range of factors that Swedroe and Berkin outline using an evidence-based approach by reviewing decades of research.
Wherever your personal investing beliefs may lie, the book does an excellent job of objectively examining the futility of chasing alpha, when so few active fund managers can consistently beat the market, especially after fees and taxes.
The authors have done a great job of distilling multiple academic papers and present a compelling argument around how over time alpha has morphed into beta (achieving market returns). Over the years, as different factors have been discovered that persistently explain the majority of portfolio returns, these factors have been systemised and turned into transparent rules-based investment strategies. Investors can then gain access to these investment strategies in a cost-effective manner, such as with passive index funds or exchange-traded funds (ETFs).
Swedroe and Berkin acknowledge the need for some level of active investing in order for passive investing to exist, but show how the hurdle for alpha-seekers has increased to nearly insurmountable levels, as the pool of available alpha shrinks and the number of assets competing for this shrinking alpha grows.
We hope you’ll try at least one of these gems over the summer.
Successful people demonstrate a desire to continuously self-educate when it comes to their finances, careers and wealth. Grab one of these books over summer. Your future self will thank you.
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