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 Solid conservative advice, but is that enough in such a terrible market? Nov 03, 2009
Let's say you were afflicted with the unhealthy notion that you could correctly predict which investment vehicles would outperform the market. This book would be a reasonable component of your therapy regime. In this book (the 2007 edition) Malkiel basically shows why the broad market indices (S&P, Dow, Russell 3000, etc) generally outperform even professional stock market gamblers. Actually, he doesn't really show us why exactly. The author more accurately just tells us it's true and hopes we'll take his word for it. Turns out, I do, but that's only because I've read a lot of other books (mostly by skeptical statisticians) that show in greater detail that Malkiel's premise is essentially correct.
The author is, I suppose, merely conservative in his investment outlook while I must be tin foil hat insanely paranoid. The main problem I have with his thinking is that while I agree with him that neither you nor I can not outperform general market indices, i.e. "the market", I'm not sure that the market can outperform investments like cash in the mattress or gold fillings. In the past couple of years, the market has even failed to outperform investments in cocaine and prostitutes.
I'm sure this book reads a lot better when you're not slogging through a Depression-like quagmire dominating the investment landscape. Here are some examples.
"I also think you should keep your risk within reasonable bounds by sticking with issues rated at least A by Moody's and Standard & Poor's rating services". Well isn't that precious? Turns out that bond ratings have been shown to be largely a scam. Even if they're not categorically corrupt, they stink enough that anyone relying on them when not dealing with "other people's money" is making a mistake.
"You may also wish to consider ownership of commercial real estate..." I guess the management at GE read this book. I'm under the impression that CRE is one of the main reasons GEs stock is about 1/6 of what it was 2 years ago. In Oct 2007 in my area of San Diego (including sublease space) the CRE vacancy rate is 25.6% with unprecedented vacant capacity. Of course you can't see that kind of anomalous event coming, however, I did. Which brings us to:
"Own your own home if you can possibly afford it." In 2004, I *could* have possibly purchased a house, but it would have been a financial disaster of such catastrophic proportions as to completely negate any gains of the magnitude envisioned by this book. In a different part of the book there is a table showing the earnings on a steady investment of $1200/year over *28* years. That's a long time and when I saw the final retirement tally, $277k, I thought, great, three decades of $100/month so one could recover from the disastrous loss one would have incurred buying the median home in San Diego in 2005. No thanks. It's never been a better time to be a renter.
It turns out that life is full of risks and that even being conservative in the way this book outlines is a huge gamble. The quotes above are really minor points in the book. My bigger problem is the major premise of the book which is that over the *long term*, stocks don't suck. Perhaps it's just my delightfully awful luck to be interested in investment science at a time of secular market trends that are like some kind of horror movie, but the fact is that the entire market can suck and suck you down with it for impressively long runs. He mentions the period he calls "The Age of Angst", 1969-1981, where the general returns on stocks was 5.6% and 3.8% for bonds. Could be worse, right? Beats a savings account. Wait... What's that? Inflation was 7.8%? Ouch! And 12 years is a big chunk of anyone's investment window.
If you're 20 and somehow miraculously have way more money than lifestyle and want to invest it in the stock market, *and* the notion holds that general stock market returns are positive over 50 years, then maybe this is some helpful advice. However, if you are such a person and such assumptions are correct, it'd be hard to screw that up.
Malkiel doesn't really give good fundamental reasons why the stock market should go up over the long term. The fact that it has in the past is a myth that he explicitly debunks, for example, when talking about selecting a mutual fund. I respected his low sensationalism approach. He knows that his strategy is boring but that is because he believes it is the safest bet and maybe it is. I, however, wasn't really convinced that it was any safer than any random investment, including spending all your money on fun things you like. The best piece of advice from the book is that many of the materials to help you research various investments can be found at your local library. Yes. Like this book.
Good Investment Overview Book Oct 22, 2009
This is a classic investment book. It gives a brief introduction to the major investing styles/theories and explains why the best bet for most people is to buy and hold (mostly index funds).
The book is separated into 4 parts:
1. Stocks and their value
2. How the Professionals operate
3. New Investment Methods
4. A Practical Guide
Even though this book provided me with no new insight, I believe this is a great book for anyone interested in learning about investing in the stock market.
The fact remains that buying and holding good companies over the long run works. The question is, what are the good companies? Why not just buy them all with an index fund!
 One of the best books on investing Sep 20, 2009
This should be your first and last book on investing. You will learn that most of the technical/fundamental analysis techniques don't work and ultimately self destruct.
He advises buying and holding index fund like S&P 500, which should work if you have 401k at work.
If you want to actively invest in the market he advises using contrarian investment along with firm foundation theory.
0 of 2 found the following review helpful:
Derivatives...lol Jul 30, 2009
Overall a good book. The bit where he says "it's highly unlikely derivatives will undermine the global economic system" is funny in hindsight though. lol.
The first ( and possibly the last ) book you'll need on investing in stocks Jul 20, 2009
Professor Malkiel was a very successful stock broker before he became a Princeton University Professor. His advice is based on his intimate knowledge of the equity markets and the professionals involved. His book provides the justification for the old saw "If their advice is so good why aren't they rich?".
I had the privilege of taking his courses in banking and finance and benefiting from his guidance as a grad student. His writings, like his lectures, are completely devoid of exageration, hype, or vagueness. This is the first book to read for potential investors.
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