To say investing can be tricky is an understatement, so Baylor Magazine asked Dr. William Reichenstein, the university's Thomas R. Powers Chair in Investment Management and a frequently sought-after expert in the investing world, to suggest a few books on the subject.
As a veteran of more decades than I care to admit of teaching and researching investments, I believe that security markets are reasonably efficient. This means that it is hard for anyone --whether individual or institutional investor -- to consistently beat a benchmark portfolio of similar risk securities. For example, it is hard for a large-cap domestic stock fund to consistently beat the S&P 500, especially in the long run. Based on this knowledge, readers of my research know that I recommend that investors pay attention to the factors they can control. In particular, carefully select an asset allocation that is globally diversified and reflects your risk tolerance. Second, carefully control costs by investing in low-cost mutual funds or exchange-traded funds. This is how I manage my own portfolio, and I recommend the same for your portfolio. Not surprisingly, I recommend books that advocate this philosophy. Another selection criterion is to recommend books that are easy for retail investors to read. Here are four recommendations.
- A Random Walk Down Wall Street, 10th edition, by Burton G. Malkiel, W.W. Norton and Company, 2011. Random Walk is an investment classic. Malkiel believes that financial markets are highly efficient. So, investors would be better off buying and holding low-cost index funds than attempting to beat the market by finding undervalued securities or market-beating active mutual funds. The author injects much humor in this easy-to-read book.
- Four Pillars of Investing: Lessons for Building a Winning Portfolio, by William Bernstein, McGraw-Hill, 2010. As the name implies, this book is organized around four pillars of investing: theory, history, psychology, and business of investing. The section on the business of investing is worth the price of the book, and can help you avoid the chicanery that inflicts the retail investment world.
- Wise Investing Made Simpler, by Larry Swedroe, Charter Financial Publishing Network, 2010. Swedroe advocates building a globally diversified portfolio if index funds and passive asset class funds and staying the course. This book uses stories and analogies to explain how markets work. It will help you manage your money prudently.
- The Only Guide You'll Ever Need for the Right Financial Plan, by Larry Swedroe with Kevin Grogan and Tiya Lim, Bloomberg Press, 2010. This book provides more specific investment advice than the prior book including guidance on the art of investing. As indicated by the term "financial plan," this book covers a broader array of topics than investment, such as determining a safe withdrawal rate in retirement and insurance issues.