This place will serve as a running review of the different financial related books I read and anything I find useful and/or interesting out of them.
1. Getting Things Done by David Allen
This is a great book that someone at my old job in Virginia suggested I read, and I really became a fan of the system. What it details basically is a system of using folders (both physical and through Microsoft Outlook) to a) capture everything that comes your way at work and b) how to process it quickly – either by doing it under the 2 minute rule, deleting it, deferring it, or delegating it. Probably the best thing that I have learned as a result of this book is how to set up a folder system on Outlook that categorizes actionable items by where they need to be done, instead of organizing it by project, etc.
This is one (non-finance book) that I would highly recommend to improve your life at work. The link below can take you to Amazon to find a cheap used version of the book (since I believe buying new books is usually a waste unless it is a gift).
2. Personal Finance for Dummies by Eric Tyson, MBA
In this book, Eric Tyson us with a very good, high-level look at pretty much every financial topic you could ever need to know about – investing for retirement, mutual funds, retirement accounts, educational funds for your children, insurance, life insurance, car loans, house loans, etc. This is one of those books that I like to keep around the house for the random questions that come up about topics that I forget about since they only come up every year or two (should I have term life insurance?, for example). Definitely worth the money to buy your own copy (used of course).
3. Rule #1 – Phil Town
In this book, Phil Town details a truly fascinating and easy system of investing in individual stocks. It is without a doubt, my favorite book I have read to date on individual stock investing.
The system he details is to me, the most integral and repeatable system for investing in individual stocks. He claims that with this system, it is absolutely possible to achieve returns of 15% or more per year and beat the market indices.
Since I was so fascinated with his system, I decided to dedicate a stand-alone post on my investigation I have done for the past 6 months where I have been following the rules of his system with “simulated trading.” See that post for the exciting result! I want to believe in it, but let’s let the results speak for themselves. This book is definitely worth reading.
4. The Way to the Top by Donald Trump
At a high level, this book is a quick read that details several hundred quotations of business advice from business leaders (CEO’s, CFO’s, company founders, etc). In my opinion, most of the advice was fairly common sense, or I had heard it before. However, there were several noteworthy take-home bits of advice that I wanted to share below:
1. Always investigate future bosses – find out what he or she can teach you and how he or she is perceived in the organization.
2. Treat everyone politely.
3. Find a mentor
4. Deal directly with the people needing to make the decision – not the middlemen/women.
Below is the link if you are interested in picking up a used copy!
5. Stocks for the Long Run by Jeremy Siegel
In my opinion, this book is the best investment book ever written, and definitely deserves a place on any My Money Blog followers’ book shelf. This is essentially the closest thing to an “investment bible” on the market today.
In this book, Siegel analyzes everything – historical returns on bonds, stocks, mutual funds, the effectiveness of active money management, the performance of the stock market with Democrats vs. Republicans in the presidency, and methods for building an effective portfolio using Modern Portfolio Theory.
6. What Wall Street Doesn’t Want You to Know by Larry E. Swedroe
This was another book that I very much enjoyed. From reading this, I really would break this book up in to two sections – the first 250 pages of talk about stock market history and essentially serve to build a case/show evidence for why active stock management is a loser’s game. The second section (last 150 pages or so) was the most beneficial for me since I already knew a lot about stock market history and the pitfalls of active stock investing. In this section, Swedroe goes about telling how to build a portfolio that will achieve superior returns and lower risk. As was the case with Stocks for the Long Run and A Random Walk Down Wall Street, Swedroe repeatedly emphasizes the use of index mutual funds. The most useful lessons learned in the 2nd part of the book are described below.
1. The method to use for rebalancing a portfolio – using the 5% rule (see http://mypersonalfinancejourney.blogspot.com/2010/01/index-mutual-funds-and-current-assett.html for a detailed description of the rebalancing method).
2. Describes allocation % targets between REITS, US large, small, and value stock funds, and international stock funds. There is a very handy table that I printed copy of on page 307. Be sure to get a copy of the book and check out that page!
3. For higher returns, tilt more towards value and small cap stock funds (index funds of course)
4. The idea that a bond fund may indeed not be the best engine for the fixed income portion of your portfolio. Swedroe suggests that nowadays, it is so easy to invest in the actual fixed income security (e.g. t-bills), that it is more cost effective to just go ahead and buy it directly from the source instead of paying for the 0.1% management fee
7. A Random Walk Down Wall Street by Burton G. Malkiel
This is another gem that I would highly recommend for anyone who is a big believer in modern portfolio theory and the unlikelihood of beating the market long term by investing in individual stocks.
Like most books of it’s kind, the first part of the book is dedicated to proving that the market moves randomly, and that it is not possible to beat the market by buying and selling individual stocks or relying on active mutual fund management. One thing that I really like is how it takes the time to analyze the performance of both technical and fundamental analysis and how it compares to the performance of a mutual fund that matches the market indices.
The last 100 pages or so are where this book really makes itself worth the purchase. It describes in detail approximate target asset allocations for different age groups. For example, for mid-twenty year olds like myself, it recommends 5% cash, 20% bonds (5% of portfolio should be TIPS), 65% stocks (of this, 2/3 should be domestic, 1/3 should be international stocks with good exposure to emerging markets), and 10% real estate. As you can see, this goes in to a lot more detail about target asset allocations than the asset allocation calculators available on the internet.
Another couple of key points that Malkiel discusses in part 2 of this book are 1) tax-managed funds for taxable accounts and 2) investing in the Wilshire index vs. the S&P 500.
1) Malkiel brings up the point that it is better to invest in Tax-managed mutual funds that fund houses offer if the account is taxable. This is a good idea for people that have more money at hand I believe. However, for myself, since my money is fairly limited, I do not have the $10,000 initial principal required to buy a tax managed mutual fund.
2) Malkiel also reinforces the important point that one should try to invest in the Wilshire 2000 index instead of the S&P500 index if you can only afford to have a limited number of funds in your account. The reason for this is simple: the Wilshire index represents a broader range of stocks, ranging from small cap to large cap, throughout the US markets. Therefore, this gives an investor more diversification than an S&P500 fund, since the 500 companies in the S&P are only very large cap stocks.
8. The Four Pillars of Investing by William Bernstein
This was one of the first books I read on asset allocation and index mutual fund investing several years ago. It really was what got me interested in learning more about how it all works.
One of the things that I like about this book is that it dedicates more time to explaining how to build a portfolio vs. spending half of the book explaining why to invest in index mutuals instead of active management. It goes in to a lot of detail about the different specific options of mutual funds available to an investor in each asset size/class.
It even goes as far as to address how to best approach investing, starting with say $1000 (when you can’t afford to have 10 mutual funds). It then details how you build a portfolio piece by piece as you accumulate money over the years.
Highly recommended for a first book to read in learning to invest!
9. The Smartest Investment Book You’ll Ever Read by Daniel Solin
This is a great little book (170 pages and a very quick read at that!) that basically grazes over all of the topics in the books of Stocks for the Long Run and A Random Walk Down Wall Street. However, Solin keeps it to the high level view of things, and doesn’t delve in to the details that the others do. So, it’s good for getting a general message across, begin to set up your investing system with index mutual fund, find your correct asset allocation, and learn why stock brokers and active money management do not work!
10. The Intelligent Asset Allocator by William Berstein
This is another great title from Mr. Berstein that addresses how to build and maintain a successful portfolio of index mutual funds. It has a nice section that addresses the importance of portfolio rebalancing as well. I especially also like the section of the book that describes in detail each of the recommended funds from the Vanguard fund family along with whether that fund should be held in a taxable or tax-shelter account.
Another very neat aspect of this book is the long list of investment resources at the end. Definitely worth taking a look at!
11. Finding the Next Starbucks by Michael Moe
I read this book as part of my continued effort to find some method that would make me a believer in individual stock investing. This book did not perform that task.
However, it did provide some valuable insight in to how to identify growing trends within society and the companies that you can invest in to ride the waves. The one concrete concept that I did like in this book was how to calculate the P/E/G ratio for growth stocks. This is calculated by dividing the P/E ratio provided by most financial search engines by the 5 year projected EPS growth rate. You can then compare the P/E/G ratio to a chart that has been generated to get a feel for the growth potential.
Another good bit of information in this book is that Moe gives the reader a list of resources on where to find “hot” stocks that are experiencing new highs in the current market. The role I see a list such as that one playing is to provide a starting point for further screening. For example, I would ID a company using the sources Moe points out, then further analyze them using the Rule 1 methodology (see Rule 1 results post).
12. The Complete Idiot’s Guide To Managing Your Time by Jeff Davidson
This is the first book I have read that ventured in to the realm of the topic of managing your time, in a general sense (not just in the office as is the case with David Allen’s Getting Things Done book).
In this book, Davidson tackles every topic related to time management: from finding ways to avoid working unnecessary overtime, to putting your relationship as a priority in your life, to time saving devices and services that can be used. This book has it all!
Several of the specific topics that I enjoyed in this book were the ideas below:
1. The section about ways to avoid working overtime. It actually shows that some of the most successful people have lives out of work and rarely do work overtime. Jeff even shows how studies have been performed to show how productivity decreases by working overtime.
2. The section about defining what is most important to you in life and setting up your priorities so that time is allocated properly.
3. The section about “buying yourself some time” – This section adddresses the idea that the most important resource in your life in time, so why not spend some money to save yourself time on things you do not enjoy doing? It is an interesting idea. For example, he gives scenarios where it makes sense to hire someone to help you in areas such as mowing the grass, cleaning the house, getting groceries delivered to your house, etc.
Overall, this is a highly recommended read! The link to Amazon is show below to pick up a used copy.