MohammedAmin.comSerious writing for
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Your finances will depend upon what you do with your savings. I recommend five books about investing that everyone should read.
Summary
Posted 5 July 2020 Revised 9 October 2021 by deleting “Excess Returns: A Comparative Study of the Methods of the World’s Greatest Investors” by Frederik Vanhaverbeke to add “The Psychology of Money: Timeless Lessons on Wealth, Greed, and Happiness” by Morgan Housel
One of my children recently asked if I could recommend some books to read about investing. To help focus the mind, I limited myself to only five items.
They are listed below after some background information. In the background information, I have avoided linking to any commercial sources, to preserve impartiality.
I bought my first investment in 1974, shortly after starting my first job as a teacher. This was £50 invested into a unit trust. (The more common modern-day equivalent is an OEIC – an “open ended investment company.”)
I have been investing ever since, and also reading about how to invest and investing theory. Over the last 45 years I have read dozens of books.
I have been reading the Financial Times since 1990 when I became a Price Waterhouse partner as every partner received a copy of the FT every day, paid for by the firm. When I retired, I immediately bought an electronic subscription.
I have also subscribed to Investors Chronicle magazine since the early 1990's.
While my first investment was small, over time my portfolio has become increasingly important to my overall finances. In the early 1990's, I decided that if I was going to be poor in retirement, I wanted to have nobody to blame but myself. Accordingly I also took responsibility for the investment of my pension funds.
In retirement, although my wife and I both have state pensions, and I have some lifetime pension from my PricewaterhouseCoopers career, most of our income comes from the investments held in our SIPPs, ISAs, and the investments we hold personally.
In the private sector, very few employees now have defined benefit pension schemes. Instead, most have defined contribution pension schemes. Obviously, defined contribution schemes are the only schemes available for individuals who are self-employed.
With defined contribution pension schemes, you always have to choose how your pension fund is invested. Even if you simply allow your employer’s default investment arrangements to apply, you are making a choice by deciding not to do anything else.
How your pension fund is invested maybe the most important financial decision you ever make; probably more important than buying your home.
The same applies to the decisions you make about your personal savings. Even if you hold all your personal savings in cash, you are thereby deciding not to acquire other types of investments.
Many people will want to advise you about your investments and charge you for the advice either directly or indirectly, since giving investment advice can be very lucrative.
How can you judge their advice if you are ignorant about investing? Frankly, investing is too important for you to make no effort to understand it.
While some of the books listed below may seem expensive, the cost of not knowing what they can teach you is far greater.
The books are listed in the specific order in which I recommend reading them. Accordingly, they start easy but do become both bigger and somewhat more difficult.
I strongly recommend persevering and reading all of them before you start making important investment decisions.
This short simple 242-page book is the best possible introductory guide to thinking about your personal finances. That is why I have listed it first.
It explains why many people have very high incomes, but end up poor, while others with much more modest incomes die rich.
There is a review on my website.
John Kay is an economist as well as being an investor.
This is a small 270-page paperback which everybody should find quite easy to read.
There is a review on my website.
This is also a relatively easy book at 225 pages.
Charles Ellis has taught investment courses at both Harvard Business School and Yale School of Management. Perhaps his most important credential is that he was a trustee of the Yale endowment and chaired the Yale Investment Committee. The investment performance of the Yale endowment under its director David Swensen is legendary.
I had the privilege of meeting David Swensen when he gave a lecture at Clare College a couple of years ago. Swensen could not have achieved what he did without the considered support of the Committee to whom he reported.
There is a review on my website.
For a very brief introduction, I recommend watching the 11-minute video below, in which Charles Ellis explains the concept of a "Loser's game" and how that applies to investing.
Both its length at 706 pages and the complexity of some of the material covered make this book a significant step up from the two listed previously.
It is extremely important though because the investor is always his own worst enemy.
There is an existing review on my website.
An 8-minute video (not by Montier himself) which introduces you to some of the underlying behavioural concepts is below.
The video mentions a much shorter book "The Little Book of Behavioral Investing: How not to be your own worst enemy" by James Montier. You may wish to read that first, but I do not regard it as a substitute for the big one!
At 629 pages, this is also a serious heavyweight book.
At the time he wrote it, the author was Professor of Business at Columbia Business School. He also has a glittering list of consulting clients including the Canada Pension Plan Investment Board, The Federal Reserve Board Of Governors, and the Norwegian Ministry of Finance (which has the world’s largest investment fund, being the Norwegian sovereign wealth fund.”
He is now Head of Factor Investing Strategies at BlackRock
I learned a great deal from reading it.
In particular, it made me focus on the need for a consistent asset allocation strategy combined with rebalancing. As a consequence, I chose to have a strategy of 90% equities and 10% cash, and to rebalance monthly. (That allocation makes sense for me, but is unlikely to be appropriate for other people unless their finances and risk tolerance are the same as mine.)
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