Customer Reviews

The Elements of Investing

5 star:		(21)
4 star:		(7)
3 star:		(3)
2 star:		(3)
1 star:		(1)

 

 

If you are a Burton Malkiel and/or Charles Ellis fan, do NOT buy this book. You presumably have already read some of their other works and this book adds nothing new. It is a very brief (small, short, large font, lots of white space) book that summarizes the basic investment lessons that you would already know. If I didn't have more respect for Malkiel/Ellis I would suggest that they created this book just to capitalize on their names. On the other hand, if you haven't read their works (or anything by John Bogle) then the lessons in this book will prove valuable. You will still feel like you overpaid for the book (it would make a good feature article in a magazine), but at least it may simplify the investment arena for you and provide you with some clear (albeit very succinct)direction.

I was looking forward to the authors coming out with a new book to give their investment advice after the 2008 and early 2009 stock market crash. Their fundamentals appears to be the same with the use of broad based index funds, but their stock allocations have shifted to having more money invested globally outside of the United States. You'll have to purchase the book to read their recommendations. Also, they have given their opinion about Vanguard's new Total World index fund and both have given their individual asset allocations based on a person's age with Burton Malkiel's being more conservative and Charles Ellis' being more aggressive. They both also give a list of recommended index funds along with a surprise for us regarding their individual stock picking. It's not what your thinking like day trading. Trust me.

The authors' do say that the book will help 90% of all investors, with the remaining 10% of investors seeking professional help with complicated situations.

All around very good book and a quick read. Its good for those relatively new to investing because they give personal finance advice also, and the book is also good for experienced investors for their expert advice regarding investing after the 2008/early 2009 stock market crash.

I highly recommend the book.

I couldn't wait to get my hands on a copy of this groundbreaking, new, investment book from two of most respected marketwatchers around today! Princeton economics professor, Burton G. Malkiel, and influential non-profit chairman, Charles D. Ellis, have put their brains together to come up with one of the most surefire investment strategies out there. The Elements of Investing is intelligently written in a pared-down-to-the-absolute-basics sort of way. It's one of the rare books written in this vein that actually takes the reader's ambitions seriously. It's a pleasure to read, because it is peppered with real life examples of people exhibiting good and bad investment behavior and the twists and turns their lives take as a result.

Right off the bat, Malkiel and Ellis admonish readers to start saving as early as possible and continue saving regularly throughout their lives. Granted, in a runaway consumerist culture like ours, characterized by its easy credit and debt-addicted millions, this task is so often easier said than done. But a prudent, evenhanded approach to spending and saving is possible--and Malkiel and Ellis show you how with smart suggestions that range from the banal, to the downright devious. The real plus to becoming a habitual saver, the authors explain, is that it helps you keep your real priorities in perspective. According to Malkiel and Ellis, your number-one priority, along with that of every other, gainfully employed, taxpaying American, should be to gradually grow your net worth so that your safety net's intact when your finally reach retirement age. Think of saving, they say, as investing in your future self!

Next, Malkiel and Ellis explore some innovative ways to grow your asset pool, focusing specifically on index funds because they are affordable, intelligently managed and because their unique formulations allow for risk to parsed out over a wide, representative swatch of the market. The authors inform readers about various other index products they may not have considered before, including index bonds and international index funds.

Malkiel and Ellis use statistics and compelling anecdotal evidence to reiterate the time-honored benefits of diversification for a new generation of investors. The authors emphasize the singular importance of diversifying across asset classes (stocks, bonds, money market instruments, commodities, etc.), across markets and over time. They explain how having a diversified portfolio gives the savvy investor a leg up as the market undergoes the upsetting process of rebalancing in the wake of a serious stumble like the one which followed the housing bubble burst of last spring.

In a final, bonus section, Malkiel and Ellis offer an insightfully rendered and detailed menu of IRA's and other tax-deferred, savings options available to investors.

The Elements of Investing is a veritable goldmine of investing wisdom backed by two of the most trusted names in the investment industry. Malkiel and Ellis' clear goal is to inspire readers to believe in their basic competency as investors and to chase their dream of financial independence and security!

For those interested in further, reliable reading on the subjects of developing good money habits, investing and personal finance, check out Thomas C. Scott's Fasten Your Financial Seatbelt: What A Fatal Plane Crash Taught Me About Retirement Planning and John E. Girouard's The Ten Truths of Wealth Creation.

Everything in the book marches out with my experience and research in investing. It is short, simple but not simplistic, and would be a great gift for any older adolescent/young adult with an IQ larger than their belt size.

Malkiel's Random Walk Down Wall Street is one of the best finance books ever written. It is still a pleasure to read. This book is more nuts-and-bolts, but the advice is absolutely first rate. Here are their four main points:

1. Save regularly and start early.

2. Use company- and government-sponsored retirement plans to supercharge your savings and minimize your taxes.

3. Diversify broadly over different securities with low-cost "total market" index funds and different asset types.

4. Rebalance annually to the asset mix that's right for you.

5. Stay the course and ignore market fluctuations; they are likely to lead to serious and costly investing mistakes. Focus on the long term.

I think point 4 is way overstated, however. I would rebalance every ten years, or maybe even twenty years, unless there is a real reason for doing so. Rebalancing is costly.

Here is an example of the savings from using low-cost mutual funds (point 3 above). Suppose you put $1000 every year for 30 years into stocks. The average rate of return, historically, is about 8.6%, so if there are not brokers' fees, you would have $138,420 at the end of 30 years. With yearly brokers' fees of 1.15% (the industry average), you end up with $103,890 after 30 years, which means the brokers get 25% of the total. Moreover, had you invested in Treasury bills for the same period, you would have earned about $55,000, so the total increase in your wealth from using the broker is $103,420 - $55,000 = $48,420. of which the broker gets $34,530, or 70% of the net gain from using the broker.

When you buy domestic index mutual funds, you need never pay more than one fifth of one percent in overhead per year. International mutual funds, you will have to violate this rule, however. At this rate, after 30 years you will have $134,447 and the broker will earn $3,972, or about 5% of the net gain from using the broker.

Don't buy only index stocks. Also index bond funds.

Anyone who tells you he can beat the market without being an expert is a liar or a fool. Even an expert can only beat the market by a tiny bit with "inside information" and an understanding of market dynamics.

Malkiel and Ellis tell it all. Give this book to your parents if you want to inherit in your old age, and to your children if you want them not living with you in their middle-fourties.

To come from eminent Professors Malkiel and Ellis I was very disappointed. The small book is 117 pages and five chapters of commonsense advice on investing. The book begans with a few pages on "Do no harm" and never moves into any more exciting chapters than that. Make sure to take advantage of your 401(k) or IRA and diversify your portfolio. That's about it and others may feel otherwise but that is my opinion.

"The Elements of Investing" is a good starter book, a wonderful gift for a recent graduate, but I would recommend for more experienced investors Malkiel's "Random Walk down Wall Street." Elements starts by encouraging budgeting and debt control before moving on the basics of index investing. The books writing is clear and concise avoiding jargon or insider phrases.

First, if you are considering reading this book let me set your expectations straight. This book is truly the equivalent of Strunk and White's "The Elements of Style." What the latter is to English, this book is to investing... nothing less nothing more. Don't expect a lengthy and heady tome addressing all the underlying complexities associated with this simple investing method. That's not what this book is about. If you want the heady stuff, read Malkiel's classic A Random Walk Down Wall Street: Completely Revised and Updated Edition. The latter will take you 20 hours of very concentrated reading to absorb. On the other hand, "The Elements of Investing" will take you less than two hours of very leisurely reading. So, the two books are like comparing apples and oranges. In this current book, you will still get all the basics of successful investing. Yes, it can be boiled down to a few words: save, diversify, invest in low cost index funds, rebalance, and take advantage of all retirement investment tools (Roth IRA, 401K). Sometimes, simplicity is achieved by brilliant and wise minds. And, this is a case in point. The authors have achieved their objective.

The bit of data the authors share support their method. On page 35, they show that from 1 year to 20 year term, the S&P 500 beats out routinely two thirds of investment managers. On the next page, they show that over 20 years a S&P 500 index fund beats out the average mutual fund by almost 1 percentage point (which compounded over time is an enormous advantage). On page 40 and 41, they disclose info from the WSJ showing how 14 funds that had been very successful in beating the S&P 500 for several years running did really poorly the very next year. Past performance is no guarantee of future one. On page 83, they show how equity investors are really bad at timing the market as they invest during Bubbles and sell during crashes which is obviously the opposite of what you want to do. Timing is something even the pros can't do. On page 89, they show how over the 1994 - 2008 period, mutual funds returns are negatively correlated with annual portfolio turnover. In other words, the higher a mutual fund portfolio turnover (timing) the lower the return. And, this is due only partly to incurring higher expenses. It is also due to poor stock selections. Thus, timing is something best left to not even the pros.

Their specific recommendations in addition to the key principles already mentioned make good sense. On page 99, they share six good low cost money market funds to park your money. On page 108, they disclose recommended asset allocation ranges for various age brackets. The ranges are quite elastic as they acknowledge people have different temperamental risk tolerance and different financial means to bear risk. Interestingly enough each author offers his own asset allocation recommendation. Here Ellis is a bit more aggressive than Malkiel with asset allocations more tilted towards equities to earn slightly higher long term returns in exchange for bearing commensurately higher risk. This is simply a trade-off between the two to be aware. It does not mean one is better than the other. They share this interesting exception caveat to age-driven asset allocation: if you have funds you expect to pass on to your children or grandchildren, you should invest such funds according to their age, not yours. This means having a more aggressive equity tilt for such funds. On pages 117-119 and 123, they recommend numerous index funds and ETFs that they prefer over the S&P 500 as they track indexes that are far more diversified.

I gave the authors a 5 rating because I understood what their objectives were and I feel they fully delivered. This is truly "The Elements of Style" of the investing world. This is no small achievement.

Sometimes I'll listen to a book and early on, get one idea that makes it
a worthwhile investment of my time . . . such was the case the THE ELEMENTS
OF INVESTING by Burton G. Malkiel and Charles D. Ellis, in which the point was
made to save regularly and start early.

The authors then convinced me of how powerful this can be via the example
of Ben Franklin:
* He gave $5,000 to both Philadelphia and Boston and told both cities to
invest this money wisely. They could then spend half of what has been
saved 100 years later, and the other half 200 years later on public works projects.
Turns out that after 100 years, Philadelphia and Boston got $500,000 to spend and
after 200 years, each city got to spend $20 million!

Everything from then on just added to my appreciation of this small, oh-so-powerful
book on investing . . . I learned much more than I thought I already know
about such other principles as these: Use company- and government sponsored
plants to supercharge your savings and minimize your taxes; Diversify broadly
over different securities with low-cost "total market" index funds and different
asset types; Rebalance annually to the asset mix that's right for you; and
Stay the course and ignore market fluctuations.

Among the other tidbits I picked up were these:

* Never pay more than 1/5 of one percent in overhead per year when you buy
index funds.

* Past performance is not a goo indication of future performance. What is a good indicator
are the fees. The higher the fees, the lower the return.

* Brokers have one priority: To make money for themselves. Their goal is not to
make money for you,but from you.

* A broker has one goal: To have you take action. Any action.

* Annuities have one big advantage: You won't outlive your money.

This is a particularly good book for beginning investors, so if you have any
children or grandchildren in these categories, choose this as an ideal
gift recommendation.

This is a book that will probably change my investment life -- LONG TERM. The index fund strategy is hard to argue, with its low cost, simple approach.

However, I was very disappointed that it failed to address mid and short-term investments. Following their strategies in the near and mid-term (i.e. 1-10 years), would be financial suicide (way too much risk).

Regardless, it's a must-read book for anyone. It angers my ego that I have very little chance of beating broad market indices, but the rational side of my brain will win the battle.