What Wall Street Doesn't Want You to Know : How You Can Build Real Wealth Investing in Index Funds (Hardcover)

by Larry E. Swedroe (Author) "One of the most popularly held beliefs is that past performance is a predictor of future performance..." (more)
Key Phrases: passive asset class investing, passive asset class funds, small value stocks, Wall Street, Tweedy Browne, Value Line (more...)

Editorial Reviews

From Publishers Weekly
Investment adviser Larry E. Swedroe (The Only Guide to a Winning Investment Strategy You'll Ever Need) wants individual investors to understand What Wall Street Doesn't Want You to Know: How You Can Build Real Wealth Investing in Index Funds. With clarity and conviction, he cuts through market mythology (principally that actively managed fundsAeven those managed by professionalsAtend to beat market returns), and explains how to apply his fundamental Modern Portfolio Theory to "passively" manage investments and "deliver the greatest expected return for any given level of expected risk."
Copyright 2000 Reed Business Information, Inc.

From Booklist
Swedroe focuses exclusively on index funds. A favorite of financial guru Jane Bryant Quinn, Swedroe previously touted index funds with The Only Guide to a Winning Investment Strategy You'll Ever Need (1998). Index funds represent a "passive" approach to investing, but one still must choose among the several types available, and Swedroe offers helpful guidance. His main focus, though, is on making his case that index funds are the surest way to invest over time. He argues that no Wall Street portfolio manager can consistently outperform the market and that no investor can know more than the market does collectively. Swedroe shows why "past performance is not a predictor of future performance" is more than just a throwaway disclaimer as he takes on Wall Street and its "deceptive advertising practices," research costs, and trading fees. David Rouse
Copyright © American Library Association. All rights reserved

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Product Details

• Hardcover: 379 pages
• Publisher: Truman Talley Books; 1st edition (December 2000)
• Language: English
• ISBN-10: 031227260X
• ISBN-13: 978-0312272609
• Product Dimensions: 9.3 x 6.3 x 1.5 inches
• Shipping Weight: 1.4 pounds
• Average Customer Review: 4.5 out of 5 stars See all reviews (26 customer reviews)
• Amazon.com Sales Rank: #924,277 in Books (See Bestsellers in Books)

Customer Reviews

Most Helpful Customer Reviews

56 of 58 people found the following review helpful:

5.0 out of 5 stars A Good Summary of Recent Research on Investing, March 22, 2001

By	Ron A Rhoades (Lecanto, FL United States) - See all my reviews

Larry Swedroe presents in 357 pages a broad overview of much of the recent research and discourse presented by rational observers of Wall Street. For the individual investor the author cuts through the hype of Wall Street and forcefully feeds a diet of statistics and research in support of low-cost index funds. For investment advisors this book can be used as an introduction to much of the recent research on stocks and investing. Fans of the writings of John Bogle (Common Sense on Mutual Funds), Jonathan Clements (Wall Street Journal columnist), and Burton Malkiel (A Random Walk Down Wall Street) will particularly enjoy the many reinforcing concepts presented in this text.

Larry correctly argues that to maximize the investor's chances for success the investor should take into account his or her time horizon, allocate assets among categories accordingly, and then diversify using low-cost and (where appropriate) tax efficient index funds or tax-managed mutual funds. Through successive chapters he notes: (1) markets are efficient; (2) active managers of investment accounts cannot add value over the long term, considering the burdens of their fees and taxes; (3)market timing is not a strategy that works over the long term; (4) investors in stocks and stock mutual funds decrease their risk level as their time horizon is extended to 20 years or more; and (5) investor behavior, driven by the emotions of fear and greed, often interfere with good long-term investment results. The real gems of the book are saved for the last chapter, when he brings it all together with some asset allocation recommendations. The appendices should not be overlooked, especially his brief discussions of: (A) selling when a low tax basis is present; (B) why investors should generally avoid variable annuities; and (C) the all-too-common hype today that high net worth investors are better off owning individual stocks than stock mutual funds.

I agree with the comments by other reviewers that DFA is hyped too much. Individual investors who choose to go it alone, without a registered investment advisor, should probably confine most of their index fund search efforts to passive index funds offered by Vanguard (and perhaps a few other select fund companies), and not worry about missing out on the DFA offerings. Larry's discussion of value stocks vs. growth stocks could be a little more focused and reasoned, but the statistics presented on choosing value stock mutual funds are interesting.

This is a good text for those investors desiring an overview of the rational behind passive (index fund) investing. John Bogle's book, Common Sense on Mutual Funds, is a better book for the beginning investor, as it more patiently presents the basic concepts of investing. This book should be considered as one of the next books to read by investors. Larry Swedroe's book gives investors the insight to see beyond the hype of Wall Street. After reading Larry's book (and perhaps others), the investor should then turn to Bruce Temkin's recent text, The Terrible Truth About Investing, especially if the investor thinks he or she has learned all there is to know.

I wholeheartedly recommend Larry Swedroe's new book as an essential addition to every rational investor's library.

17 of 17 people found the following review helpful:

4.0 out of 5 stars A DFA Commercial?, February 20, 2001

By A Customer

I echo most of the positive comments of the other reviewers--there is lots of good and convincing information here. However, to underscore and amplify indexfunds.com's concern, some aspects were a bit chilling, in terms of Swedroe's overall credibility. By the end of the book I felt as if subtle pressure not only to buy DFA funds, which are only available from certain fee-only financial advisors, was being brought to bear, but also pressure to employ a consultant regardless of whether I wanted these particular funds or not. The advice to do so seemed to me to fly in the face of the implication that the strategy isn't that hard, as well as the recommendation to avoid load funds due to excessive fees, as Swedroe mentions that an advisor may charge a 1-2% fee! I still liked the book and the advice, but the massive promotion of DFA and the implication that the investor may still need a fee-only advisor left me with an unfortunate (unfortunate given how much I liked the main gist of the book) nagging feeling that the entire work was an elaborate scheme to get me as a customer for one of the firms that sells DFA funds.

54 of 64 people found the following review helpful:

4.0 out of 5 stars A Great Book Based on a Bad Theory, February 7, 2001

By	Charles Alford (Laurel, MD USA) - See all my reviews

This is one of the best books on investing I've read (I've been at this several years, and read several dozen). It seems better argued than John Bogle's Common Sense on Mutual Funds, which isn't bad. Especially helpful was the author's demonstration that index investing isn't the same as investing in the S&P 500. One wants to invest in value, mid-cap, international, and other indices, and Swedroe tells you how and in what proportion. The book's subtle is "the only guide to a winning investment strategy you'll ever need." It sounds grand, but for the average investor (this includes most who think they aren't average) it's probably true. I especially appreciated his advice not to go to the funds, even index funds, for bonds. He doesn't seem to be pushing a product.

But there's something puzzling about the book. If it's one of the best books on investing I've read, it's certainly the best book on investing I've ever read based upon a wrong theory. That theory is Modern Portfolio Theory/Efficient Market Theory. Because he believes it, Swedroe says that value funds (stocks) are cheaper because they are riskier, which he actually argues. One sees the great virtue of the book here: he gives evidence and argument, not just assertion. Still, that all value stocks are distressed stocks is hard to believe, and the claim that risk has nothing to do with volatility is hard to swallow. Instead of saying that the market is all knowing, which is why it is so hard to beat the market, especially given transaction costs, why doesn't he just say something like "in the short run (less than five years), markets are manic-depressive, irrational, but in a way that is very hard to exploit, since there is no clear pattern. If it's hard to know which way a rational market is going to go (random walk theory), how much harder it is to make sense of an irrational market." Everything he says about indexing would still be right, and he wouldn't have to work so

hard to show it's all really rational. (Still, I appreciated his explanation of why Warren Buffett has beat the market: he doesn't just buy good companies; he runs them.)

One other thing. A serious book like this should have an index.