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The Little Book of Safe Money: How to Conquer Killer Markets, Con Artists, and Yourself Hardcover – November 9, 2009
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The Three Commandments of Investing
Amazon-exclusive content from author Jason Zweig
Thou shalt take no risk that thou needst not take. Always ask yourself: Is this risk necessary? Are there safer alternatives that can accomplish the same objective? Have I studied the pros and cons of each before settling on this choice as the single best way to achieve my goal? Unless you ask, do not invest. The Second Commandment:
Thou shalt take no risk that is not most certain to reward thee for taking it. Always ask yourself: How do I know this risk will be rewarded? “Most certain to reward thee” does not mean that there is zero chance that you will not be rewarded. It does mean, and must mean, that you are highly likely to be rewarded. What is the historical evidence, based on the real experience of other investors, to suggest that this approach will actually succeed? During the periods in the past when it hasn’t worked – and every investment in history has gone through such dry spells, regardless of what the hypesters might tell you – how big were the losses? Unless you ask, do not invest. The Third Commandment:
Thou shalt put no money at risk that thou canst not afford to lose. Always ask yourself: Can I stand to lose 100 percent of this money? Have I analyzed not merely how much I will gain if I am right, but how much I can lose and how I will overcome those losses if I turn out to be wrong? Will my other assets and income be sufficient to sustain me if this investment wipes me out? If I lose every penny I put into this idea, can I recover from the damage? Unless you ask, do not invest.
"A little book with big advice. Jason Zweig . . . doesn’t promise investors the moon, but in language that everyone can understand, he offers solid, common-sense steps to protect and improve their portfolios. . . Such advice is consistent with the bigidea of Zweig’s book: If an investment looks too good to be true, it probably is. And he offers a useful process to help readers remember it."
"There are very few in the financial media whose material I would consider recommended reading. Wall Street Journal columnist Jason Zweig is one of them, and his new book is one you should consider. His latest work adds to his reputation for books that not only provide important insights into the winning investment strategy, but are also good reads. This little book is filled with sage counsel from which even sophisticated investors can benefit. . . His book also provides advice on how to avoid many of the behavioral mistakes investors keep repeating. As William Bernstein, who wrote the forward, put it: ‘Jason Zweig knows your financial demons, where they live, why they’re making your poor, and how you can beat them."
—Larry Swedroe, CBS MoneyWatch
This book is a well written, fascinating page turner that I read in one sitting with a big bag of microwave popcorn. Yet, I don’t just recommend a book because it was thoroughly enjoyable. The main reason to read this book is that it can put you on the path toward reaching financial freedom. But it’s up to you and whether you’d rather spend your retirement years pursuing your interests, or spend them asking strangers if they’d like their value meal supersized.
—Allan Roth, Founder of Wealth Logic, and author of How A Second Grader Beats Wall Street
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Top customer reviews
Much of the book covers some common sense concepts, like (1) don't take unnecessary risks, (2) don't take risks without sufficient expected return to compensate for taking the risks involved, and (3) don't risk money that you can't afford to lose. Zweig refers to these concepts as "commandments," and comes back to them throughout the book. He does a better job, in my view, when he addresses somewhat less obvious concepts, such as the (sometimes neglected) value of liquidity and the value of one's "human capital." For example, if you have invested years in your own education to become a geologist, then it might make sense not to concentrate your financial capital investments in energy stocks (because if the energy industry falls on hard times, your investments could suffer and you could lose your job at the same time).
Zweig is at his best, in my opinion, when he addresses the supposedly "low risk and high return" investments that the financial industry regularly puts out. He also deserves credit for explaining (1) how some "guarantees" are not all they are cracked up to be, (2) the difference between yield and total return, (3) how the risks that stocks seem to represent and the risk that they actually represent are often inversely correlated (think about that for a minute), and (4) why leveraged ETFs (exchange traded funds) may behave differently than some investors expect. There are more, but you get the idea.
I liked Zweig's discussions of the risks involved in hard assets and emerging markets, and I thought he did a good job pointing out the various unconscious biases many investors have, such as "anchoring" and "framing" that behavioral finance warns us about. The discussion of "Mr. Market" (an invention of the legendary Benjamin Graham) was very good, and I liked Zweig's collection of red-flag phrases for investors--like "can't lose," "guaranteed" and some less obvious others.
This book is an easy read not only because it's short, but also because Zweig has an easy writing style. I doubt that it will plow a lot of new ground for sophisticated investors, but for the rest of us, it represents a worthwhile investment.
Most recent customer reviews
Would also recommend The Little Book of Main Street Money by Clements and The Little Book of Bulletproof...Read more
through the nonsense of many of the "pros".