Personal Finance: Want to invest? Read all about it
There are plenty of books that will promise to make you rich quick. But which give genuinely valuable investment advice?
Saturday 09 January 1999
The answer is that it is hard to find such a single-volume book. There are now quite a few excellent books about active stock-picking (which, in truth, is just a small subset of the overall subject of investment) and one or two good ones about financial planning, but nothing that gives what, in days long gone, might have been called something like The Intelligent Person's Guide to Overall Investment Policy.
Jim Slater's Investment Made Easy is a typically clear and concise read, though again with a slant towards his own speciality of stock-picking. Bernice Cohen's books are also well planned and presented. (I must declare an interest in that both these books are published by my own publishers, Orion.) I am also an admirer of Stephen Lofthouse's book, Fixing Your Finances (published by John Wiley), which is nothing if not comprehensive and clear-headed. FT Pitmans also publishes a series of excellent but quite weighty books on many different aspects of investment.
The one book that I think imparts the most wisdom per page is, however, perhaps inevitably, written by an American, Charles Ellis. If you held me up against a wall and asked me which single book has most to teach the average investor about the business of managing money, I would have to say that it is his book on investment policy. The first edition appeared many years ago but has just been revised for the third time and reissued with new material, under the title of Winning the Loser's Game.
In the best sense of the word, the book is a classic and, while directed primarily at a US audience, will reward anyone in this country just as well. The book is published by McGraw-Hill and can be found in serious bookshops (if you have difficulty finding it, contact the specialist investment publisher, Harriman House, in Petersfield, on 01730 233870, who should be able to find and post you a copy).
What makes Winning the Loser's Game so good? Well, part of it, I think, has to do with the fact that the book was originally written for professional investment managers and their employers, such as pension-fund trustees.
Mr Ellis has been an investment consultant for many years, and this book is a serious attempt to sum up the state of the world's knowledge about the practice of successful investment management for those for whom managing money is a mainstream business.
It therefore feels unimpulsive to promise its readers that reading the book will make them rich quickly - something which most publishers seem to assume is essential if you are to sell any kind of book about money to the retail market.
Yet the reality, as Charles Ellis demonstrates superbly, is that most of investment is not about making money quickly. It is about making sensible decisions that will preserve and grow your wealth in real terms over the medium and longer term.
The skill and art of it is as much about avoiding making mistakes or irrational or inconsistent decisions as it is about finding that wonder stock or money-making scheme that is going to transform your fortunes overnight. (If your investment strategy consists of putting all your money on the National Lottery, and doing nothing else, then this book is probably not for you.)
The book is not long - it runs to barely 140 pages of text, and is liberally sprinkled with illustrations - but it covers all the main aspects of investment in a marvellously concise and clear-cut way. It includes advice on how to set realistic investment objectives, how to think about risk and when and where to seek advice.
If anyone has any doubts about the wisdom of choosing an index fund for at least part of their portfolio, I defy them to retain those doubts after reading Ellis's masterly discussion of the real nature of stock- market risk. His demonstration of why investment has become a "loser's game" (a world in which you can prosper only by taking advantage of other people's mistakes, not through your own efforts) reads as powerfully today as it did when it was first published more than 25 years ago.
The key to success is knowing your own personality and shaping your investment decisions to match your needs and temperament. This, he reminds us, is a responsibility that only we ourselves can take on. It cannot be delegated.
But nor need it be an onerous task so long as we arm ourselves with a basic understanding of how and why the investment world works. This is something which, I am glad to see, the Government and the Financial Services Authority are both now trying to spread through various educational initiatives.
If they can do half as well at explaining what the eternal verities of investment are as Mr Ellis has done in his book, I will be very surprised.
Jonathan Davis is the author of `Money Makers - the Stockmarket Secrets of Britain's Top Ten Professional Investment Managers', published by Orion Business Books. It is now available in paperback, price pounds 9.99
`Winning the Loser's Game', normally costing pounds 19.99, is available to readers of The Independent at a special discount price of pounds 14.99 (plus pounds 2 p&p) from Harriman House. Call 01730 233870 or fax 01730 233880 for Visa, Mastercard or Amex orders. Or write to Harriman House Ltd, 43 Chapel Street, Petersfield GU32 3DY. Quote the code number (9397) or the title and mention that you want to take up the Independent Offer. Alternatively, go to the following website: http://www. global-investor.com/bookshop and type 9397 in the search box
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