Books on investment tend to lead with headlines about becoming a millionaire, or contain get-rich-quick schemes. The books below are culled from that junk pile because we think they will help you become a better investor without making crazy promises.
The important things to learn are:
- How to engineer a lifestyle that allows you to save (Iona Bain’s book Spare Change helps with this)
- Why save at all and how to overcome the fear of investing (Tony Robbins’ expertise in life coaching helps with this)
- Asset allocation is the single most important determinant of returns (Meb Faber shows which strategies worked best)
- Bubbles can hurt you (Robert Shiller and Richard Bookstaber will help you spot bubbles, it’s harder than you think!)
- Professional finance (Ramin’s book will help if you want to take it a step further and work in the financial industry)
I came across this book because so many PensionCraft clients had read it. Tony Robbins is not a financial expert, as he is at pains to explain. However as a world-famous motivational speaker he has access to some of the best minds in finance. He drew on those minds to produce this book which explains how to avoid the fear of investing and maximise your chances of succeeding when you invest.
He explains why you should avoid excessive fees, use asset allocation to diversify and look to get the best possible return for the least risk, and that you should use tax efficient savings whenever possible. He also motivates you to overcome your fear of investing with some historical facts about market long-term returns. All sensible suggestions. The drawback for UK investors is that it is slightly US-centric but it has universal principles that are useful for anyone, anywhere.
Jack Bogle founded Vanguard and is widely seen as the founder of the low-fee passive approach to investing. In this concise and clearly explained book he outlines his investment philosophy.
Instead of trying to find a fund that beats the market, which is like looking for a needle in a haystack, Bogle tells you to "buy the haystack". Buying the entire market is now cheaper and easier than ever before, and more people are moving towards Bogle's approach as investors lose faith in the ability of active managers to beat the market.
Asset Allocation is the amount of money you put into each asset type (shares, bonds, real estate, forestry...) Meb Faber has created a survey of many different standard asset allocation strategies to see which ones have performed well in the past.
If you want to get inspiration for how to invest your own portfolio this book offers some useful insights. It turns out that as long as you have a sane portfolio with some diversification you will achieve pretty good long-term results, but fees are a universal menace which should be kept as low as possible.
The Nobel Prize winning economist Robert Shiller wrote this book to try and explain why financial markets go through repetitive boom and bust cycles. He delves into the psychology behind these market cycles, even describing the information that drives booms like the spread of a disease.
If you want to learn how to spot market bubbles this book is invaluable.
A Demon of Our Own Design is written by Richard Bookstaber who knows markets inside-out. He held various roles in finance which put him in the thick of the action, such as Director of Risk at a major global hedge fund, and a trader and risk manager at a large investment bank.
He talks about what went wrong in the market crash of 1987 as many people bought portfolio insurance and as an unintended consequence the hedging of these products may have destabilised markets. He asks whether markets are doomed to crash by design. Although written a while back in 2007 it offers insight into the causes of market crashes with some nice explanations of things such as statistical arbitrage.
This is Ramin's book on finance for professionals. If you want to work at an investment bank, pension fund, insurance company or hedge fund then this book contains a lot of the knowledge you'll need.
The book is over five hundred pages long, and is packed full of helpful graphs and worked examples. It took five years to write and draws on Ramin's experience teaching staff and clients at an investment bank about financial products and asset pricing.
The greatest risk to your investments is your behaviour. From chasing funds with recent high returns to an outsized fear of loss, we are all susceptible to biases that reduce our investment performance. In this book, Morgan has bite-sized chapters that teach us all how to avoid our biases and focus on the kinds of behaviour that is most likely to be successful. For example, many people sell successful businesses and then quickly lose their capital by taking too much risk because getting rich requires a different approach to staying rich. We often assume that the future resembles the recent past, but to get a broader picture it pays to look deep into the past. This is why after a period of strong stock returns we take too much risk and after a market crash, we take too little risk. Morgan Housel makes all these lessons easy to absorb as he honed his writing skills working for the Motley Fool.