Breaking stone to be success

5 Responses to “The Elements of Investing”

1. L. Masonson
   March 23rd, 2010 at 3:38 am

   Two long-standing powerhouse investment experts and authors, Ellis and Malkiel have teamed up to write a simple investing guide for the uninitiated. This book is best suited for those individuals who have a very limited or no investment knowledge, as well as for investors who have had no success or can’t seem to make money consistently, especially in bull markets. This short and sweet book covers the basic elements of investing in a clear-cut step-by-step approach. Many new investors will benefit from its down to earth, easy-to-follow advice. Seasoned investors will not find anything new here. The keys to successful investing according to the authors include: saving early-on and consistently, using company and governments sponsored retirement plans to build wealth, diversification using index funds, rebalancing annually, using dollar-cost averaging, and investing for the long haul by ignoring market fluctuations.

   The authors strongly believe in the buy-and-hold mantra and the efficient market hypothesis. Unfortunately, using this approach with low-cost index funds is totally antiquated in today’s financial world where we have seen two stock market crashes in the last decade where investors lost $11 trillion of market value. As the late Nobel Laureate economist, Paul Samuelson, has said: “The longer you own stocks, the greater the risk of a devastating loss. ” That is why buy-and-hold is doomed to failure.

   Today’s investors need a pro-active investment strategy using a specific action plan with specific buy and sell rules. Since most investors will not or do not want to consider an active investing approach, then this book will certainly suit their needs and provide a decent return, although it is subject to being fully invested during future bear markets and crashes which will occur, as they have in the past.

   Buy-and-holding index funds is certainly a viable strategy, but it definitely has risk, more risk than most investors realize, and is certainly not an optimal approach. As in sports, a winning team requires both offense and defense. Buy-and-hold does not offer a defensive strategy when it is needed the most – during bear markets and crashes – and that is a major shortfall that is critical for investors to understand.

   Interestingly, the authors made a surprising statement as follows “charting is akin to astrology. ” This view is ridiculous in today’s world in light of the hundreds of members of the Market Technician’s Association who are Certified Market Technicians, the many members of National Association of Active Investment Managers, and the many large institutions and financial firms that have technical analysts on their staff who use charts to identify exit and entry points for the market. Using charts have helped many investors and institutions avoid this latest bear market. For example, by simply using the 200-day moving average with the major market averages, among other technical indicators, stock market losses were greatly reduced by being out of the market way before the September 2008 market debacle occurred.

   In summary, the authors present a rationale for using the well-known buy-and-hold approach. They don’t seem to be swayed by the volatile and crushing crashes in the past decade, and that is their right. Investors need to understand that buy-and-hold is a dangerous approach in volatile times, and that they may want to consider alternative self-directed investing approaches to protect their hard-earned money in future years.

   Rating: 3 / 5

2. Mildred F. Ellison
   March 23rd, 2010 at 4:58 am

   Great little book. My husband bought one for himself and one for my sister.
   Rating: 5 / 5

3. Wannabe
   March 23rd, 2010 at 6:45 am

   I have read previous books by each author, and had really expected more—MUCH MORE.

   The salient investing advice in this book could be expressed in a single paragraph. I felt like I was reading Money Magazine. .
   Rating: 2 / 5

4. Herbert Gintis
   March 23rd, 2010 at 7:02 am

   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. Rebalancing is costly.

   When you buy index mutuals, never pay more than 1/5 of one percent in overhead per year. If you buy international mutuals, you will have to violate this rule, however.

   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.
   Rating: 5 / 5

5. Readers Favorite
   March 23rd, 2010 at 9:31 am

   This tiny book is 117 pages of commonsense investing. The purpose of this book is to teach the principles of investing. The authors suggest greed is the biggest danger to investors. This book is to the point, with simple rules.

   *Diversifying broadly over different types of securities with low-cost “total market” index funds and different asset types–and why this is important.
   *Focusing on the long term instead of following market fluctuations that are likely to lead to costly investing mistakes.
   *Using employer-sponsored plans to supercharge your savings and minimize your taxes.

   It is very important for the investor to be well informed. I often find my investor talking what sounds to me like a foreign language. Along with this book, I will attempt to become a more knowledgeable investor. I like the way this book cuts out the rhetoric and puts investment theory in simple terms.
   Rating: 5 / 5