The other day at a Dollar General (DG) store, where I had stopped to get a candy bar, the cashier shot me a stern look. "Too late to be reading that," she said, giving two swift thumps to a book I had with me, The Four Pillars of Investing. Had she stolen a peek at my portfolio? Or had this woman, whose gray hair identified her as one of Florida's working retirees, resigned herself to eternal toil at Dollar General? Either way, I figured the best response was an upbeat one, so I muttered something about hope over experience.
Investors all over might be forgiven right now for never wanting to pick up another book on investing. Yet three recent titles restate lessons that, had they been more widely followed in the '90s, would have left us far better off now. Along with Four Pillars, by William Bernstein, they are Larry Swedroe's Rational Investing in Irrational Times and Frank Armstrong's The Informed Investor (table).
What's curious is that the authors agree on key issues--index investing is good; most of professional Wall Street and nearly all of the financial media are bad--and they promote one another's work via cover blurbs and mid-chapter asides. Yet they're also in a polite rivalry for book buyers. While you might want to read any one of these books, believe me, you don't need more than one. So, with an eye toward picking which is best for which reader, I examined each.
Four Pillars, which follows Bernstein's superb first book, The Intelligent Asset Allocator, is the most ambitious. A practicing neurologist who moonlights as an investment adviser, Bernstein sets out to fix what he says he failed at in his earlier book. That is, to explain modern portfolio theory to the general public. No small task. I am sorry to say that, at this, Bernstein has yet to succeed.
While he presents most of what's worth knowing about the theory and dangers of investing, he quickly leaves general readers behind. For example, Bernstein describes the upside-down relationship of bond prices and yields (as yields go up, prices fall). But in doing so, he slips in the term "long-duration bonds" with no explanation for another 226 pages. It's as if he were explaining brain functions without defining a synapse. Even if it asks us to read more equations, Bernstein's first book is better--and a third shorter.
Far less ambitious--or learned--is Swedroe's Rational Investing. Another serial author and investment adviser, Swedroe lays out 52 common investor mistakes, one per chapter, along with ways to avoid them. He swiftly slays the revived notion that active management beats passive indexing in bear markets, and he focuses us on the truest goal--aftertax returns. But it all gets a bit repetitive, and my eyes kept glazing over. This book is perhaps best read one short chapter per day.
Frank Armstrong encouraged Swedroe and Bernstein to write their first books. A former pilot who became an insurance salesman, broker, and, finally, independent investment adviser, Armstrong came to detest Wall Street's commission structure. An early Netizen, in 1995 he published a free online book. Informed Investor is an updated and much expanded version. It makes most of the same points about indexing and the Street's greedy ways as the other books do, but it's better organized than Swedroe's, and the style is more accessible than Bernstein's.
Had you given any of these guys money to run, each might have built you more or less the same portfolio. And chances are you'd be resting pretty easy amid the current unpleasantness. These advisers counsel close attention to diversification across many asset classes and index funds, including bonds and even small foreign-company stocks. Just 10% of the equities in an Armstrong portfolio, for example, represent the Standard & Poor's 500. Too late to learn to invest this way? No, and any one of these books can show you how. By Robert Barker