Over the last several months, I’ve had the opportunity to review all five entries in the Little Book investment series. For those unaware, the Little Book series by Wiley Publishing is a series of small hardcover books. Each entry in the series seeks to explain in layman’s terms a specific investment strategy and how an individual can execute that strategy.
After my review of the fifth entrant, The Little Book That Builds Wealth, several readers wrote in to ask what my views on all of the books in the series were in comparison to one another. Thus, here are my thoughts and recommendations when it comes to the Little Books series as a whole.
Best Investing Advice
The Little Book of Common Sense Investing – John Bogle
Out of the five books, I only found one had a clear and thorough enough argument to actually convince me that the advice was worth following, and that book was John Bogle’s The Little Book of Common Sense Investing. The book itself isn’t the best written one in the series – in fact, much of the book seemed merely to be a simplificiation of Bogle’s earlier book Common Sense on Mutual Funds.
What really carries The Little Book of Common Sense Investing is the strength and logic of the argument. The idea of investing in index funds is simple and it makes a lot of sense – just invest as broadly as you can and minimize the fees you pay. This way, you aren’t completely destroyed by the bad moves of one company, but you don’t get to ride the tidal wave of a single company’s success, either. Instead, you ride the overall waves of the entire market. While doing that, though, you make choices to minimize the amount you have to pay to the investment house for their services – and it can be very inexpensive to invest in index funds.
Taking in the complete argument, Bogle’s is really the only one yet that has truly convinced me of the benefits of that strategy. It’s simple and it works – the exact concept that the series as a whole is trying to espouse.
Most Worthwhile Read
The Little Book of Value Investing – Christopher Browne
Although I think that Bogle’s advice is probably the best to follow, I thought that Chris Browne’s The Little Book of Value Investing was perhaps the most compelling read.
One of the books you’ll see on pretty much any investing reading list is Benjamin Graham’s The Intelligent Investor. It’s generally considered to be the definitive book on value investing – it lays out the strategy in thorough detail and the author has a great deal of reknown and prestige among real-world investors (for example, Warren Buffett considers Graham his mentor). The only problem is that it’s dense. The Intelligent Investor is a challenging and demanding book, and for most armchair investors attempting to gain a well-rounded basic understanding of investment strategies, reading The Intelligent Investor is like using a cannon to kill a ladybug.
The Little Book of Value Investing solves that problem by taking the ideas of The Intelligent Investor and rewriting them in a form that beginning investors could swallow. It doesn’t get into the nuances and the analyses to the level of The Intelligent Investor, but The Little Book of Value Investing nails the concepts. Because of that, it’s almost worthwhile for anyone to read The Little Book of Value Investing first and then follow it with
The Intelligent Investor if they need more.
I’ll say this: reading The Intelligent Investor was much easier the second time through, primarily because I read (and enjoyed) The Little Book of Value Investing just before tackling it. The Little Book of Value Investing taught me the big concepts, then Graham just refined them a bit for me.
The Little Book That Beats the Market – Joel Greenblatt
This first entrant in the series only really succeeds in one respect: it explains in extremely simple terms how the stock market works. After that, it gets into an investment strategy that seems to be flaky at best – it’s vaguely based on value investing, but it really only uses two metrics to find stocks to invest in, not a thorough investigation of those stocks.
The Little Book That Beats the Market is a fun read, and it can be a good one if you have no idea how the stock market works at all, but if you’re looking for an investment strategy to use, this is one to avoid. The actual strategy within is, as far as I can tell, basically arbitrary – it seems to be “pick two stock metrics and find the companies that do well in both, and then just buy ‘em.” That’s not a winning strategy by any stretch of the imagination.
The other two entries in the series, The Little Book That Builds Wealth (on competitive advantage investing) and The Little Book That Makes You Rich (on growth investing) both do good jobs of laying out their specific strategies and are good follow-ups to The Little Book of Value Investing in that they can provide a great background on specific individual stock-picking strategies. They’re not particularly weaker than The Little Book of Value Investing, but I found that one to be a touch more enjoyable to read and the strategy to have much more additional material available to learn from.
In a nutshell, The Little Book of Value Investing is the best one to read for learning (along with The Little Book That Builds Wealth and The Little Book That Makes You Rich, which also do a good job on teaching individual strategies) and The Little Book of Common Sense Investing is the best one to read for application. You should probably avoid The Little Book That Beats the Market unless you’re a complete beginner, but you shouldn’t ever follow that strategy unless you deeply understand why you’re doing it (and the book won’t really teach you that).
Good luck, good reading, and good investing.