The Little Books Series: Which Ones Are Worthwhile Reads?

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

BogleOut 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

valueAlthough 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.

Worst Entry
The Little Book That Beats the Market – Joel Greenblatt

littleThis 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 Rest
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.

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  1. Thanks for this great review! Once I finally dig out of debt and build an emergency fund, I want to start investing. I’ll definitely check out Bogle’s book.

  2. I have yet to read any of the little book series. Thanks for the pointer on where to start.
    I’m a value investor myself and have had some nice succcess with it thus far.
    I’m always hoping to pick up a couple more pointers to add to my arsenal.
    Thanks for the reviews!
    Tyler

  3. squawkfox says:

    If Bogle’s “Little Book of Common Sense Investing” is anything like “The Bogleheads’ Guide To Investing” I think it would be my top pick. Basically, invest for yourself, buy ETFs or index funds, track the index, keep your fees low, rebalance once a year, retire well. ;)

  4. I also agree that John Bogle’s Little Book Of Common Sense Investing is the best of these.

    If you want to find the source of most of Bogle’s ideas, read The Intelligent Investor by Benjamin Graham. It is a good book with most of the lessons being laid out that have led Bogle and Warren Buffet to success.

  5. Lisa says:

    So many people have recommended the Benjamin Graham book I’m going to have to break down and buy it. Another book i really like is Jason Kelly’s the Neatest Little Guide to Stock market Investing. It was very comprehensive, and did a great job describing the Legacy Worksheet used by investment clubs across the country. If you click on my name you can learn more about it.

    Lisa

  6. I read Bogle’s in college, it was well put together. Its a shame the others were sold under a similar brand. There are way too many personal finance and investment books that say the same thing.

  7. Nate says:

    I just finished Common Sense Investing and That Beats the Market.

    Both were interesting takes. Bogle, the Vanguard founder, is obviously very much about Index funds and he does a great job of making his case. His graphs were pretty powerful as well as the quotes at the end of each chapter from the big wigs of Wall Street.

    I kind of wish he would have brought in a few more elements of investing aside from index funds, but I did pick up a few tidbits here and there.

    Greenblatt’s take in “Common Sense Investing” is written for his kids and I found it a nice explanation with his use of a chewing gum “dealer” as a fake business. Very understandable, if not simplified too much.

    Even with all of his advice, he does still recommend low-cost index funds for the average investor. And, interestingly, at the very end, he recommends that his kids not go into investing careers. Rather he says, put your money in something like low-cost index funds and contribute to your community and education instead. Stop worrying about money. At least that’s a guy with his head in the right place.

  8. Dan says:

    I apologize for this criticism. It would be easier to read this article without the redundant links. One link per title should be enough.

    (I realize some are internal links and some to Amazon…THAT’s fine).

  9. Miranda says:

    Great list of books! I enjoy the value investing book, since it is what I’m about. Solid investments that are more likely to perform consistently over the long haul. And recover from stock market problems.

  10. Nicj says:

    I don’t think that Greenblatt’s Magic Formula has been around long enough to determine whether or not it has market beating potential. For what reason do you find it flaky?

    Magic Formula Investing blog

  11. Mrs. Micah says:

    I see those books all the time at work, they’re pretty popular. I plan to read the Bogle one because I’m already a fan of his ideas/other books. I also might recommend it to people I’m trying to “convert.” He is probably more persuasive than I am.

    I looked at the “beats the market” but it didn’t really make sense. Also I don’t trust anything that’s marketed to beat the market…there are a bajillion of those books and if they were any good more people would be billionaires.

  12. Doug says:

    I agree that the Value Investing book is perhaps the best of the bunch. The Beats the Market is not for those of “Simple Dollar” minds though. Apparently because Trent does not understand the concept, it must be flakey. The reason these “secrets” don’t make everybody billionaires is almost everyone bails on a basically sound strategy like this during the inevitable down time. It seems most people really believe they should be able to get 20% returns every time. Simple Dollar people need to stick with mutual funds and count pennies while the rest of us ultimately count dollars coming in. Please stay away from Beats the Market!

  13. Trent Hamm Trent says:

    The reason that “Beats the Market” is flaky compared to the rest of the series is that it’s not a proven methodology. The other four books all carefully describe methodologies that have been time-tested and proven. Greenblatt’s book is based on a methodology he basically just invented – there’s basically no evidence for it one way or another over the long haul yet. Given that the “Little Book” series is ostensibly about explaining time-tested investment strategies to the layperson, Greenblatt’s entry is pretty obviously the flaky one in the series.

  14. Doug says:

    Beats the Market not a proven methodology? If one actually reads the book instead of just the title, they will find detailed history of the application of this technique. It even shows there will be some times (as we have now) where the returns will be lower than market returns. This methodolgy is a pretty much the same as Greenblatt’s mentor and most serious investors don’t question Graham’s approach. In fact Greenblatt and Buffet have both been highly successful with that approach. If one actuallly reads the older posts on the Yahoo groups, they will find countless examples of Greenblatt’s technique producing very nice gains up until the November time frame.

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