I first picked up a ragged old copy of this book at a used book sale, but since then it keeps popping up over and over again. This week, I’ll review chapter by chapter the latest revision of this personal finance classic (it was first printed in 1978, which means it’s had a much longer lifespan than many personal finance and investment books) and find out whether it’s worth picking up or not.
Chapter 7: Meanwhile, Down At The Track
After that opening round of fundamentals and conservative investing, the next three chapters focus on the stock market. This chapter starts off with why you should invest in stocks (they can keep up with or beat inflation, over the very long run they beat almost every other investment, and they can act as a tax shelter via long-term capital gains tax) and then goes on to lay out a very simple and elegant stock investment strategy for the individual investor:
1. Only invest money you won’t have to touch for many years.
2. Buy low and sell high (which is tough to do, so…).
3. Diversify over time by not investing all at once.
4. And then – for the most part – just stick with it.
5. Diversify over several stocks in different industries.
6. Ignore the noise.
7. Be wary of high flying stocks and stocks that “everyone” likes.
8. Beware the deceptive P/E (meaning ignore current P/E and look at future P/E).
9. Don’t waste money subscribing to investment newsletters or expensive services.
10. Invest – don’t speculate.
11. Sell only when a stock goes up so much you no longer feel that it is a good value.
12. If you are going to invest in risky stocks, keep them outside your tax-deferred portfolio.
In other words (to boil this all down), just buy some index funds regularly and don’t worry about it, which is the basic advice of any conservative stock investment strategy.
Chapter 8: Choosing (to Ignore) Your Broker
This entire chapter seems to argue that a broker isn’t worth the money without outright saying so, which is probably the author’s way of avoiding legal or social backlash from making such a statement.
Chapter 9: Hot Tips, Inside Information – And Other Fine Points
This final chapter in the stock section is basically a dictionary of terms discussing various terms that you will come across if you do much stock investing, like beta and so forth. Basically, I found that most of these definitions were slightly snarky variation on the information contained in the first paragraph of the Wikipedia entry for most of the terms.
There are only two more chapters in the book! And we’ll get to them tomorrow!
The Only Investment Guide You’ll Ever Need is the twentieth of fifty-two books in The Simple Dollar’s series 52 Personal Finance Books in 52 Weeks.