Without reading "the books" danger lies ahead.

Without reading "the books" danger lies ahead.

I was speaking with an investment professional years ago and I was floored. He owned an investment fund at the time, had a decent amount of assets under management, and had an excellent resume. I love talking investment theory and was delighted and honored to have an audience with this man, and then it happened, I realized an important fact:

HE HADN’T READ “THE BOOKS”.

What do I mean, “the books?” I mean the seminal works of investment theory that have stood the test of time and must be read if one is serious about investing. I couldn’t believe it. The book he hadn’t read or heard of was Burton Malkiel’s A Random Walk Down Wall Street. I presumed he had read it because his pursuit of returns and current strategy seemed to stand in contrast to the thesis of Mr. Malkiel, which is that low-cost index funds are best. (most active funds stand in contrast with Mr. Malkiel) The book says a lot more than that, but that is the jist. The fees aren’t worth it and the active managers don’t do very well relative to the index.

If you are considering investing with a fund manager or hiring a financial advisor, ask them if they have read:

  1. A Random Walk Down Wall Street by Burton Malkiel
  2. Stocks for the Long Run by Jeremy Siegel
  3. The Little Book of Common Sense Investing by John Bogle
  4. The Intelligent Investor by Benjamin Graham
  5. Any of Warren Buffett’s letters to Berkshire Hathaway investors

There are many other great books of course, but if the advisor or manager is zero for five, you might need to find someone else.

The Takeaway:

Unless you have read a few books on investing yourself, it will be nearly impossible to differentiate between a sound investment strategy and a mirage built on hopes and dreams. Start reading “the books” now to develop your own philosophy of investment. Read the other side of the argument too.

When you interview an advisor ask:

  1. Are you a fiduciary?
  2. Have you read “the books”?

You will have narrowed your list considerably and avoided a great deal of danger if you ask these questions.

No index fund salesman will ever arrive at your door to pitch you

No index fund salesman will ever arrive at your door to pitch you

Is your 401k plan garbage?

Is your 401k plan garbage?