Best books on investing: My favorite investing authors

A few weeks back, J.D. listed his favorite finance books (and encouraged readers to suggest their own). It's a fine list, full of money-saving, debt-defying, financial-liberating manuals. But there was just one investing book, and since J.D. asked me to join his merry band of bloggers to add more investing posts to GRS, I thought I'd provide my own reading list. But rather than list books, I'm going to focus on authors, since most have several books, and any one of them will expand your knowledge on how to grow the money you've saved.

While this is a lengthy list, you'll find most recommend the same things: index funds. These are mutual funds or exchange-traded funds that own all the investments in a certain index (such as the Standard & Poor's 500) rather than trying to pick which investments will do better than others. That may surprise some of you, given that I work for The Motley Fool, a company perhaps best known writing about individual stocks. However, we've long been fans of index funds. In our Rule Your Retirement service, we cover six model portfolios, three made completely of index funds. I'm on the 401(k) committee here at the Fool; we have the Vanguard 500 among our choices, and I suspect a lot of employee money goes into the fund.

Why index funds? This brings us to my first favorite author: Princeton professor Burton Malkiel, author of the classic A Random Walk Down Wall Street, which was first published in 1973; the 10th edition will be available this November. In a recent interview on Fool.com, Malkiel was asked whether his advocacy of index funds has held up over the past 37 years. His response:

A Random Walk Down Wall StreetI believe that even more strongly than I did when I first wrote the book in 1973, when there were no index funds. What I have done with every subsequent edition is ask the question, was the advice right? Is it in fact the case that investors have done better with index funds? And every time I do it, including the data that I put together earlier this year, I find that two-thirds of active managers are beaten by a passive index and the one-third who beat the index in one year, are not the one-third who beat them in the next year.

In other words, there is very little persistence in terms of excess performance. Sure, in any period there will be people who have beaten the market, but it is not the same people from period to period. So I would say to you that I feel even more strongly today in that thesis than I did when I first wrote it almost 40 years ago.

Now, unlike many proponents of index investing, I don't see stock-picking as evil. I own several individual stocks myself, and I know some of the authors you'll meet in this post do as well. However, I agree with Dr. Malkiel when he told us:

[A]t least the core of every portfolio ought to be indexed. Now, fully understand that telling an investor that you can't beat the market is like telling a 6-year-old that Santa Claus doesn't exist. And anyone with a speculative temperament is going to say, “Look, I want to go and pick some of my own stocks.” And I think that is fine, and you can do it with much less risk if the core of your portfolio is indexed.

With all that said, and your belief in Santa Claus shaken, here are my recommendations for people you should read if you want to learn about asset allocation and portfolio construction.

John Bogle

Like Malkiel, Bogle advocated indexing before indexing was cool. He founded the Vanguard Group of mutual funds in 1974 (after getting fired from another job — talk about making the most of adversity!), and created the first index fund available to individual investors in 1975 (institutional index funds had been tried a few years earlier). We at The Motley Fool like Bogle so much, we named a room after him. After he gave a speech to our company a year or so ago, he received a standing ovation. To learn about investing from one of the smartest and most ethical people around, read Common Sense on Mutual Funds or The Little Book of Common Sense Investing. To learn a bit about Bogle's life, his life lessons, and why he thinks today's financial-services industry fails investors, read Enough.

Eric Tyson

Tyson pens many of the financial books in the For Dummies series. All of them are good. If you're new to financial stuff in general, start with Personal Finance for Dummies. Also, I love the Guru Watch area of his website, which digs deep into the track records of financial pundits.

J.D.'s note: Oooh. I like that Guru Watch section of Tyson's site. I just lost myself in there for twenty minutes when I should have been packing for Italy. If you buy into the advice from Howard Ruff or Glenn Beck or Peter Schiff, go read this.

William Bernstein
The Four Pillars of Investing

Bernstein's The Four Pillars of Investing made J.D.'s list, and I'll second the recommendation. If you're looking for an investing expert who also holds a Ph.D. in chemistry and an M.D. and practiced neurology, Bernstein's your man. The Investor's Manifesto might be more accessible for those newer to investing. He's also written excellent books on economic history. Plus, I have to say as a former English teacher and editor, Bernstein is an exquisite writer.

Richard Ferri

Ferri defends index investing like the Marine fighter pilot he once was. His All About Asset Allocation is an excellent primer on the pros and cons of various types of investments and how to put them all together. If you want to learn more about exchange-traded funds, check out The ETF Book. Also, Ferri's firm, Portfolio Solutions, charges just about the lowest management fees (0.25% a year) you'll find, though there is a $500-per-quarter minimum charge.

Larry Swedroe

Perhaps the only person who can match Rick Ferri's zealotry about indexing is Larry Swedroe. He's written or co-written a series of “The Only Guide…” books, the most recent being The Only Guide You'll Ever Need for the Right Financial Plan. All the “Only Guide” books are worth reading (as are Swedroe's other books), but the one that deserves special highlighting is The Only Guide to a Winning Bond Strategy You'll Ever Need because there are so few good books out there about bonds. Swedroe also has an excellent blog on MoneyWatch.com.

Bill Schultheis
The New Coffeehouse Investor

If you're looking for simplicity in investing and a little more personality in the writing, Bill Schultheis is the author for you. The New Coffeehouse Investor is about as readable, entertaining, and inspiring as an investment book gets. [Last year, Schultheis shared a guest post at Get Rich Slowly: “How to build wealth, ignore Wall Street, and get on with your life“.]

David Swensen

In the world of institutional investing, David Swensen is a rock star. He has managed Yale's endowment for 25 years, with spectacular results. He's written just one book for individual investors, Unconventional Success. The interesting thing about this book is, Swenson set out hoping to highlight the best mutual funds and fund families for the average schmo. However, the more research he did, the more he realized that almost all fund families suffer from an insurmountable conflict of interest: Their drive for profits encourages them to keep expenses high, which in the end hurts investor returns. Swensen concludes that he can only recommend two companies: Vanguard and TIAA-CREF.

J.D.'s note: Swensen's Unconventional Success is one of the books I loaded on my iPad/Kindle for my trip to Europe. I hope to have a review for you when I return.

Roger Gibson

For a more technical book written for financial professionals, check out Roger Gibson's Asset Allocation: Balancing Financial Risk. To get a taste of the subject matter, read “The Rewards of Multiple-Asset-Class Investing” [PDF] from the Journal of Financial Planning. While I have this book at the end of this list, Gibson's work has probably had the biggest influence on me as a financial writer. Plus, he's a really nice guy.

That's it from me. Have a favorite I missed? Let us hear about it. Just don't tell me that there's no Santa Claus. I can take only so much.

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Nicole
Nicole
9 years ago

Back in the early days of fool.com (before becoming well known for individual stock picking), you all convinced me to stick to index funds. Good advice then, and good advice now!

David
David
9 years ago

For this website, which is all about getting rich slowly, wisely, etc., I’m surprised that “The Intelligent Investor” by Benjamin Graham didn’t make the list. Especially the latest with commentary. I’d highly recommend it.

Jaime
Jaime
9 years ago

Thank you for this, I will definitely check my local library for these authors. 🙂

Jeff
Jeff
9 years ago

Swensen was highlighted this week in Bloomburg Business Week for making Yale cash-broke by investing the endowment in “real estate, private equity, hedge funds, and other nontraditional assets.” This resulted in “removing hot breakfasts from weekday dormitory menus, reduced shuttle bus service between campuses, offered retirement incentives to staff, and cut capital spending by 50%, including shelving an expansion i neighboring Allston”. I don’t know if “rock star” is the appropriate term.

Kent @ The Financial Philosopher
Kent @ The Financial Philosopher
9 years ago

I like Tao Te Ching by Lau Tzu. In my humble opinion, and I’m a CFP just as the author of this blog post, Ancient eastern philosophy is the basis of prudent living, including investing… From Lau Tzu: “Nature does not hurry, yet everything is accomplished.” “There is no calamity greater than lavish desires. There is no greater guilt than discontent. And there is no greater disaster than greed.” “Health is the greatest possession. Contentment is the greatest treasure. Confidence is the greatest friend. Non-being is the greatest joy.” “Those who have knowledge, don’t predict. Those who predict, don’t have… Read more »

Paul Williams
Paul Williams
9 years ago

All of these are excellent suggestions, Robert! I can’t think of any off the top of my head that I would add.

jim
jim
9 years ago

Eric Tyson is great. He makes very good questioning the credibility of many of the supposed financial gurus.

M
M
9 years ago

Scott Burns, mostly known as a columnist, is also one of my favorites.

Edwin Choi
Edwin Choi
9 years ago

A great list here, Robert.

My personal favorites are Bernstein, Swensen and Gibson.

bon
bon
9 years ago

Thanks Robert – definitely hoping to educate myself more on this so this list comes at a great time – any blogs?

Andrew
Andrew
9 years ago

I know a personal finance blog is not the best platform to expound on my “anti-indexing” beliefs, so I will start off by saying that I love this blog and have gotten a tremendous amount out of it over the past year. However, I do disagree with the automatic assumption that the market cannot be beat and everyone, no matter what their situation, is better off buying index funds. The problem with the suggested authors on this list is that they are, for the most part, academics and not actual investors who make their living through the markets. It’s like… Read more »

Justin
Justin
8 years ago
Reply to  Andrew

Bogle’s not an investor?

Rob Ward
Rob Ward
9 years ago

It was written by more than one author, but I would add “The Boglehead’s Guide to Investing” to the list. I am also surprised “The Intelligent Investor” is not on the list.

@Andrew #11 you may have a point that some of the authors are not full-time investors. However, Warren Buffett himself, who I think most would agree is the most successful investor ever, advocates that index funds are the best way to invest for the average person.

See here:

http://www.fourhourworkweek.com/blog/2008/06/11/061108-picking-warren-buffetts-brain-notes-from-a-novice/

Andrew
Andrew
9 years ago

@Rob Ward #12 I do agree that if a person has absolutely no time or desire to devote to investing, that index funds are a better bet than mutual funds. However, a person choosing to go this route should not be surprised if their long-term returns are not as high as they have been in the past with index investing. And while I greatly respect Warren Buffett, he made the majority of his money by becoming a very active investor in companies, meaning he bought enough of the company to have a say in how it was managed or by… Read more »

Sunny
Sunny
9 years ago

@Kent #5 For a second I thought it said “non-beige is the greatest joy”…

Elysia
Elysia
9 years ago

@Jeff #4 — Just to clarify, it’s Harvard and not Yale that cut breakfasts and expansion into Allston. Yale made other cuts in Connecticut. Regardless, Swensen’s model did negatively impact university endowments.

Robert Brokamp
Robert Brokamp
9 years ago

@Andrew Thanks for the thoughtful response. First off, I must point out that most of the people on the list are NOT academics, but rather asset managers (managing hundreds of millions of dollars). Burton Malkiel is the only pure academic, and even he works with financial-services companies (or at least used to). So most of these folks have plenty of real-world experience managing money. The evidence that supports indexing essentially demonstrates that most actively managed funds underperform a relevant index. So most large-cap funds underperform the S&P 500, most small-cap funds underperform the S&P 600, most bond funds underperform the… Read more »

PedroNY
PedroNY
9 years ago

Intelligent Investor by Benjamin Graham, I am a bit surprised this book is not listed. Warren Buffet was a student of Benjamin Graham, and he follows his advice on value investing. It is a must read for any investor.

Cheers,

PedroNY

dotCOMreport.com
dotCOMreport.com
9 years ago

Love Motley Fool! Great guest blog. And so true about index funds, to the first poster.

Andrew
Andrew
9 years ago

@16 Robert Brokamp I greatly respect the Motley Fool and your point of view. TMF website and books were a big help to me when I was first learning about investing. However, I have developed into a momentum/highly mechanical trader, which explains my issue with those who say that the markets cannot be beat. I do believe there are dozens of ways to make money in the financial markets, but most of them are difficult to stick with and many go against what seems rationale. I did over-generalize on the authors being academics. I really was just talking about Malkiel… Read more »

DIY Investor
DIY Investor
9 years ago

I don’t think indexers are saying the market can’t be beat. At least 1 out of 10 funds will outperform over a 20 year period. Take 100 funds-10 will outperform and in some periods 20. Some , maybe, because of skill. Good luck picking them. Get this though- out of 100 50 will outperform before fees! Thus, individuals can outperform if they pick their own stocks. This is their best chance. They have to be smart, take it on as a full time/passionate pursuit and have the resources. My bottom line is that I prefer not to spend my life… Read more »

Landon
Landon
9 years ago

Great post. I think special attention needs to be paid to Benjamin Graham’s famous books (“The Intelligent Investor” and “Security Analysis”). I know the philosophy of common sense investing is to use index funds, but if you do want to explore value investing (which Buffett practices), these are considered the greatest books ever.

Walt
Walt
9 years ago

Following the Motely Fool has lost me money.

Shawn
Shawn
9 years ago

Agree with many of the above posters. Benjamin Graham’s “The Intelligent Investor” is the cornerstone of all investing books.

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