Trader Talk

Burton Malkiel, a Princeton University economics professor, in New York, Jan. 26, 2010.
Julie Glassberg | The New York Times

Want to learn how to be a better investor in 2023?  Two classic books on long-term investing are out in new editions. If your New Year’s resolution is to learn more about the stock and bond markets, you cannot do better than to read these books. 

Here’s why every investor should read them. 

This week, Princeton professor Burton Malkiel has published the 50th Anniversary Edition of A Random Walk Down Wall Street: the Best Investment Guide that Money Can Buy. It’s hard to underestimate the impact this book has had on the investment community. It was first published in 1973, and by the time I met Burton Malkiel in the late 1990s it had been in print for 25 years and was already an investment classic. More than any other book, it popularized the idea of indexing as an investment strategy and why you can’t beat the market. Malkiel was a close friend of Jack Bogle and spent 28 years on the board of Vanguard. This is all-new updated edition. 

In December, the Wharton School’s Jeremy Siegel published a new (6th) edition of his classic, Stocks for the Long Run: The Definitive Guide to Financial Market Returns & Long-Term Investment Strategies. First published in 1994, Siegel examined stock and bond returns going back 200 years and concluded that, on average, stocks produced inflation-adjusted returns of 6.5%-7% a year, far outperforming bonds. This was a pivotal study that helped convince many that a simple buy and hold strategy was the best long-term investment. 

Two other investment classics round out my list of “must-reads” for long term investors. 

Common Sense on Mutual Funds by Jack Bogle (10th Anniversary Edition, 2009). Meeting Jack Bogle in the mid-1990s changed my life. It was a time of superstar investors like Bill Miller at Legg Mason. Bogle convinced me that: 1) for most investors low-cost index funds were the way to go, 2) the outperformance of the small (very small) group of active managers who did outperform was negated by the high fees they —charged, and 3) once you got the mix of assets right for your risk tolerance, the key was to stick with the plan and not freak out when markets dropped. More than anyone — including Warren Buffett — Bogle changed how an entire generation looks at investing. 

Winning the Loser’s Game by Charles Ellis (8th edition, 2021). Ellis founded Greenwich Associates, an international consultancy where he advised large institutional investors, in 1972 and, like Burton Malkiel, was on the board of Vanguard for many years. In 1975, he published an essay, “The Loser’s Game,” in a financial journal, in which he laid down his central thesis: ”The investment management business (it should be a profession but is not) is built upon a simple and basic belief: Professional money managers can beat the market. That premise appears to be false.” In 1985 he expanded the article into a book, now called Winning the Loser’s Game: Timeless Strategies for Successful Investing. This book came to distill much of the wisdom that Malkiel, Bogle and Siegel had separately published on beating the markets, the efficient market hypothesis, market timing and asset allocation. 

Like Malkiel, Ellis urged investors to diversify into low-cost index fund investing, which was a radical idea because there were no low-cost index funds at the time! 

The market eventually caught up with Malkiel, Siegel, Ellis and Bogle. Not only did Jack Bogle launch the first successful index mutual fund (based on the S&P 500) in 1975 but, 18 years later, the first Exchange Traded Fund (ETF), also based on the S&P 500, was launched. Investors now had not just an index fund, they had a low-cost, tax-efficient wrapper they could buy it in. 

Since then, “The Index Revolution”, as Charley Ellis called it, has only grown. ETFs are now a nearly $7 trillion business, and closing in on the shrinking mutual fund business. For investors confused by the constant noise and the need to “do something,” these books provide a calming antidote. 

Note:  Burton Malkiel will appear on CNBC’s “The Exchange” this Friday at 1:30 PM ET.

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