Burton G. Malkiel and Charles D. Ellis wrote The Elements of Investing together. Both of them are eminent figures in the investing world and have extensive experience in the field. This book aims to help the readers to make better investment decisions so that their retirement life is secure.
Layout of The Elements of Investing
The Elements of Investing has a total of six chapters. There is a preface for this edition and a foreword for the first edition. This book has an appendix on saving taxes legally but the practice is only applicable in the United States.
Chapter I is on saving.
Chapter II is about indexing.
The next chapter is espousing the importance of diversification.
Chapter IV talks about the blunders in investing and how to prevent them.
Chapter V discusses asset allocation.
The last chapter teaches the readers what to do in troubled times.
Finally, there is a Super Simple Summary as the conclusion of the book.
Highlights
The authors want the readers to have a comfortable retirement life by following a sensible investment plan. The advice that they give include diversification, rebalancing, dollar-cost averaging, and indexing. Other than that, the authors advise us to save regularly and start early, minimize our tax liability legally, stay the course and ignore market fluctuations.
I think that it is quite hard to ignore the stock price volatility due to human emotions. Nonetheless, the authors say that volatility is good for disciplined long-term investor who is saving regularly. Thus, it is important to focus on the long term and stay invested through good and bad times. Market timing often causes the worst mistakes at the worst times.
Another thing to remember is to know and stay within own capabilities. Avoid investing in stock or scheme that is too complex to be understood. However, I think it is also important to expand our circle of competence so that we are not limited in a few sectors only.
What lead to success in investing? According to the authors, they are patience, persistence and minimizing mistakes. So, if we are patient, persistent and avoid major blunders, we will have the best success.
Conclusion
I think The Elements of Investing really fulfils its claim of easy lessons for every investor. The authors provide many actionable ideas that are simple but require discipline and fortitude to implement (the indexing part might be very hard to implement in Malaysia due to the lack of true low-cost index funds). Nonetheless, if we are able to follow their advice, we should be able to do well in our investing journey.
Let me end with some quotes from the book.
“Luck in picking the right time to invest is all well and good, but time is much more important than timing.”
“Chasing hot performance is a costly and self-defeating exercise.”
“To be sure, there is some truth to the expression that when the United States catches a cold, the rest of the world catches pneumonia.”
“The lower the stock prices go, the better the bargains if you are truly a long-term investor.”
“The major risk for long-term investors hoping to enjoy a comfortable retirement is not having to endure the ups and downs of stock prices; the risk for long-term investors is letting the volatility of the markets keep them from a regular program of buying equities.”
Recommended book
If you are interested in The Elements of Investing, you may get the book from Kinokuniya Malaysia through the link below*.
*Disclosure: The above link is Involve Asia affiliate link. Thus, I may earn a small commission when you purchase the book through this link.
