Review of Larry Swedroe’s Wise Investing Made Simple

Recently, I was sent a copy of Wise Investing Made Simple: Larry Swedroe’s Tales to Enrich Your Future by the publicist. After I finished the first chapter, I simply couldn’t put it down until I finished the book. As my regular readers may know, I like good stories, and this book was packed full of great stories. Although it seems a little expensive at $24.95, I thought the book was worth its weight in gold.

Great Stories about Investing

This book is basically a series of 27 stories that demonstrate various investing concepts in a very simple and insightful way. Some of my favorites chapters were:

The Twenty-Dollar Bill
The Demon of Chance
An Investor’s Worst Enemy
Too Many Eggs in One Basket
The Big Rocks

The Essence of Wise Investing

I won’t spoil the fun by telling you what these stories were about, but I can share with you the essence of Larry’s investing philosophy (which I completely agree with). These were neatly captured on page 105, and I will semi-paraphrased them here:

First, build a globally diversified portfolio to reduce the risk of having too many eggs in one basket. A good portfolio should have balanced mix of domestic and international stocks, small and large stocks, value and growth stocks, real estate, and bonds
Second, efforts to outperform the market were unlikely to produce market-beating returns. Therefore, trying to minimize costs is more important than trying to outperform the market. This means invest in low-cost, no-load, and passively managed funds and ETFs (i.e., index funds and ETFs)
Third, it is important to be a disciplined, long-term, buy-and-hold investor.

Overall, this is not a beginner book by any mean. I think people new to investing would find this book a little harder to grasp. However, this is the kind of book that reveals great insight to anyone that has basic knowledge about investing, as well as those that called themselves professional investors.

3 Comments

Make Friends, Earn Money
February 7, 2008, 12:54

I definitely think point 3 is the best advice of all “it is important to be a disciplined, long-term, buy-and-hold investor”. The best things come to those that wait, or perhaps “The best things come to those who hold their nerve, when all around others are losing theirs”
Having only recently come across Larry I too agree that he has good gems of information in his book
Don Garrison
August 18, 2008, 23:23

I just finished this book and was convinced that Swedroe’s views on investing in index funds provided greater returns than most managed mutual funds. However, having done some research, I’m not so sure I agree with the premise of this book.
It is a fact that the S&P 500 index has provided less than a 3% return over the last 10 years ending 8/08. Over this period, many managed mutual funds beat this number. Look at Fidelity’s domestic funds for example. In fact, you could have invested your money in a money market fund and earned around 3.5% with almost no risk beating the index by a point and a half.
I think the academic investors who subscribe to the index theory tend to look at how many managed funds beat the market in a given year, and then look at how many of those beat the market the next year and so on. This doesn’t take into account that a fund manager could, and many have, lagged behind the index for a few years but outperformed the market a number of years by so much that in the final, let’s say 10 years, their AVERAGE gain over those 10 years has beaten the index.
The problem is that it is difficult if not impossible to pick fund managers who will beat the market.
I’m still not sure which way to go.
Pinyo
August 19, 2008, 15:07

@Don — Given that there are more years where the stock market rises than the ones where it declines, I still believe that indexing has great advantage over managed funds.