Review of The Only Guide To A Winning Investment Strategy You’ll Ever Need, Part One

This is part one of a three parts series where I will be reviewing The Only Guide to a Winning Investment Strategy You’ll Ever Need by Larry Swedroe — our resident Ask The Expert columnist. Part One of this book was entitled: “The Loser’s Game: The Game Wall Street Wants and Needs You to Play.”

Right off the gate, one of the things I enjoyed about Larry’s book is his use of quotes. The first two were some of my favorites:

“Like everybody else in this industry I have an ego large enough to believe I’m going to be one of the select few that will outperform” — George Sauter, Vanguard Group
“The investment business is, by definition, a business of hope. Everyone hopes that he can beat the market, even if few people actually can.” — Avi Nachmany

Like Wise Investing Made Simple, he seamlessly weaved great stories and logical concepts into a book filled with useful information.

Chapter 1. Why Individual Investors Play the Loser’s Game

What does Galileo and Larry Swedroe have in common? Both of them are challenging the status quo supported by the establishment as truth.

What is the status quo?

Actively managed portfolios can consistently outperform passive ones
The subject of money management is not as critical as Biology, Chemistry, and Physics. You’ll be hard pressed to find money management course in high school, why?
Hard work produces superior result

Why do we believe we can consistently outperform the market?

People are naturally competitive and believe that they should be able to beat the average
The emotional thrill of winning
Believe in luck and “hot streaks”
To have great stories to tell

Chapter 2. Active Portfolio Management Is a Loser’s Game

In this chapter Larry debunked common investment strategies and explained why these are loser’s game strategies:

Select individual stocks based on their own research, advice from broker, or on a “hot tip” from friend.
Choose mutual funds based on past performance, or investing in hot money manager
Follow recommendations of trade publications — e.g., Forbes, Money, SmartMoney, Worth, etc.
Follow advice from market gurus
Relying on rating services such as Morningstar

Simply put, Larry advocates simple asset allocation and rebalancing strategy using low expense ratio passively manged funds (e.g., index funds).

When I finish part two and three, I will write more about it and share any gem I discovered.

Have a great weekend!

5 Comments

Mrs. Micah
January 11, 2008, 12:07

These are so true. It’s hard not to be driven and what to think that we can figure things out and beat the market.
kev
January 11, 2008, 18:00

The Holidays through off my schedule (making me way behind on reading my favorite blogs), so the following is very belated:
Congrats on the new baby boy!
CiaranFromChance
January 12, 2008, 12:11

I agree with everything Larry has written. Human behavior is a strange thing. If investors could take their egos out of the equation they’d be far better off in the long run.
True for a lot of things in life I guess.
Stumbled it:)
Pinyo
January 13, 2008, 7:55

@Mrs. Micah – Yeah, especially for competitive people like us…
@Kev – I sent you an email. I am glad you’re back and that you had a great holidays. Thank you for the congrats; the baby is doing great — now if I could just get him to sleep at night and awake during the day, it would be sweet.
@Ciaran – Thanks for the Stumble. I know you’d like this since this is also what you preach on your blog. May be I should write “What does Galileo, Larry, and Ciaran have in common…”
Make Friends, Earn Money
April 4, 2008, 11:46

Some excellent points made by Larry, I especially agree that as humans we like to think that we can constantly compete and win, but investment markets are all about trends and knowing when you get out of a fall market or when to buy in.