Your guide to smarter holiday reading

Nielsen BookScan names The Barefoot Investor by Scott Pape as a top three contender to become the overall best-selling book (fiction and non-fiction) in Australia for 2018.

The Barefoot Investor was the overall best-selling book in Australia in 2017 and is the best-selling non-fiction book in Australia since Nielsen began surveying our market.

The fact that an Australian personal finance book can beat the big-name international thrillers from the likes of John Grisham and Tom Clancy suggests that many of us really care about our personal finances.

Twice this year, The New York Times has published feature stories about the phenomenon of The Barefoot Investor.

In June, the paper published an article, Australians can’t get enough of the Barefoot Investor, by Australian journalist Amelia Lester. As Lester writes, Pape’s “folksy manner delivers down-home truths”. These include avoid trendy investments, reduce your debts and don’t become overexposed to overvalued property.

And in September, The New York Times published the second piece, I highly recommend joining this cult, by another Australian journalist Lisa Pryor.

Pryor, as does Lester, emphasises the sheer popularity of The Barefoot Investor – selling well over a million copies (and fast climbing) in a country the size of Australia. (The first edition was published two years ago.) No wonder she calls it a “cult”.

In her opening paragraph, Pryor neatly summarises what the book’s about: “It’s called common sense. Don’t live beyond your means. Don’t borrow what you can’t repay. Don’t charge what you can’t pay off when the bill comes due. It’s how our parents lived. Don’t try to keep up with the Jones. I guarantee the Jones are likely in hock.”

Most titles on Smart Investing’s annual holiday reading list appear year after year with good reason. These are the personal investment classics. If you read some of the suggested books last year, why not reread your favourites?

The best investment/personal finance titles tend to give pointers about how to accumulate wealth slowly and progressively through an understanding of sound saving and investment practices.

Here are eight to consider adding to your reading list for summer 2018:

• Thinking, fast and slow by Daniel Kahneman: A winner of the Nobel Prize for economics, Kahneman points to the many flaws in financial decision-making – including overconfidence and excessive loss aversion (inhibiting appropriate risk-taking and encouraging a short-term focus). His views underline the benefits of having an appropriately-diversified portfolio while avoiding the traps of market-timing, trying to pick future winners on the share market and making emotionally-charged investment decisions. He strongly warns about the “biases of intuition”.
   
• The only investment guide you’ll ever need by Andrew Tobias: His overall message is to take a common-sense approach to looking after your investments and other personal finances. For instance, only buy investments you can understand, avoid inestments that seem too good to be true, and don’t have credit card debt.
   
• The behaviour gap – Simple ways to stop doing dumb things with money by Carl Richards: The central message of this entertaining, easy-to-read guide by a financial planner turned personal finance columnist is to keep our negative behavioural traits under control when saving, investing and spending. His tips include: adopt strategies to avoid buying shares at high prices and selling low, don’t spend money on things that don’t really matter, identify your real financial goals and simplify your financial life.
   
• The millionaire next door by Thomas Stanley and William Danko: Long-term research by late academics Stanley and Danko suggests that “prodigious accumulators of wealth” are typically content to progressively build their wealth while being inconspicuous in their spending. In other words, these wealth accumulators are not in a hurry to make their money by taking excessive risks or in a hurry to spend their money. Conspicuous consumption should not be taken as a sign of wealth – it often means the opposite.
   
• A random walk down Wall Street by Burton Malkiel: The basic theme of this classic is that investors – individuals and professionals – cannot expect to consistently outperform the market. Malkiel, a Princeton University economics professor, favours investing in market-tracking index funds (including ETFs), dollar-cost averaging (regularly investing set amounts), appropriate portfolio diversification, periodic portfolio rebalancing and low-cost investing. And he too emphasises the need for investors to understand the risks of irrational behaviour.
   
• The little book of common sense investing by Jack Bogle: As Bogle writes, “successful investing is all about common sense”.  Don’t try to pick the best time to buy and sell stocks – consistent success with market-timing is rarely achieved; diversify to minimise risks and spread opportunities; recognise the rewards of compounding returns; focus on long-term returns; and keep investment costs low.
   
• The Intelligent Investor by Benjamin Graham: Warren Buffett has long named this as “by far the best book about investing ever written”. Graham believed that an intelligent investor was patient, disciplined, a keen learner and determined to keep emotions under control. Buffett writes in the preface to the current edition: “What’s needed is a sound intellectual framework for making decisions and the ability to keep emotions from corroding that framework.” That’s what Graham is all about. Graham famously introduced the fictional character “Mr Market”. In short, Mr Market – that is the share market” – is an emotional, often irrational character with plenty of highs and lows.
   
• The Barefoot Investor by Scott Pape: This serves as both a valuable starter guide to personal finance and investment, yet its common-sense principles also apply to experienced investors.

Supplied by Robin Bowerman
Head of Corporate Affairs at Vanguard.
18 December 2018
vanguardinvestments.com.au