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The Elements of Investing [Hardcover]

Burton G. Malkiel , Charles D. Ellis
1.0 out of 5 stars  See all reviews (1 customer review)

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Book Description

Dec 14 2009

A timeless, easy-to-read guide on life-long investment principles that can help any investor succeed

The Elements of Investing has a single-minded goal: to teach the principles of investing in the same pared-to-bone manner that Professor William Strunk Jr. once taught composition to students at Harvard, using his classic little book, The Elements of Style. With great daring, Ellis and Malkiel imagined their own Little Red Schoolhouse course in investing for every investor around the world-and then penned this book.

The Elements of Investing hacks away at all the overtrading and over thinking so predominant in the hyperactive thought patterns of the average investor. Malkiel and Ellis offer investors a set of simple but powerful thoughts on how to challenge Mr. Market at his own game, and win by not losing. All the need-to-know rules and investment principles can be found here.

  • Contains sound investment advice and simple principles of investing from two of the most respected individuals in the investment world
  • Burton G. Malkiel is the bestselling author of A Random Walk Down Wall Street and Charles D. Ellis is the bestselling author of Winning the Loser's Game
  • Shows how to deal with an investor's own worst enemies: fear and greed

A disciplined approach to investing, complemented by conviction, is all you need to succeed. This timely guide will help you develop these skills and make the most of your time in today's market.


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Product Description

From the Inside Flap

In his classic book The Elements of Style, Professor William Strunk Jr. whittled down the art of powerful writing to a few basic rules. Forty years later, E.B. White initiated a revision, and thus The Elements of Style became known as Strunk & White. Following this same format, authors Charles Ellis and Burton Malkiel, two of the investment world's greatest thinkers, have combined their talents to produce The Elements of Investing—a short, straight-talking book about investing and saving that will put you on a path towards a lifetime of financial success.

The Elements of Investing lays to rest the popular shibboleths that undergird the hyperactive trading of the average investor. In it, Malkiel and Ellis skillfully focus their message to address the essentials and offer a set of simple, but powerful thoughts on how to avoid Mr. Market and his "loser's game," and instead enjoy the "winner's game" approach to investing.

All the investment rules and principles you need to know are here—with clear advice on how to follow them. In just two hours of reading time, you will learn all you need to know to be truly successful in investing. Divided into five essential elements of investing, this little book packs a big message that can help secure your financial future all the way through retirement. Topics touched upon include:

  • Diversifying broadly over different types of securities with low-cost "total market" index funds and different asset types—and why this is important

  • Focusing on the long term instead of following market fluctuations that are likely to lead to costly investing mistakes

  • Using employer-sponsored plans to supercharge your savings and minimize your taxes

  • And much, much more

A disciplined approach to investing, complemented by understanding, is all you need to enjoy success. This practical guide explains what you really need to know and puts you on the right course for long-term success through all kinds of markets.

From the Back Cover

Praise for The Elements Of Investing

"These noted authors have distilled all you need to know about investing into a very small package. The best time to read this book is when you turn eighteen (or maybe thirteen) and every year thereafter."
Harry Markowitz, Nobel Laureate in Economics 1990

"Struggling to find money to save? Befuddled by the bewildering array of investment choices? As you venture into the financial markets for the first time, it's helpful to have a trusted guide—and, in Charley Ellis and Burt Malkiel, you have two of the finest."
Jonathan Clements, author of The Little Book of Main Street Money

"No one knows more about investing than Charley Ellis and Burt Malkiel and no one has written a better investment guide. These are the best basic rules of investing by two of the world's greatest financial thinkers."
Consuelo Mack, Anchor and Managing Editor, Consuelo Mack WealthTrack


Inside This Book (Learn More)
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Front Cover | Copyright | Table of Contents | Excerpt | Index
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0 of 2 people found the following review helpful
By JVI
Format:Hardcover
Well, Malkiel continue his thesis of MEH, EMT. If you want to invest for financial freedom or get into business of money management you should "browse" this book and also the infamous "Random Walk on Wallstreet" by this guy then study Mr. Warren Buffett, Benjamin Graham, Charlie Munger, Seth Klarman Value Investing or if you are good at technology, you might want to study Ray Dalio, James Harris Simon (Renaissance Technologies) all billionaires but using different way of investment philosophies. But the authors of the book say they do not exists - the reason is - he can't figure it out. So he keep writing books to prove that you can't beat the market.
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Amazon.com: 4.4 out of 5 stars  53 reviews
91 of 100 people found the following review helpful
2.0 out of 5 stars Not for Malkiel / Ellis Fans Feb. 16 2010
By Dad5 - Published on Amazon.com
Format:Hardcover|Verified Purchase
If you are a Burton Malkiel and/or Charles Ellis fan, do NOT buy this book. You presumably have already read some of their other works and this book adds nothing new. It is a very brief (small, short, large font, lots of white space) book that summarizes the basic investment lessons that you would already know. If I didn't have more respect for Malkiel/Ellis I would suggest that they created this book just to capitalize on their names. On the other hand, if you haven't read their works (or anything by John Bogle) then the lessons in this book will prove valuable. You will still feel like you overpaid for the book (it would make a good feature article in a magazine), but at least it may simplify the investment arena for you and provide you with some clear (albeit very succinct)direction.
46 of 50 people found the following review helpful
5.0 out of 5 stars Very good book Dec 20 2009
By W. Strauss - Published on Amazon.com
Format:Hardcover|Verified Purchase
I was looking forward to the authors coming out with a new book to give their investment advice after the 2008 and early 2009 stock market crash. Their fundamentals appears to be the same with the use of broad based index funds, but their stock allocations have shifted to having more money invested globally outside of the United States. You'll have to purchase the book to read their recommendations. Also, they have given their opinion about Vanguard's new Total World index fund and both have given their individual asset allocations based on a person's age with Burton Malkiel's being more conservative and Charles Ellis' being more aggressive. They both also give a list of recommended index funds along with a surprise for us regarding their individual stock picking. It's not what your thinking like day trading. Trust me.

The authors' do say that the book will help 90% of all investors, with the remaining 10% of investors seeking professional help with complicated situations.

All around very good book and a quick read. Its good for those relatively new to investing because they give personal finance advice also, and the book is also good for experienced investors for their expert advice regarding investing after the 2008/early 2009 stock market crash.

I highly recommend the book.
62 of 72 people found the following review helpful
5.0 out of 5 stars An Important Book on Developing Good Money Habits and the Techniques of Investing Dec 13 2009
By J. Thomas French - Published on Amazon.com
Format:Hardcover
I couldn't wait to get my hands on a copy of this groundbreaking, new, investment book from two of most respected marketwatchers around today! Princeton economics professor, Burton G. Malkiel, and influential non-profit chairman, Charles D. Ellis, have put their brains together to come up with one of the most surefire investment strategies out there. The Elements of Investing is intelligently written in a pared-down-to-the-absolute-basics sort of way. It's one of the rare books written in this vein that actually takes the reader's ambitions seriously. It's a pleasure to read, because it is peppered with real life examples of people exhibiting good and bad investment behavior and the twists and turns their lives take as a result.

Right off the bat, Malkiel and Ellis admonish readers to start saving as early as possible and continue saving regularly throughout their lives. Granted, in a runaway consumerist culture like ours, characterized by its easy credit and debt-addicted millions, this task is so often easier said than done. But a prudent, evenhanded approach to spending and saving is possible--and Malkiel and Ellis show you how with smart suggestions that range from the banal, to the downright devious. The real plus to becoming a habitual saver, the authors explain, is that it helps you keep your real priorities in perspective. According to Malkiel and Ellis, your number-one priority, along with that of every other, gainfully employed, taxpaying American, should be to gradually grow your net worth so that your safety net's intact when your finally reach retirement age. Think of saving, they say, as investing in your future self!

Next, Malkiel and Ellis explore some innovative ways to grow your asset pool, focusing specifically on index funds because they are affordable, intelligently managed and because their unique formulations allow for risk to parsed out over a wide, representative swatch of the market. The authors inform readers about various other index products they may not have considered before, including index bonds and international index funds.

Malkiel and Ellis use statistics and compelling anecdotal evidence to reiterate the time-honored benefits of diversification for a new generation of investors. The authors emphasize the singular importance of diversifying across asset classes (stocks, bonds, money market instruments, commodities, etc.), across markets and over time. They explain how having a diversified portfolio gives the savvy investor a leg up as the market undergoes the upsetting process of rebalancing in the wake of a serious stumble like the one which followed the housing bubble burst of last spring.

In a final, bonus section, Malkiel and Ellis offer an insightfully rendered and detailed menu of IRA's and other tax-deferred, savings options available to investors.

The Elements of Investing is a veritable goldmine of investing wisdom backed by two of the most trusted names in the investment industry. Malkiel and Ellis' clear goal is to inspire readers to believe in their basic competency as investors and to chase their dream of financial independence and security!

For those interested in further, reliable reading on the subjects of developing good money habits, investing and personal finance, check out Thomas C. Scott's Fasten Your Financial Seatbelt: What A Fatal Plane Crash Taught Me About Retirement Planning and John E. Girouard's The Ten Truths of Wealth Creation.
11 of 12 people found the following review helpful
5.0 out of 5 stars Listening to these experts can save you from the financial sharks March 20 2010
By Herbert Gintis - Published on Amazon.com
Format:Hardcover
Malkiel's Random Walk Down Wall Street is one of the best finance books ever written. It is still a pleasure to read. This book is more nuts-and-bolts, but the advice is absolutely first rate. Here are their four main points:

1. Save regularly and start early.

2. Use company- and government-sponsored retirement plans to supercharge your savings and minimize your taxes.

3. Diversify broadly over different securities with low-cost "total market" index funds and different asset types.

4. Rebalance annually to the asset mix that's right for you.

5. Stay the course and ignore market fluctuations; they are likely to lead to serious and costly investing mistakes. Focus on the long term.

I think point 4 is way overstated, however. I would rebalance every ten years, or maybe even twenty years, unless there is a real reason for doing so. Rebalancing is costly.

Here is an example of the savings from using low-cost mutual funds (point 3 above). Suppose you put $1000 every year for 30 years into stocks. The average rate of return, historically, is about 8.6%, so if there are not brokers' fees, you would have $138,420 at the end of 30 years. With yearly brokers' fees of 1.15% (the industry average), you end up with $103,890 after 30 years, which means the brokers get 25% of the total. Moreover, had you invested in Treasury bills for the same period, you would have earned about $55,000, so the total increase in your wealth from using the broker is $103,420 - $55,000 = $48,420. of which the broker gets $34,530, or 70% of the net gain from using the broker.

When you buy domestic index mutual funds, you need never pay more than one fifth of one percent in overhead per year. International mutual funds, you will have to violate this rule, however. At this rate, after 30 years you will have $134,447 and the broker will earn $3,972, or about 5% of the net gain from using the broker.

Don't buy only index stocks. Also index bond funds.

Anyone who tells you he can beat the market without being an expert is a liar or a fool. Even an expert can only beat the market by a tiny bit with "inside information" and an understanding of market dynamics.

Malkiel and Ellis tell it all. Give this book to your parents if you want to inherit in your old age, and to your children if you want them not living with you in their middle-fourties.
7 of 8 people found the following review helpful
5.0 out of 5 stars Excellent basics on successful simple investing March 19 2010
By Gaetan Lion - Published on Amazon.com
Format:Hardcover
First, if you are considering reading this book let me set your expectations straight. This book is truly the equivalent of Strunk and White's "The Elements of Style." What the latter is to English, this book is to investing... nothing less nothing more. Don't expect a lengthy and heady tome addressing all the underlying complexities associated with this simple investing method. That's not what this book is about. If you want the heady stuff, read Malkiel's classic A Random Walk Down Wall Street: Completely Revised and Updated Edition. The latter will take you 20 hours of very concentrated reading to absorb. On the other hand, "The Elements of Investing" will take you less than two hours of very leisurely reading. So, the two books are like comparing apples and oranges. In this current book, you will still get all the basics of successful investing. Yes, it can be boiled down to a few words: save, diversify, invest in low cost index funds, rebalance, and take advantage of all retirement investment tools (Roth IRA, 401K). Sometimes, simplicity is achieved by brilliant and wise minds. And, this is a case in point. The authors have achieved their objective.

The bit of data the authors share support their method. On page 35, they show that from 1 year to 20 year term, the S&P 500 beats out routinely two thirds of investment managers. On the next page, they show that over 20 years a S&P 500 index fund beats out the average mutual fund by almost 1 percentage point (which compounded over time is an enormous advantage). On page 40 and 41, they disclose info from the WSJ showing how 14 funds that had been very successful in beating the S&P 500 for several years running did really poorly the very next year. Past performance is no guarantee of future one. On page 83, they show how equity investors are really bad at timing the market as they invest during Bubbles and sell during crashes which is obviously the opposite of what you want to do. Timing is something even the pros can't do. On page 89, they show how over the 1994 - 2008 period, mutual funds returns are negatively correlated with annual portfolio turnover. In other words, the higher a mutual fund portfolio turnover (timing) the lower the return. And, this is due only partly to incurring higher expenses. It is also due to poor stock selections. Thus, timing is something best left to not even the pros.

Their specific recommendations in addition to the key principles already mentioned make good sense. On page 99, they share six good low cost money market funds to park your money. On page 108, they disclose recommended asset allocation ranges for various age brackets. The ranges are quite elastic as they acknowledge people have different temperamental risk tolerance and different financial means to bear risk. Interestingly enough each author offers his own asset allocation recommendation. Here Ellis is a bit more aggressive than Malkiel with asset allocations more tilted towards equities to earn slightly higher long term returns in exchange for bearing commensurately higher risk. This is simply a trade-off between the two to be aware. It does not mean one is better than the other. They share this interesting exception caveat to age-driven asset allocation: if you have funds you expect to pass on to your children or grandchildren, you should invest such funds according to their age, not yours. This means having a more aggressive equity tilt for such funds. On pages 117-119 and 123, they recommend numerous index funds and ETFs that they prefer over the S&P 500 as they track indexes that are far more diversified.

I gave the authors a 5 rating because I understood what their objectives were and I feel they fully delivered. This is truly "The Elements of Style" of the investing world. This is no small achievement.
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