Investing 101

There are tons of articles written on investing by people who are smarter, wiser, more experienced and more numerate than I will ever be. I have no chance of ever outsmarting them nor do I intend to, but I do want to stand on their shoulders.

Let me share with you my beliefs:

1. As with everything in life, you have to work hard to be successful. Investing is no exception to the rule. Actually, you can work hard and still lose money investing, the only solution to this is to work harder.

2. I have many flaws which make a bad investor. I am stubborn, impulsive, egotistical, careless, ignorant and emotional amongst many other things. But awareness of this is a good start.

3. I can be cheated. As cynical as I can be about the investment industry, I can still be taken for a ride. Although I've learnt from my lessons I can be vulnerable to the next person who understands my weaknesses. My cynicism can easily be taken to the other extreme, to the point where I blind myself to genuinely good investment opportunities.

4. In spite of all this I still have to keep on trying. Why? Because inflation doesn't care how I feel, neither do the taxes.

5. We all pursue happiness. But once you graduate from college, you will soon realize the obligation is not just to yourself, it's also to your family and those around you. Marriage and your choice of life partner will be the single most important decision you will ever make. It's harder to see why this is so in successful marriages but plain to see in failed ones.

If these statements resonate with you, it would be worthwhile for you to read on. If not, I doubt we're on the same page and there are other investment approaches which suit you better.

For anyone new to investing, I'd urge them to turn off the TV and shut out programs like "Fast Money" and Jim Cramer's "Mad Money". The problem I have with Jim Cramer is that some of what he says actually makes sense. However, his style evokes a very flippant attitude towards investing. I'm glad he is having fun at TV, but I'd be much less flippant about making decisions which shape the outcome of my retirement and children's future.

Part of the challenge in investing is to assemble a decent booklist to begin with. I'd go so far as to say that 99% of what is written on investments are are better left unread. The easiest trap for a new investor to fall into is to start reading a "How to" on stock picking. Did you ever consider that you should not be stock picking to begin with?

The caveat here is that these books have to be read and re-read and meditated upon. Speed reading through them will result in alot of lost wisdom. Also, these are investment philosophies, not point by point "How to do" lists. You need to invest time into them before you develop a strong enough conviction you can act upon (or in some cases not act upon). All are available in stores or with online retailers.

1. Winning the Loser’s Game: Charles D. Ellis
This book will get you thinking about the right issues and offers timeless investment philosophies.
2. Random Walk Guide to Investing: Burton G. Malkiel
This is actually a condensed version to The Random Walk Down Wall Street which is assigned reading in almost any investment class. It's supported by alot of convincing facts and figures and punctures alot of misconcieved notions about investing.
3. The Four Pillars of Investing: William J. Bernstein
This actually offers us a solid basic framework to investing, consultants will love this.
4. Intelligent Investor: Benjamin Graham, Jason Zweig and Warren Buffett
5. Pioneering Portfolio Management: David F. Swensen

*Millionaire Next Door: Thomas J. Stanley, William D. Danko. This is not an investment book per se but is relevant if you are serious about building your personal net worth.

**I would also highly recommend anything written by John C. Bogle. His works are not any less relevant than the other books, they are just not a natural fit in the sequence.

I would read them in the order I've presented and don't be afraid to revisit ones you think you've read thoroughly before. I'm still learning from them many years later. The challenge here is not in understanding what is written, the challenge is in applying it to your life with consistency.