5 thoughts on “The Elements of Investing”

1. Two long-standing powerhouse investment experts and authors, Ellis and Malkiel have teamed up to write a simple investing guide for the uninitiated. This book is best suited for those individuals who have a very limited or no investment knowledge, as well as for investors who have had no success or can’t seem to make money consistently, especially in bull markets. This short and sweet book covers the basic elements of investing in a clear-cut step-by-step approach. Many new investors will benefit from its down to earth, easy-to-follow advice. Seasoned investors will not find anything new here. The keys to successful investing according to the authors include: saving early-on and consistently, using company and governments sponsored retirement plans to build wealth, diversification using index funds, rebalancing annually, using dollar-cost averaging, and investing for the long haul by ignoring market fluctuations.

   The authors strongly believe in the buy-and-hold mantra and the efficient market hypothesis. Unfortunately, using this approach with low-cost index funds is totally antiquated in today’s financial world where we have seen two stock market crashes in the last decade where investors lost $11 trillion of market value. As the late Nobel Laureate economist, Paul Samuelson, has said: “The longer you own stocks, the greater the risk of a devastating loss.” That is why buy-and-hold is doomed to failure.

   Today’s investors need a pro-active investment strategy using a specific action plan with specific buy and sell rules. Since most investors will not or do not want to consider an active investing approach, then this book will certainly suit their needs and provide a decent return, although it is subject to being fully invested during future bear markets and crashes which will occur, as they have in the past.

   Buy-and-holding index funds is certainly a viable strategy, but it definitely has risk, more risk than most investors realize, and is certainly not an optimal approach. As in sports, a winning team requires both offense and defense. Buy-and-hold does not offer a defensive strategy when it is needed the most – during bear markets and crashes – and that is a major shortfall that is critical for investors to understand.

   Interestingly, the authors made a surprising statement as follows “charting is akin to astrology.” This view is ridiculous in today’s world in light of the hundreds of members of the Market Technician’s Association who are Certified Market Technicians, the many members of National Association of Active Investment Managers, and the many large institutions and financial firms that have technical analysts on their staff who use charts to identify exit and entry points for the market. Using charts have helped many investors and institutions avoid this latest bear market. For example, by simply using the 200-day moving average with the major market averages, among other technical indicators, stock market losses were greatly reduced by being out of the market way before the September 2008 market debacle occurred.

   In summary, the authors present a rationale for using the well-known buy-and-hold approach. They don’t seem to be swayed by the volatile and crushing crashes in the past decade, and that is their right. Investors need to understand that buy-and-hold is a dangerous approach in volatile times, and that they may want to consider alternative self-directed investing approaches to protect their hard-earned money in future years.

   Rating: 3 / 5

2. Great little book. My husband bought one for himself and one for my sister.
   Rating: 5 / 5

3. The Elements of Investing is, as advertised, a nice primer for young adults who want to know a little something about how money and investing works. The actual writing style is quite boring, and not geared for young adults or those new to investing (their target audience) but for those well versed in financial literature–so this mismatch in style makes the book much less valuable. The five key principles outlined in the book (save, index, diversify, avoid blunders, keep it simple) offer good advice, but again, it’s simply a collection of common knowledge for those who read these kinds of books, and perhaps too general for those who don’t. Also, Malkiel and Ellis write knowledgeably about the investment vehicles they are most familiar with (stocks and bonds) but don’t make any effort to address other investment vehicles (real estate, small business ownership, etc.).
   Rating: 3 / 5

4. The Elements of Investing is an ingenious little book for its simplicity while covering the basics of investing and teaching people how to make healthy choices for their financial future.

   This book is perfectly named in honor of the book The Elements of Style by Strunk and White, whose goal was to make the many rules of writing simple and has published it’s 50th edition.

   Malkiel and Ellis have done the same, having taken the complex for personal investment planning and made it simple for everyday people to succeed, no matter how much money they make. I wouldn’t be surprised if a 50th edition is published of this book in 2060.

   This book is worth buying and would make a great present.

   Rating: 5 / 5

5. By far the most knowledgeable, understandable, and trustworthy book on investing I know of. The authors’ command of the subject is impressively deep. Their ability to explain things in a way that is readily grasped is marvelous, not least because of the solid evidence they provide for their conclusions. And their willingness to be explicit and direct on practical matters makes this the one book on investing you should be sure to read, whether you read anything else or not. AND BUY COPIES FOR ALL YOUR CHILDREN AND GRANDCHILDREN!!!
   Rating: 5 / 5