Wise Investing Made Simple by Larry Swedroe

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I’ve been getting back into reading financial books, but am really behind in writing reviews for them. One book I finished last month was Wise Investing Made Simple by Larry Swedroe, which promises “Tales to Enrich Your Future”.

The key word is “tales”, because this is not a book with complex mathematical formulas or lots of charts and statistics. (Although I love charts…) It contains 27 short stories using simple concepts like sports analogies to explain the benefits of a long-term, passive approach to investing. Each story includes a quick “Moral of the Tale” summary.

I’ve already written about my favorite tale in Why Sports Betting and Stock Picking Are Similar. But here is my paraphrasing of another good chapter:

The $20 Bill
Here’s is a common story used to poke fun at the Efficient Market Hypothesis. An economist who believes in efficient markets walks down the street with a friend. The friend says “Look, there’s a $20 bill on the ground!” The economist says “No way. If there was a $20 bill on the ground somebody would have already picked it up”, and continues to walk away. This supposedly counters the idea that in a truly efficient market it would be impossible to find an under-priced stock (similar to a $20 bill priced at $10 or even free).

However, this argument is not really correct. What the story eventually explains is that while many passive investors believe that the occasional $20 bill on the ground may exist, spending your time looking for them may not be the most effective way to make money. The same could be said about stock-picking or market timing. Persistence in beating the market (finding $20 bills) beyond the randomly expected is very difficult to find.

For the investor that is already committed to passive investing and fully understands the underlying reasons why they believe that is the best strategy for them, this book probably won’t bring that much new to the table. It won’t help you decide whether to hold 20% International or 45% International stocks, or if you should include exposure to commodities or precious metals. If you are a full-time trader who is adamantly against passive investing, this book probably won’t contain enough hard facts to sway you either.

Instead, I think the sweet spot for this book are those investors that have been told “index funds are great” and may even invest in them but don’t really know why they are so great and don’t have the interest level to read some dry investing book about correlations and standard deviations. The problem with this level of understanding is that when things get tough it can be easy to bail out if you don’t really know why you’re doing something. This book breaks things down into simple, bite-size pieces without being patronizing.

On a personal level, this book might not be the very first book on saving money I’d give someone, or my favorite book about investing, but I am going to keep it in my library because it provided some different ways to explain to others (and myself at times) why I invest the way I do.

Overall Rating: 3 Stars (ratings explained)

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  1. Thanks for the heads up on this book Jason. I am always looking for books to give to beginning investors in order to educate them..

  2. I might pick this book up along with your favorite book!

  3. I think of this book as the antidote for all of the other books you read. If you read a book about stock picking, you’ll feel like you might be the next Warren Buffett. If you read Stocks for the Long Run you’ll feel committed to stocks as a sound long-term investment but won’t really have internalized that there will be long periods where you’ll feel like you were wrong.

    This book gets the feeling of risk across better than any I remember reading. Risk isn’t just “volatility”. Risk means you might lose money. You might lose money for longer periods than you can weather.

    And yet, while making risk feel more tangible he provides the anecdotes that will help you keep your cool when you want to panic.

    A good read.

  4. This: “What the story eventually explains is that many passive investors believe that although $20 bills on the ground may exist, spending your time looking for them is not the most effective way to make money.”
    is exactly the point. Its sort equivalent to having a map of downtown LA and saying “there are some free $20 bills in the city somewhere…but you have to find them.” Good luck…

  5. I’ve heard a lot of good things about this book but haven’t actually read it. I think it’s about time to change that.

  6. James Cox finance blog says

    I really enjoyed the $20 bill example. I had never thought about it that way in terms of actually going after such opportunities. Well done.


  7. nobrainerdeals says

    Thanks for the review. I am a beginner investor and will check it out.

  8. Phoenix says

    Thanks for your book ratings and your reviews. FYI – I caught a typo on the Random Walk link: it says “Random Walk Down Walk Street”.

  9. Don McLean says

    I would just like to know if he repeats large sections from any of his previous books. I have never seen an author, and Swedroe is excellent, who seems to copy signficant sections from one book to a later book. If what he has written is found in no other book, I am sure it would be a good one to buy.

  10. Don – I have only read about 70% of his other book “…Winning Investment Strategy…”, but I don’t believe this book has a lot of repeated parts. This book is mainly mini-stories, and not a how-to book on asset allocation.

    I believe most of it is not found elsewhere. However, the general concept of passive investing is still promoted.

  11. Larry Swedroe says

    BTW-if you liked this book check out the second in the series, Wise Investing Made Simpler

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