Stocks

Originally published in 1973, the book recommends a buy-and-hold strategy using dollar cost averaging. The book also talks about some historical investment crazes; or as Dr. Malkiel calls them, creating “castles in the air.” For instance:

• Tulip Bulb craze: Tulips imported into Holland from Turkey during the 17th century gained instant popularity. According to Investopedia: “The true bulb buyers (the garden centers of the past) began to fill up inventories for the growing season, depleting the supply further and increasing scarcity and demand. Soon, prices were rising so fast and high that people were trading their land, life savings, and anything else they could liquidate to get more tulip bulbs. Many Dutch persisted in believing they would sell their hoard to hapless and unenlightened foreigners, thereby reaping enormous profits. Somehow, the originally overpriced tulips enjoyed a twenty-fold increase in value - in one month!” Eventually the market crashed and individuals who had traded the value of their home for a single tulip realized their mistake.

• South Seas bubble: This financial institution was granted a monopoly over trade in the South Seas by the British government. The company was supposed to grow due to trade in slaves, as well as mineral wealth (i.e.: gold and jewels). The company even agreed to finance a large debt Britain incurred after a war. “Investors quickly saw what they perceived as value in the monopoly of the South Seas. Shares were quickly snatched up from the start… The management team of this company started hyping the stock, spouting illusions of grandeur to the investors.” After the stock price reached astronomical levels, the crash began. “Eventually word broke out that the management team had sold out completely. Investors were left holding the bag. Panic selling of the worthless shares immediately ensued. Fortunes were lost in a heartbeat.”

This book is a great read for any investor and I highly recommend it.

In this book I will take you on a random walk down Wall Street, providing a guided tour of the complex world of finance and practical advice on investment opportunities and strategies. Many people say that the individual investor has scarcely a chance today against Wall Street's professionals. They point to techniques the pros use such as "program trading," "portfolio insurance," and investment strategies using complex derivative instruments, and they read news reports of mammoth takeovers and the highly profitable (and sometimes illegal) activities of well-financed arbitrageurs. This complexity suggests that there is no longer any room for the individual investor in today's institutionalized markets. Nothing could be further from the truth. You can do as well as the experts — perhaps even better. As I'll point out later, it was the steady investors who kept their heads when the stock market tanked in October 1987, and then saw the value of their holdings eventually recover and continue to produce attractive returns. And many of the pros lost their shirts during the 1990s using derivative strategies they failed to understand.

This book is a succinct guide for the individual investor. It covers everything from insurance to income taxes. It gives advice on shopping for the best mortgage and planning an Individual Retirement Account. It tells you how to buy life insurance and how to avoid getting ripped off by banks and brokers. It will even tell you what to do about gold and diamonds. But primarily it is a book about common stocks — an investment medium that not only has provided generous long-run returns in the past but also appears to represent good possibilities for the years ahead. The life-cycle investment guide described in Part Four gives individuals of all age groups specific portfolio recommendations for meeting their financial goals.

What Is a Random