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Better yet...anyone who is interested in investing needs to read this book.
Having read "Take on the Street" (Levitt), "You Got Screwed" (Cramer), and "The Great Mutual Fund Trap" (Baer & Gensler), Brennan outshines all of them.
"Straight Talk" offers very solid, common-sense advice for financial planning, saving, and investing. It is not solely about mutual funds, but rather about investing with objectives in mind.
Successful investors are disciplined, rational, and invest with goals and objectives. This is not difficult, but it goes far beyond looking at the 5, 10, and 15-year returns on the various funds in your 401(k). You set your goals, then choose an investment strategy that helps you meet those goals with minimal risk. CNBC is not the answer, but taking the time to educate yourself will pay off big, and "Straight Talk on Investing" is a good book with which to start.
Brennan provides a concise guide to making solid, prudent investment decisions.
Unlike Baer and Gensler ("The Great Mutual Fund Trap"), Brennan provides more comprehensive, non-partisan investment advice. Brennan promotes no political agenda, whereas Baer and Gensler have soiled an otherwise fine book with their partisan sniping.
Brennan is also a breath of fresh air in another respect: in spite of his status as CEO of a reputable mutual fund provider (Vanguard), he does not encourage people to invest in things with which they are not comfortable. Unlike many investment writers, Brennan does not put down those who would rather save their money and not invest.
Whether you are a saver or an investor, this book is excellent reading; it is full of very practical advice.
Some "seasoned" investors may find the book too basic for their tastes. I, however, would disagree strongly with that.
I happen to be a Certified Financial Planner, thus, I think I am pretty well versed in the area of personal finance - and I still found this book to be a delightful read.
While it may not have provided me with much "new" information, I think one of the central themes is that sound investing really comes down to a few basic principles that many of us already know. This book does a wonderful job of reinforcing those fundamentals - and it does so in a very "readable" style - I read the book in one night!
In addition, I appreciate Mr. Brennan's candor in the final chapter, "Regrets, I've had a few" where he confesses to some of his own investing mistakes, showing us that even for "experts" the game of investing is quite challenging.
Order this book and put the principles to use with your own finances - you'll be glad you did.
And, to top it all off, Mr. Brennan is donating his book proceeds to charity - a very classy move.
Vince Brascia
One important lesson, for example, is to find an approach that is right for you, and that matches your goals, tolerance for risk, and essentially, your personality. If you like to trade more actively but are doing a passive dollar-cost averaging program; or if you're a more hands-off investor but are trying to be a day-trader, you're probably not going to be able to make a success out of your program.
Another important lesson to learn is that investing really isn't, and perhaps shouldn't be, rocket science. Although I've done a few very technical kinds of investing, including such things as arbitraging short and long butterfly option spreads, which can get very complex, Brennan says you really don't need to get this fancy to be a good investor, a point I would have to agree with.
And realistically, I can't say I did that much better with all the fancy stuff as I did with my more low-key long-term investments in quality stocks. In that case, why not just invest in good, quality stocks and stop all the thrashing? I was doing okay at it, but after adding up all the commissions, I wasn't doing that much better than my long-term portfolio, and it was a lot more work, although it was fun for a while. Anyway, I finally decided to do just that. This is the sort of wisdom that perhaps only comes from experience, but Brennan has packed a lot of that into this book, so you don't have to go through everything I did to learn these important lessons.
The present market has unfortunately reminded a lot of people that stocks are potentially risky investments, and so many people are rethinking their portfolios and whether the market is really for them. For those who still have the courage to brave the waters, this book has a lot of great advice and information for the investor who still wants to invest in the market.
This 239-page book is divided into four parts and 22 chapters. Part I focuses on mastering the basics. Brennan urges investors to first do their homework (learn about stocks, bonds and cash; where to invest -- bank, mutual fund or broker; understand risk; and know yourself as an investor.
Next, he tells investors to develop good habits (saving money, buy-and-holding investments, don't keep score too often). He warns investors to be skeptical and avoid investment fads like the Nifty-Fifty (popular in the 1970s) and the Dot.coms of the 1990s. Lastly, he recommends that investors continue their investment learning process and become aware of new opportunities.
Brennan then counsels investors to trust themselves, the financial markets, and to find a trustworthy financial services firm. He pushes compounding as a way to build wealth.
According to the author, developing a financial plan including current and future financial needs is important. He covers college savings vehicles, saving for retirement, how to handle debts, and the use of margin. Additionally, Brennan expounds on the benefits of dollar cost averaging and using automatic monthly investments plans, as well as stuffing money in tax-deferred retirement plans.
In Part II, he shows how to construct a realistic portfolio using diversification and the balanced portfolio approach. He illustrates the typical returns from 1926 - 2000 with different portfolio allocations of stocks and bonds. These portfolios provide returns ranging from 6.2% to 10.7%, from the least to most aggressive.
Not surprisingly, Brennan recommends mutual funds as the best way to diversify. He goes into a discussion of how mutual funds work, their advantages, and a few caveats (yes, you can lose money). He then provides guidance on how to select the appropriate mutual fund using a 4-step approach. Next up is a discussion of the costs associated with mutual funds (loads, 12b-1 fees, taxes, etc.). He provides a table depicting the value of various hypothetical funds using different costs for each and how costs play a big role in the final value of the funds over time.
The most important chapter in Part II is the one on risk. Most investors do not understand the implications of neglecting to take into account the riskiness of their investments. Brennan defines investment risk, duration, volatility, risk tolerance, and how to manage risk.
Part III focuses on managing your funds with focus and discipline. He explains style boxes (similar to Morningstar's style boxes) and how funds are classified into one of nine boxes arranged by market cap size (small, medium and large) and style (value, blend, growth).
Brennan then attempts to make the case for buy-and-hold as a solid investment strategy. He indicates that frequent trading and market timing don't work. He says, "my advice is to forget market timing and let time, and compounding, do the magic." He illustrates how missing the "best" months greatly reduces an investor's overall performance from 1992 - 2001. But he neglects to mention that missing the "worst" months provides a higher performance than missing the worst months.
Investors who got killed in the market crash from 2000- 2002, the worst since 1929, by sticking with their stocks or mutual funds, and especially those who kept dollar-cost averaging down, probably don't agree with Brennan on the benefit of buy-and-hold and dollar-cost averaging. I strongly believe that market timing with the right tools and strategies can beat buy-and-hold with less risk, but this is not the format to make the case.
A chapter entitled "Time is Everything" makes the case for accumulating wealth by making systematic investments in retirement accounts. Brennan illustrates the value of compounding, and why investors should start investing at a young age. He also shows the range of returns of the S&P 500 from 1972-2001 for various rolling holding periods (1, 5, 10, and 20 years) and concludes that all 10-year or longer rolling periods produced positive returns. He urges investors to tune-up and rebalance their portfolios to retain the proper allocation among investment classes.
Part IV starts with a discussion of the history of financial bubbles, and then goes into how to recognize a bubble, and how to protect yourself from speculative bubbles. Brennan urges investors not to follow the crowd, not to become greedy, and not to chase hot sectors. Above all, he cautions investors to beware of themselves -- since they may be there worst enemies because of their behavior. Overconfidence, focusing too much on the short-term losses, feeling compelled not to stay on the sidelines all can lead to financial disaster.
One chapter focuses on bear markets. Brennan reviews their length since 1956. He points out that a diversified portfolio of 60% stocks/40% bonds had lost only $29,000 out of $100,000 in the 1973-1974 bear market compared to a loss of $48,000 invested 100% in stocks. He offers the following tips for handling bear markets:
- continue to use dollar-cost averaging
- maintain long-term perspective
- make small shifts in portfolio allocation
- have realistic expectations
He says, ".....people who are investing regularly for a long-term goal-- not those drawing on their investments -- bear markets are good things. If you are investing for retirement, and retirement is decades away, a decline in you account is not a "real" loss". Oh really!! Tell that to the millions who have lost a large chunk of their retirement money in this cruel crash by following the conventional wisdom.
In conclusion, I felt that Brennan offers many useful insights for novice investors to contemplate, especially on the importance of using diversified no-load mutual funds. The book is well written, easy-to-understand and offers down-to-earth advice. His discussion of buy-and-hold is weak and flawed and that's the weakest part of the book.
Q: How many Martians does it take to screw in a light bulb?
A: One and a half.
Experience varies directly with equipment ruined.
