 | Summaries and Customer Reviews are supplied by Amazon.com | The Three Commandments of Investing
Amazon-exclusive content from author Jason Zweig The First Commandment:
Thou shalt take no risk that thou needst not take. Always ask yourself: Is this risk necessary? Are there safer alternatives that can accomplish the same objective? Have I studied the pros and cons of each before settling on this choice as the single best way to achieve my goal? Unless you ask, do not invest. The Second Commandment:
Thou shalt take no risk that is not most certain to reward thee for taking it. Always ask yourself: How do I know this risk will be rewarded? “Most certain to reward thee” does not mean that there is zero chance that you will not be rewarded. It does mean, and must mean, that you are highly likely to be rewarded. What is the historical evidence, based on the real experience of other investors, to suggest that this approach will actually succeed? During the periods in the past when it hasn’t worked – and every investment in history has gone through such dry spells, regardless of what the hypesters might tell you – how big were the losses? Unless you ask, do not invest. The Third Commandment:
Thou shalt put no money at risk that thou canst not afford to lose. Always ask yourself: Can I stand to lose 100 percent of this money? Have I analyzed not merely how much I will gain if I am right, but how much I can lose and how I will overcome those losses if I turn out to be wrong? Will my other assets and income be sufficient to sustain me if this investment wipes me out? If I lose every penny I put into this idea, can I recover from the damage? Unless you ask, do not invest. |
Average Customer Rating:   Reading when I have time reading this in between kids and work. nothing special but good enough to read. Good ... but more like collection of articles from WSJ Let me begin by telling little bit of my investing background. I consider my self a novice in investing. Just started reading about and trying to implement what I learnt. I read Bernstein's Four Pillars, the new Investor's Manifesto, Boggle's Little book of common sense and New Common sense on mutual funds, Jonathan's Little books of Main street money and several other books. I am really impressed by Bogglehead's school of thought and I consider my self a fledgling Bogglehead. Jason Zweig's work is mentioned in almost every book that I read. I was looking for a book authored by Jason especially for a rookie investor like me. I was delighted to find this book which was written after the most recent market meltdown. I felt like this book is more like a collection of articles than a book on personal investing distilled through enormous experience of Jason with the recent bear market in the background. This book does provide advise about the importance of being liquid and the importance of considering liquidity vs illiliquidity while considering asset allocation. I am sure this book will serve to fine tune the skills of a "Sophisticated Investor" ( Which by the way is an oxymoron per Charles Ellis's Winning the Loser's game).But it provides not much in providing solid advise to rookies like me. I think part of the problem could be due the format of the little book series - squeeze too much in to too little. For a novice investors I would recommend the recent books like - Little book of main street money, The Investor's Manifesto and Winning the Loser's game over Zason's book. Kindle book version I am partway through this book and I already know that it is excellent and I highly recommend it. It is short, but packed with information. I have had trouble with the display of two of the Exhibits. They start to load with dark ink, but finish with light ink. With the light ink and small print they are difficult to read, especially Exhibit 2.2. I have tried zooming and they start to zoom and then revert to normal. Still, I am very pleased I purchased this book. A Little Book with Big Ideas; Smart, Savvy & To-the-Point! This latest incarnation of the Little Books, Big Profits series is a safe bet for investors looking for a way to shore up their portfolios in the aftermath of last year's financial implosion. Wall Street Journal "Intelligent Investor" columnist, Jason Zweig is a source you can trust on all matters relating to investing and personal finance. In his long career working for top financial news outlets like Forbes, Money magazine, Time and CNN, he has undoubtedly learned a thing or two about how investors can best protect themselves from the fallout of fly-by-night investment schemes peddled by the likes of Bernie Madoff and other unscrupulous, financial practitioners.
Zweig is an expert in the field of behavioral finance, which means he knows all about how an investor's clearest instincts can sometimes work against him or her. Zweig exposes the hollowness, which lies behind many of the glossy catchphrases and gimmicky marketing tactics that the big investment houses use to rope in new clients and saddle them with complicated financial products, many of which run the risk of becoming unmanageable and performing poorly in the long run. He deconstructs the widely believed myth that amateur investors should always to seek guidance from a professional financial advisor prior to getting involved in the market. He offers a number of examples of investors successfully and independently managing their own portfolios as long as they are grounded in responsible expectations about risk and return.
Zweig leaves readers with three, forceful, takeaway lessons about avoiding risk in the form of biblical-sounding commandments: (1.) "Thou shalt take no risk that thou needst not take." An example Zweig gives of needless, if unconscious, risk-taking is overinvesting in the company you work for. According to Zweig, you're already taking a risk by working for the company in the first place (due to the chance of getting laid off or the company going under). You always want to have your investment income to fall back on in the off chance that your other income drys up. (2.) "Thou shalt take no risk that is not most certain to reward thee for taking it." According to Zweig, investing in individual stocks or sectors of the market is taking too much risk. Instead, invest in the total market and forget about betting on one stock or sector to outperform another. In other words, diversify! (3.) "Thou shalt put no money at risk that thou canst not afford to lose." Depending on your circumstances, you may not even want to invest in stocks at all. There are dozens of low-risk, high-yield alternatives to playing the market. For these reasons and more, The Little Book of Safe Money: How to Conquer Killer Markets, Con Artists, and Yourself (Little Books. Big Profits) is a sure bet for every conscientious investor on your holiday shopping list.
Another book written in the same vein as Jason Zweig's "Little Book" is Thomas C. Scott's Fasten Your Financial Seatbelt: What A Fatal Plane Crash Taught Me About Retirement Planning. Scott is a [...] contributor, speaker and consumer advocate with over 25 years in the financial services industry. His book is full of sensible, easy-to-understand principles for managing your assets in an intelligent and responsible manner. An informative book. As of November 2009, Jason Zweig's book is the latest in the Little Book Big Profits series of books, most of which are very informative and well written. This book is no exception. The first thing to recognize about the Little Book series is that, well, the books are little--perhaps only two-thirds the size of most books. If this book were published in a more normal size and line spacing format, it would probably run less than 150 pages, but that doesn't really detract from the value of the book.
Much of the book covers some common sense concepts, like (1) don't take unnecessary risks, (2) don't take risks without sufficient expected return to compensate for taking the risks involved, and (3) don't risk money that you can't afford to lose. Zweig refers to these concepts as "commandments," and comes back to them throughout the book. He does a better job, in my view, when he addresses somewhat less obvious concepts, such as the (sometimes neglected) value of liquidity and the value of one's "human capital." For example, if you have invested years in your own education to become a geologist, then it might make sense not to concentrate your financial capital investments in energy stocks (because if the energy industry falls on hard times, your investments could suffer and you could lose your job at the same time).
Zweig is at his best, in my opinion, when he addresses the supposedly "low risk and high return" investments that the financial industry regularly puts out. He also deserves credit for explaining (1) how some "guarantees" are not all they are cracked up to be, (2) the difference between yield and total return, (3) how the risks that stocks seem to represent and the risk that they actually represent are often inversely correlated (think about that for a minute), and (4) why leveraged ETFs (exchange traded funds) may behave differently than some investors expect. There are more, but you get the idea.
I liked Zweig's discussions of the risks involved in hard assets and emerging markets, and I thought he did a good job pointing out the various unconscious biases many investors have, such as "anchoring" and "framing" that behavioral finance warns us about. The discussion of "Mr. Market" (an invention of the legendary Benjamin Graham) was very good, and I liked Zweig's collection of red-flag phrases for investors--like "can't lose," "guaranteed" and some less obvious others.
This book is an easy read not only because it's short, but also because Zweig has an easy writing style. I doubt that it will plow a lot of new ground for sophisticated investors, but for the rest of us, it represents a worthwhile investment.
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