It pays to screen books. After reading a plethora of bad investment books, I screened a half dozen ‘Top 10’ lists and came up with 3 books that appeared on all of the lists. Forget getting ripped off investing, I even got ripped off buying bad books. And while long, this one is a very nice read, worth every penny. Malkiel is brutal in his assessment of Wall Street as a den of thieves. You get the impression that American business isn’t so much about creating a better product, as it is about creating a better way to cheat the public. The goal of the investment banks isn’t to make you rich, it is to pick you clean and leave you wondering how they did it.
He also drives home that the investment “professionals” are just as clueless as the rest of us when it comes to forecasting the direction of the markets. Essentially that the buy and hold strategy of an index fund will beat a managed fund any day of the week. Chartists and soothsayers can spout all the mumbo jumbo they want, but they don’t beat the law of averages. My only gripe with the author, is that he lets the Securities and Exchange Commission off the hook for letting Wall Street get away with murder. Nope, if the SEC isn’t going to do their job, find someone who will.
Chapter 7 is a good example. He highlights how companies like Enron, Sunbeam, Qwest, etc. ripped off stockholders with ridiculous accounting schemes. Why did the SEC allow this? There’s a foolproof way these crooks never get off the ground, its called GAAP (Generally Accepted Accounting Principles). How can this be happening in the computer age? Sure in the old days of actual books it would be tough, but now? Their program either runs through the SEC program or they don’t. But if you stop the corruption, retiring SEC officers don’t get sweetheart positions at the big investment banks when they leave government service.
Its been over a hundred years since we went after the ‘robber barons’, its time to put some hides on the wall.
[The other gripe I have with Malkiel (aside from him letting government regulators off the hook for their lack of oversight), is on page 196 when he says, “The period 1930 – 1932 was extremely poor for stock investors. The early 1970s also produced poor returns.” My God sir! Those were the greatest buying opportunities the world has ever seen! Along with the big dip in October ’87, July of 2002 and July of 2008, those are opportunities of a lifetime. Quit encouraging people to fear the dip. Maintain liquidity to grab the dip! On page 321 he makes a similarly questionable statement regarding government debt that he blames on entitlement programs. They aren’t the problem, the fact that Congress spent the trust fund that was supposed to pay for them was the problem. Don’t sit there and try to blame old people. It was Congress.]