Larry Swedroe's Wise Investing Made Simple uses short chapters and pithy stories to help readers rethink their basic premises and deeply held beliefs on how to be successful investors. The author asserts that most investors, without realizing it, do not know how markets work. Many investors are misled by conventional wisdom, economic forecasts, Wall Street recommendations, and CNBC gurus.
They mistakenly believe that smart people, working diligently, can discover which stocks are undervalued and should be bought, and which stocks are overvalued and should be avoided. They also believe that smart people can get in and out of the stock market at the right time. These mistaken beliefs lead to the search for a strategy that will "beat the market," a search that is doomed to fail.
Swedroe sets out to change the reader's understanding of how markets really work and to provide the reader "with sufficient knowledge to begin to make more informed and more prudent investment decisions." Along the way he debunks many investment fables, including: "Great companies make great investments," "Buy what you know," "Stocks are not risky in the long run," and "Past performance is a predictor of future performance."
Wise Investing uses inventive stories in a clear, understandable and concise manner to illustrate why economic forecasts are not useful, why trying to time the market or find undervalued stocks is a loser's strategy, and why finding the next investment superstar is nearly impossible. He illustrates why overconfidence can be dangerous and how investors confuse information with exploitable knowledge.
Swedroe uses analogies from such sports as baseball, basketball, golf, and football. He also uses game theory, horse racing, and insurance examples. Without straining, he refers to astronomy, astrology, alchemy, and mythology to keep the reader interested. Finally he peppers his stories with specific historical examples, which are very convincing. Each story makes a point, and the cumulative effect is impressive.
Some of the very practical suggestions include how to interview and evaluate a stockbroker and how to evaluate an investment strategy, both before and after it is implemented.
If you already know something about investing, this will still be a useful book, because of the cumulative logic of the chapters, the engaging writing style and the memorable stories. Wise Investing will be useful to financial advisors in explaining to clients how to avoid the common pitfalls.
Wise Investing is primarily a "why-to" rather than a "how-to", in that to implement the strategy correctly you may want to read his earlier book - The Only Guide to a Winning Investment Strategy You'll Ever Need - or you may need an advisor. His last chapter covers why some people should consider using an advisor and how to find one you can trust. (Full disclosure - I am a fee-only financial advisor.)
Wise Investing is a valuable addition to anyone's library of investment books. It will be useful for all levels of investors.