Plant the Seeds of Investment Success

September 16, 2008
Chandan Sengupta

Physician's Money Digest, January31 2003, Volume 10, Issue 2

Investing well requires incorporating thelessons formed by history and developed byscientific research. Unfortunately, you arenot going to learn them from Wall Street and themedia, because, as you will find out, it is not intheir best interest to tell you about them. In anycase, you should not expect to be ableto learn about investing by readingabout it in bits and pieces in newspapers.The media can be helpful onlyafter you have laid a solid foundationand developed a comprehensive investmentphilosophy. So you have tostart your education by reading at least1 good book on investing that is basedon the results of scientific research.

There are, of course, hundreds ofbooks on investing, but most of themare based on the same myths and fantasiesthat Wall Street has been perpetuatingfor decades. Yet, they all soundso enticing and convincing that youmay need some help in identifying afew books you can rely on. Here are afew recommendations, all of which arebased on scientific research results,offer similar advice, and will definitely serve youwell over the years.

Let me also point out that even if you decideto work with a professional to manage yourmoney, you need the basic knowledge to be ableto pick the right professional and judge if you aregetting sound advice. In the world of investing,you cannot take anyone's expertise for grantedbecause there are too many so-called experts outthere dispensing too much bad—and even dangerous—investment advice.

•The Only Proven Road to Investment Success (John Wiley & Sons; 2001) by Chandan Sengupta. I obviously can't be totallyobjective about my own book.Nonetheless, I think it is one of thesimplest and most useful books oninvesting. It uses accessible languageand focuses on the things youneed to know to investsuccessfully for the longrun.The investment methodI recommend is simple.Yet scientific researchhas clearly shown that ifyou stick to this method,you are almost certain toaccumulate more money over the longrun than you would by following anyother investment method.

The book also introduces what Ithink is a better and safer approach toplanning for and managing yourretirement, and includes easy-to-useretirement planning and investmentmanagement software, GURU, thatyou can use to implement my recommendations.You can use GURU toanswer most financial planning questions,like how much you need to save for retirement,children's educations, etc.

•The Four Pillars of Investing (McGraw-Hill; 2002) by William Bernstein. This is agreat book that covers all the basics and tells youeverything you need to know to create and manageyour own investment portfolio. You will alsoenjoy Bernstein's wonderful writing. The bookincludes a thorough history of investing and thestock market. You may find the language to be abit more advanced unless you are already somewhatknowledgeable about investing. In any case,this is a book you should read sooner or later.

•A Random Walk Down Wall Street (W.W. Norton & Co; 2000) by Burton Malkiel. ProfessorMalkiel's book is a classic. It wasoriginally published in 1973 andhas been revised regularly to keepit up to date. Since most investmentbooks disappear after a yearor 2, its longevity is recommendationenough. Over the years it hasalso provided the best explanationin layman's terms of the ongoingscientific research in investing. Thisis the book that initially got meinterested in investing and finance when I read itin its first edition years back. Its investment wisdomhas undoubtedly stood the test of time andwill continue to do so. It is a little bulkier thanthe other books and will take some perseveranceto get through, but is worth the effort.

•Common Sense on Mutual Funds (John Wiley & Sons; 2000) by John C. Bogle. Bogle isthe founder and former chairman of the VanguardGroup, the mutual fund company. Over the years,he has probably done more to advance the interestsof the individual investor than anyone else.He has been a voice of reason in a world of mutualfunds where almost every other fund companyhas tried to make money for itself by enticinginvestors with funds that probably never shouldhave been started in the first place. In most elegantprose, he offers essentially the same advice asthe other 3 books. But his book also includes anumber of insightful chapters on the mutual fundindustry, in which he pointed out—before itbecame widely recognized as a result of the marketdebacle—that the mutual fund industry isheaded in the wrong direction and needs as muchreform as corporate America.

Chandan Sengupta , author of The Only Proven Road to Investment Success (John Wiley; 2001), currently teaches finance at the Fordham University Graduate School of Business and consults with individuals on financial planning and investment management. He welcomes questions or comments at