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D. Murali

ARE you ready, not for wisdom of `Harvard Business School' but of `thousands of ordinary people who have successfully accomplished their own personal financial objectives, largely as do-it-yourself investors'? If yes, here is Straight Talk on Investing by Jack Brennan, published by Wiley (www.wiley.com). The preface of the book warns, point blank: "Some of what passes for investment advice is downright dangerous to your wealth. And much more is simply irrelevant to `real people' — the millions who don't earn a living managing money."

If you doubt whether you can be an investor, Brennan has a motivating message: "More people should be investors, because sensible long-term investing is an effective way to achieve financial security." Obstacles to investing are fewer because high costs and information barriers are things of the past. Markets are more democratic and socialistic, because you don't need a B-school degree to start, nor be wealthy to trade. "Making your wealth grow is not that difficult. It's really quite simple," writes Brennan, almost teasing readers to get back to basics. So, what's successful investing, if it's not difficult? "It's just intimidating."

Therefore, the first trait you need is `confidence'; don't spend your life "haunted by the thought that somewhere out there is a get-rich scheme or investment gimmick" that will fetch you a pot of gold. Four priorities of confident investors are: "Do your homework; develop good habits; be sceptical of fads; and keep learning about investing."

Homework is not to switch on the `market' programme on the TV and watch it like a zombie, but to get the fundamentals right — such as three different kinds of investments, viz., stocks, bonds and cash; places to invest, say banks, mutual funds and equities; meaning of risk; and most important knowing yourself as an investor. Among good habits, first comes the saving urge; then follow being a buy-and-hold investor; and not keeping score too often.

The four-part book devotes the first part to basics, where the author stresses the need for trust: "First trust yourself to make sound decisions. Second, you must trust the economy and financial markets to be your partners in building wealth over the long term. Third, you must trust in the power of compounding — the way that `money makes money'. Finally, you must do business with firms that you can trust."

Part two is about constructing a sensible portfolio; it begins with a chapter titled `balance and diversification help you sleep at night'. "Balance means owning different types of investments — assets that typically behave differently enough from each other that they are unlikely to all disappoint you at once. Diversification means spreading your money around enough that no individual holding can hurt you significantly if it takes a dive." Part three is on managing investments with focus and discipline. Frequent trading may not fetch high returns, says the author. "If market-timing did work for long periods, the timers themselves would top the lists of the world's richest individuals... The world is simply too unpredictable a place to depend on patterns, or momentum, or logical assumptions that have worked in the past to prevail in the future."

Part four is `stay on course'; because there's so much madness out there and that you could turn your worst enemy.

Are you ready for some straight talk?

BookValue@TheHindu.co.in

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