So, the funny thing about this book is that, despite the title, it exists in at least four or five editions, the first of which was written in 1978, and of which I own(ed) a copy. I remember reading it in the mid-80s, and thought it was great. The personal finance ideas that I was able to take away from it worked well - I think he was the first person who ever mentioned no-load mutual funds in anything I was reading. Of course, I could never find a financial planner that would sell me any, they always wanted to earn their commissions selling me front loaded, poorly performing funds.
When I saw this book was out again, in a 2010 edition, I thought it would be wonderful to read it, then re-read my old copy, and do a point by point comparison of the books, noting which strategies he had recommended earlier had worked and/or were still working. Alas! I was unable to find the old dusty tome in the stacks of boxes in my attic, but, Boy! if it ever turns up...
Tobias manages to cover just about every topic imaginable in the areas of personal finance and investment, and makes them all so clear and accessible. If you know nothing about money, this would be a good book to start with.
There's none of the get-rich-quick philosophy here - in fact, he makes fun of a lot of those types of "plans". He starts with the basics of budgeting and frugality - mentioning that, at least for most of us, it's easier to save a dollar than to earn an extra one, especially when taxes are taken into account. One of his favorite ways of beating inflation is to buy things that you are going to consume regularly by the case, at a cheaper price. I've tried to do that for years, only being limited by the size of my pantry.
I don't often find new, useful tax strategies at my age and given my fairly stable income and deductions, but he talked about one that got me to thinking a bit. If you're on the edge of being able to itemize your deductions vs. taking the standard deduction, he recommends that you try staggering your deductions on alternate tax years. For example, if you do a lot of charitable giving, but not quite enough to get you above the standard deduction, you can put all the money you intend to donate in one year into a savings account, then write a check to your favorite charity right after the 1st of the following year. During that year, you would contribute on a regular basis, and at the end of the year you would have twice as many charitable contributions to deduct as you had before in a single year, putting you over the threshold of the standard deduction. The charity ends up with the same amount in their coffers to work with, and you get a better tax deduction every other year.
This wouldn't work for me right now, but if I ever get the mortgage paid off, and lose that big interest deduction, it would definitely be worth considering.
In a bit of a triple whammy, he talks about using audible books as educational tools, shows how to get them to download for free, and how to listen to them as motivation while you're exercising. Mind, wallet, and body! Unfortunately for me, I hate listening to audible books. I'm so accustomed to hearing books in my head in my own voice, at my own pace (like Alvin and the Chipmunks fast), that it drives me crazy to listen to books on tape - they put me to sleep; a bad thing when you're driving across Nevada.
Tobias talks about going to the race track one time with his buddy, who was explaining to him how to handicap the races, place bets, and all of the minutiae. When he saw a horse that paid off at 30 to 1, he excitedly showed it to his friend, who gave him the standard speech about why those were sucker bets. He bet on the horse despite the odds, and it won the race! However, Tobias writes...
"The point of all this - and I think you know it instinctively but I'll spell it out anyway - is that if I had bet the full $100 on Willow, Willow would surely have lost. There is no way in the world that she would have won."
Ever looked back on a great investment you made and wish you'd bet the house on it? Remember Tobias and Willow.
One cardinal rule that he mentions about buying (anything really, but in stated in the section about the stock market) is one that all successful investors know by heart, but few are able to consistently follow, is "buy low and sell high". It's especially pertinent in times when prices are dropping like a rock, as in the most recent meltdown. People tend to bail out of the market at precisely the wrong time, when prices are low. It's nearly impossible to time the market, so as to always buy in the troughs and sell at the peaks, so the only thing that can save you is having a long term strategy and a plan in place for profit-taking.
Just a note, Tobias talks about Bill Gross, an expert bond trader, who has consistently predicted that the Dow is about to crash - for decades. Eventually, in every case, his prediction came true...but it always seems to come back. There are a number of contrarian investors, like Gross, and Peter Schiff, who make their reputations this way. It's not entirely a given, though, that following their advice will make you rich, it will merely make you right about once each decade.
As a systematic and periodic (think dollar cost averaging) investor, Tobias says:
"In truth, your fondest wish should be for a long and devastating bear market to begin right after you start your periodic investments. If you are a systematic investor, you should welcome declines with open arms and a checkbook. At the end of the day, when the market recovers, you'll be sitting pretty."
If you're properly diversified in the right type of equity funds, and your investment time horizon is long enough, you should never panic, just keep executing your plan over the long haul and ignore the noise of the media and all the pundits.
Tobias says, "Invest-don't speculate...Buy value and hold it. Don't switch in and out. Don't try to outsmart the market." Your profits can be eaten up rapidly by the double bite of sales charges and taxation.
I also found some justification for the choice I made about dividend reinvestment. I use a DRIP plan, where all of my dividends are reinvested immediately in the same stock. I pay no commissions on these purchases, and it continually compounds my returns. Tobias says, "for small investors it's (taking dividends in stock) actually quite a good deal - it makes more sense for substantial investors (not me) to take the cash and then decide on the optimum place to put it."
Written with a wry bit of humor and a comprehensive knowledge of finanical success, this one is a "must-read" for pretty much anyone. I highly recommend the book. I loved this edition just as much as the first.