So here’s a paired reading of sorts: Burton Malkiel’s A Random Walk Down Wall Street and Andrew Tobias’ The Only Investment Guide You’ll Ever Need . Apparently now it’s Personal Finance Month on Weasel Words.

Readers with a good memory will recall that I’ve talked about Tobias’ book before, but this is actually a different edition. It turns out that I re-read the book approximately annually (which is a testament to its breezy readability), so I figured I’d shell out for the new edition, which brings it up from 1998 to 2004. There’s not much different — a lot more URLs, a few more recent anecdotes, a graph or two with more current numbers on them, and updated information on relevant policy and tax changes — but that’s pretty much the point. An investment guide that radically changed at the turn of each business cycle would be worse than useless.

In this edition, as in (I assume) all the previous editions, Tobias’ book is a superb beginner’s guide to personal finance. Writing a book for people who don’t know anything about the topic at hand and are a bit scared of (or bored by) it is difficult to do well, but Tobias has just done an amazing job. The light, breezy style and illustrative anecdotes make the book a pleasure to read (and re-read), but don’t get in the way of substantive content. The book somehow manages to get across almost anything you could reasonably care about, assuming a base of total ignorance, inside of a couple hundred pages.

Tobias’ accomplishment is all the more noticeable when set next to Malkiel’s book. I don’t mean by this to suggest that A Random Walk Down Wall Street is bad; it’s not, at all. In fact, it’s also excellent. But, unlike Tobias’ book, it requires you to know a thing or two — nothing too complicated; if you read the WSJ regularly, you’ll find nothing to confuse you, but it’s definitely not interested in catering to complete neophytes.

Which, really, is to be expected, because Malkiel is writing a book that digs deeper than Tobias’. The main point of the book is to explain and defend the efficient market theory, which (loosely) states that it’s essentially impossible to consistently predict the future in such a way that you can get more return for less risk than you could with the aggregate market. The first edition of Malkiel’s book was written before the existence of index funds, and in a sense, the prevalence of low-cost index funds today is due to this book. (In another sense, the prevalence of index funds is a testament to the essential truth that this book explained.)

If you go into A Random Walk expecting just a thesis defense, though, you’ll be surprised. In a way, it actually felt like Malkiel had glommed together three or four semi-related books. It opens with a broad overview of the principles of valuation, segues into an amazingly entertaining history of the last fifty years of the stock market (I kept quoting bits to Beth in bed), goes off for a bit to talk about risk and diversification, moves along into a spirited defense of the efficient markets theory, and ends up with some investment advice. Each of the sections is interesting and informative — and well-written enough to literally keep me up at night reading — but the flow of the thing doesn’t exactly seem inexorable. That’s a minor quibble, though, and Malkiel’s book is deservedly a classic.

My advice: Go buy Tobias’ book and read it. If you don’t know what he’s writing about, you really need to; if you do know it, you’ll probably enjoy reading the book. After that, if you find the stock market intriguing, absolutely read Malkiel’s book; but if you find the subject dull, you can skip it without feeling like you’re missing out on super-critical information that every person absolutely needs to know.


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