Two follow-ups to investment-advice bestsellers are now in bookstores, preaching the virtues of long-term holdings of individual stocks. Each, in its own way, also takes issue with the conventional investment wisdom as it is doled out on Wall Street.
Both You Have More Than You Think: The Motley Fool Guide to Investing What You Have by David and Tom Gardner and How to Retire Rich by James O'Shaughnessy showcase an unswerving belief that when investing for the long term (10 to 30 years or more) common stocks are the investor's best bet, indeed her only real choice. The stock market will go up and down, sometimes dramatically, but in the end the trend is up. Both books demonstrate average long-term stock returns are much higher than those of other investments (bonds, money market funds, etc.). Throw in the power of compounding, and the nest egg you've got on college tuition day or at your gold-watch retirement dinner will vary significantly depending on where you left your money all those years. Money manager O'Shaughnessy is particularly good at these relative investment comparisons, using theoretical couples at different stages of life.
It doesn't hurt either book's case, of course, that they are being published during one of the great historic bull markets in stocks. Returns on stocks in the past three or four years have blown away the longer-term annual average 11% return cited in You Have More Than You Think. While both books urge investors to stay the course through good times and bad (O'Shaughnessy devotes a lot of space to how to avoid panic selling), the books' basic messages are a lot easier to swallow as the good times roll.
If the names of authors David Gardner and Tom Gardner (they're brothers) don't immediately ring a bell, you're more likely to know them by their shared persona, Motley Fool. Founders of a burgeoning online empire of financial information and discourse under the Motley Fool name, the brothers epitomize the emergence in the past few years of individual investors and Internet investing and stock talk as crucial elements in the overall stock market.
You Have More Than You Think follows the brothers' best-selling The Motley Fool Investment Guide. In this latest tome, ostensibly about getting started investing, they range widely from anti-lottery diatribes to sound advice on buying a car or home and avoiding credit card debt. When they get around to investing, they propose a relatively small number of well-established stocks, often of big consumer products companies. Whether or not you agree with their advice or with their generally anti-financial establishment stance, you're unlikely to find a more brightly written and fun-to-read book offering investment guidance. After all, as they happily admit, we're talking about two English majors here.
That in a sense is the essential point Motley Fool tries to make, that you don't have to be an expert with an advanced degree in finance to understand and successfully invest in financial markets. The authors don't like mutual funds (they generally underperform the market), they think full-service brokers are often not worth the money (they don't like commissions), and they don't like the financial press (accused of encouraging short-term thinking). No strangers to taking on convention, the Gardners think individual investors, picking specific stocks for the long term, can outperform the market.
That last thought is shared by James O'Shaughnessy, founder and chairman of the O'Shaughnessy Funds, a family of no-load mutual funds. In How to Retire Rich he makes a clear case for his own investment strategy, which against conventional Wall Street wisdom, doesn't involve any fundamental analysis of a company's actual business prospects. Since the book focuses on retirement, the author is a big plugger for starting to save now and staying invested for the long term. One of his key messages is to get started saving, whether you are in your 20s and retirement appears to inhabit another universe or whether you are closing in on retirement age and have given up on being prepared because you haven't started saving. This narrowly focused book follows O'Shaughnessy's best-selling What Works on Wall Street. As in the earlier book, he relies on strategies based on 45 years' worth of price performance of a large number of stocks. He offers a variety of easy-to-understand plans, each differing in risk/reward levels, that feature a collection of 25 to 50 stocks selected on technical criteria and regularly rotated.