The Terrible Truth About Investing

The Terrible Truth About Investing: How to Be a Savvy Investor, by Bruce J. Temkin, published in 1999, during the tech bubble, should be in every investor's collection. I turn to it often for insight. It's a short book, and very accessible, full of useful charts and examples.

One thing it covers is inflation ("the silent killer"). Temkin says the only good thing about inflation is that "a kid can't get sick on a nickel's worth of candy anymore". Taxes blazenly rob you of your return, forcing to you write out a check at gunpoint once a year, but inflation does it quietly, while you're sleeping, every night.

The book is filled with charts, showing you that what you think is a great return may not even be keeping up with inflation (historically, T-Bills have been an investment that returns 0.6% after inflation, while there have been 4 20-year periods where investing in stocks returned 2% after inflation, like 1961-1981). Others demonstrate, in dollar terms, what it is like to go through years of losing money, like the 1970's, when people gave up on the stock market entirely.

He points out that, while diversification can reduce volatility and risk (the often pointed out benefits), it can also result in lower returns than if you put it all on a single stock. You should know what to expect.

He talks about temperament in investing. Some people are unwilling to even contemplate some scenarios that are likely to occur (because they have occurred before)--they are just too terrible to contemplate. What people say and what they end up doing are two different things. People tend to buy high and sell low, which is not the preferred method.

For retirement, he recommends examining the assumptions behind your software or calculator (I think they usually underestimate inflation and overestimate rate of return for stocks). You should run "monte carlo" simulations, plugging in different numbers to get a range of results, to determine a set of possible outcomes and see if you're saving enough for retirement.

The book is out of print, but at this time, 7 sellers have it listed at Amazon (I am not one of them, sorry!):