What I've been reading...

I recently finished two interesting books, Gyles Brandreth's Oscar Wilde and the Vatican Murders (2012) and Jeremy Siegel's Stocks for the Long Run 4th. Edition (2007).*

The Vatican Murders is apparently the fifth book in a series featuring Oscar Wilde, and comes highly acclaimed. It sets Oscar Wilde and Arthur Conan Doyle in a murder mystery that comes with wit, good pacing, and lively characters set in a well-realized setting of late nineteenth-century Rome. I enjoyed the work a good deal, and look forward to checking out some other books in the series from my local library.

Stocks for the Long Run is considered a classic in the investing world, its first edition having come out back in 1994, and comes highly recommended for anyone interested in long-term investing. It's basic argument is that from a historical point of view, stocks have provided the greatest return over the last two hundred years, with a robust return of about 6.8% after inflation per year--several percentage points more than bonds, gold, cash, or any other asset. This difference is called the equity risk premium. Stock returns are more volatile in the short term, but have tended to stabilize over periods longer than twenty years. As such, any long-term investor should have a large percentage of their investment assets in stocks.

The argument is not without its critics, or those who believe the advice inappropriate for many investors. Of the latter, the strongest argument is probably behavioral: stock returns and prices are undoubtedly volatile in the short term, and can and have lost half or more of their value in the course of a few months. Investors who are tempted to sell during such crashes, or who are compelled to sell by circumstances, will not stand to benefit from the higher long-term return of stocks. Better perhaps to have a higher percentage of bonds and/or cash to smooth the ride, even at the expense of return. There are many rules-of-thumb in this regard--"age in bonds" as a percentage of assets, or "age-in-bonds - 10" and so forth.

There is also the standard, "past performance does not guarantee future returns." Stocks have had a historical premium, but there is no guarantee it will continue.

As it is, I found the book a very useful work for thinking about risk and return from investments, and especially enjoyed the historical analysis . If you have an interest in investing, this is a good book to read.

Well, the year is off to a good start in the reading department. We'll see what new works I can find on my next library visit. Happy Tuesday :)

*I've since learned this book recently came out with a fifth edition (2013)