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Smart Money - Recommended reading

Charlie Munger is a brilliant investor.He's a self-made billionaire. Mungersays, "In my whole life, I have known nowise people (over a broad subject matterarea) who didn't read all the time - none,zero.

Charlie Munger is a brilliant investor.He's a self-made billionaire. Mungersays, "In my whole life, I have known nowise people (over a broad subject matterarea) who didn't read all the time - none,zero."

Unfortunately, just because somethinggets published doesn't mean it's worth thepaper it's printed on. There is one best-sellingauthor who was predicting in 1998that the Dow Jones Industrial Averagewould be at 40,000 by now. He madesome compelling arguments to support hiscase too, about how the baby boomerswere going to drive the markets to staggeringheights and all people had to do towas to reach out and seize the opportunity.

The problem is that the reality didn'tsupport the theory. After two seriousshocks over the last decade, the Dow iscloser to 10,000 right now, not 40,000.

The part that I get a kick out of is thatthe guy just keeps updating his book.When it's clear that his predictions werehorribly wrong he just writes a new versionof the book that takes into account theevents that he missed the last time around.And he keeps selling lots and lots of copies.Best-selling author. Lousy prognosticator.

Since space in this forum is limited I'llmake some generalizations. Any book thatpretends to know precisely what the futureholds, or promotes some kind of conspiracytheory, or claims to have some secret shortcutto wealth, is likely going to be of limitedvalue.

But there are plenty of wonderfulresources out there as well. I'll mention afew of them.

The Wealthy Barber by David Chilton isthe book for people who don't really wantto read about money. It's written in anenjoyable style, which is probably its strongestfeature. It's a book with valuableinformation that people will actually makeit all the way through since it doesn't readlike some dry, dusty textbook. The epitomeof a beginner's book for financial planning.

The Millionaire Next Door by ThomasStanley and William Danko is a wonderfullyinsightful book about wealth accumulation.Stanley and Danko set out to interview millionaires.What they found is that a lot ofthem weren't necessarily the people thatyou might expect, such as doctors, lawyersor corporate executives. Rather they werejust everyday folks, such as plumbers,teachers and electricians. But these millionairesare folks who have their act together.They didn't succumb to the lure of theflashy lifestyle, but became prodigiousaccumulators of wealth by living withintheir means and diligently saving for thefuture. Being a millionaire can be withinyour grasp, if you do the right things.

One Up on Wall Street by Peter Lynch isa how-to guide for the average investor.Lynch is a renowned money manager. Thisis a good book for the people who want toknow the specifics of analyzing investmentopportunities. It's full of practical wisdom.

Think and Grow Rich by Napoleon Hillwas written in the midst of the GreatDepression. It's an influential work, perhapsmore about personal growth than aboutmoney itself. While Hill sometimes gets alittle esoteric, it's worth a read, and I'llinclude it as a classic work.

The Richest Man in Babylon by GeorgeS. Clason is another classic. This one hasmore specific lessons about money, toldwith the use or parables. It's timeless wisdom.

Freakonomics by Steven Levitt andStephen Dubner is a well-researched bookthat poses some interesting questions, suchas which is more dangerous, a gun or aswimming pool? What do schoolteachersand sumo wrestlers have in common? Howmuch do parents really matter? The surprisinganswers will make you look at thingsdifferently.

The Big Short is Michael Lewis' newestbook. Lewis is a former Wall Street insiderwho has made a career of writing aboutthe unsavory side of the capital markets.His flamboyant writing style can be a touchtoo much Hollywood sometimes, but hetells a good story. This book is about thestock market crash of 2008.

The Quants by Scott Patterson is alsoabout the recent market events. Pattersonis a staff reporter for the Wall StreetJournal, with a clear, informative, andentertaining writing style. This book isabout the shadow world of hedge funds.

Too Big To Fail by Andrew Ross Sorkin isanother book about the calamitous happeningsin the markets. It's a professionalexample of writing, which is no surprise,since Sorkin's day job is reporting for theNew York Times. This book focuses on theefforts to keep the US economy fromplunging into the abyss.

Extraordinary Popular Delusions and theMadness of Crowds by Charles Mackaywas written in 1841. It takes a look atinvestment bubbles from the 17th and18th Century. While some scholars claimthat Mackay may have exaggerated thetelling of the stories, clearly modern investorsstill have a thing or two to learn aboutbubbles.

I wouldn't have a recommended list ofbooks about money without eventuallygetting to Warren Buffett. There is noshortage of books about Buffett, and theymostly come in two categories. Some arebiographical, and focus mainly on tellingBuffett's life story. The most recent book inthis category is The Snowball by AliceSchroeder.

Personally, I prefer the material thatfocuses on Buffett's contributions to theworld of investment theory. You can getthat straight from the source by readingBuffett's annual shareholder letters, whichare available online at www.berkshirehathaway.com. Alternatively, you can grab aBuffett anthology, such as The Tao ofWarren Buffett by Mary Buffett and DavidClark.

Finally, there is The Intelligent Investorby Benjamin Graham. Buffett call this thebest book on investing ever written. Attimes there is a detailed level of discussionthat might be overkill for the casual reader,but everyone should pay particular attentionto the general concepts. You'll be abetter investor for it.

A great library is a wonderful thing.Perhaps some of these books have a placein yours.

The opinions expressed are those ofBrad Brain, CFP, R.F.P. CLU, CH.F.C., FCSI.Brad Brain is a Certified Financial Plannerwith Manulife Securities Incorporated,Member CIPF and with Manulife SecuritiesInsurance Agency in Fort St John, BC. BradBrain can be reached at brad.brain@manulifesecurities.ca or www.bradbrainfinancial.com.