Financial Book Recommendations

I read a lot of financial books. Personal finance, economic theory, the stock market, real estate investing, all sorts of stuff. Here are five of the best, in no particular order.

1. The Wealthy Barber (by David Chilton): This is the one that started it for me. At age 25, I came across this in the form of a TV show on PBS. I was intriuged enough to get the book from the library. I hadn’t even known there was such a topic as personal finance. This book was a revelation to me. I understood what compound interest was, I understood what budgeting was, I understood what investing was, but I had never seen it put together under one topic. I started saving 10% of my paycheck the next day, and I’ve never looked back.

   The book takes the form of four people, from various walks of life in various financial situations, getting lessons from a barber. Why a barber? Because he’s rich. And he did it in a way anyone can copy. The point of this book is to show how basic financial knowledge can make just about anybody wealthy over the course of a lifetime. If a barber can do it, you can too.

   The Millionaire Next Door (by Thomas Stanley and William Danko): This one is a bit different than the others, because it’s not prescriptive. It’s essentially a giant research study. The study looks at the millionaire next door. They interviewed hundreds of people, to find common factors in those who were successful and those who weren’t. The authors don’t tell you what to do, but the conclusions are obvious. When you look at the group of millionaires and see 80% of them have always bought their cars used, and the group of millionaire-looking-but-actually-very-poor people and see that 70% of them buy all their cars new, it’s hard not to draw the obvious conclusion.
2. The Only Investment Guide You’ll Ever Need (by Andrew Tobias): So now you believe in personal finance, what do you do with all that money you’re saving? This book is a very clear and funny guide to all the different investment vehicle. It walks a fine line between giving you specific advice based on market conditions, and not so specific that the advice becomes obselete a year later. This book gets huge props from me by having a solid page about Black Knight 2000 in the first chapter. Gimme your money!!
3. The Money Game (“Adam Smith”): A golden oldie, this book came out in 1976. This book is about The Money Game. There’s a lot of parts to finance that are pretty dry, this is about all the parts that ain’t. The gnomes of Switzerland, big oil, the psychology of traders, inside Wall Street… there’s a reason this still sells copies thirty years later. (Adam Smith was a pseudonym used by the author, he revealed his indentity years later.)
4. The Number (by Lee Eisenberg): If you’ve thought about personal finance at all, you’ve thought about “The Number”. It’s the goal you’re shooting for, it’s the number that means you can retire. It’s also known as the “F.U. Number”, the idea being that once you have this amount of money, you can tell anyone, F.U! without worrying about the consequences.

   But how do different people come up with the number? Why is it so different for different people? How does it change? Can it be zero? Do you have a plan to get there? A real plan? Are you on track? What do you do when you get to it? Why did you pick that number? What exactly do you plan to do with that money?

   If you’re interested in the questions, this book is for you. The author is not a professional financier, he works around the questions as an outsider to the institutions that are built around The Number. There is more psychology than numbers in this book. A very rewarding look at the “Why” over the “What” of savings and personal finance.

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And here are three authors to stay away from.

1. No to Robert T. Kiyosaki (“Rich Dad, Poor Dad”): His basic message is reasonable enough. You won’t get rich by working for the man and saving, you need to be your own boss and have multiple income streams working for you. Unfortunately, it’s not true. Or rather, it’s true for some kinds of people, but wrong for most.

   This wouldn’t be such a bad thing, except he also provides absolutely no hard reasoning, no logic, no facts, no evidence of any kind to back up his theories. What he provides is anecdotes. Great anecdotes so convincing that you don’t step back to think if the anecdote proves what he said it proves. And then (of course) it turns out that whole damn book is a lie, there is no rich dad or poor dad, and even the anecdotes are fake. You can do well following some of the monetary philosophies in this book, but you can also throw a lot of time and money down the toilet, money that would be making you a millionaire if you’d paid attention to better books. (Kiyosaki has done well by his own advice though, the Rich Dad, Poor Dad empire provides him with everything he will ever need.)

   This guy says it better than me.

2. No to The Motley Fool: I read three of their books, but by the third one I was wondering why I bothered. They start with some sound basics. Compound interest, savings, index funds, etc. Then they must have got bored, because the rest of everything they write is specific advice for specific people with specific strategies in specific markets. Everything they write is guaranteed to be outdated within five years.

They have two specialities. First, the contrarian advice. When everyone else advises x, you can bet that their website will have an article that advises y. This is given because it fills books, and if they get a lucky hit, they look like geniuses. Second, the backwards facing model. Take six of the top-ten Dow stocks in April ranked by reverse shoe-size, or some such garbage, and you find an amazing 14% rate of return over the market. Wow, that sounds incredible! Then you think about all the millions of theories that work great for years and years, until they don’t. (Exercise for the economically-trained reader: prove why any theory of this type is inherently self-defeating, and cannot be a successful long-term strategy.)

1. No to David Bach (“Smart Nouns Finish Rich”): There’s nothing really wrong with his books. He doesn’t say anything that’s wrong. It’s just that there are hundreds of better personal finance books out there. He’s incredibly glib and reasons by anecdote just like Kiyosaki. There is one thing he’s very good at though. He can take one simple idea that would take me one long blog post to explain, and he can stretch it to a full length book, which will unfailingly sell a million copies. The guy is still milking his precious “latte factor.” (Get it?) At this point, he tours around the country collecting his speakers fees. Every once in a while someone in the audience will say something interesting, then he’ll steal their story and write another best-seller about it. Again, the advice he gives is not wrong, there’s just better sources out there.