way to end up with US$1mil in the stock market

way to end up with US$1mil in the stock market ; in good markets and bad, investors invariably find ways to reduce the value of their holdings by doing stupid things. But two new personal finance books are intended to keep you from becoming part of the punch line.

The one that offers the most specific advice, in addition to being more entertaining, is by LouAnn Lofton, managing editor for online content at Fool.com, the Web site of the Motley Fool, the financial education company that also offers its own mutual funds. She argues that investors need to do research, be realistic, think long term and learn from mistakes. But that would make an awkward title, so Lofton calls her book Warren Buffett Invests Like a Girl: And Why You Should, Too (Harper Business, US$25.99).

Lofton begins by reviewing well-publicised research showing that when it comes to investing, women are far better than men at getting out of their own way. She dissects those studies and provides explanations – she calls them “the eight essential principles every investor needs to create a profitable portfolio” – of why she agrees that this is the case.

Here are her conclusions: Women trade less than men, so their transaction costs are less – and lower transaction costs mean greater returns. Women exhibit less overconfidence. (Men think they know more than they do, while women are more likely to know what they don’t know.) Women also shun risk, are more realistic, do more research, are more immune to peer pressure, learn from their errors and are less prone to taking extreme actions.

Lofton points out the benefits of each principle – for example, the less you know about an industry in which a company competes, the greater your chances of being surprised if you hold the company’s shares.

Then, to explain her title, she argues that Buffett has used these same eight rules to amass his fortune. For example, he doesn’t trade excessively. He also does extensive homework before he buys, is fond of saying his favourite holding period “is forever” and avoids investing in areas like technology that he says he does not understand.

The description of his investment style is a bit simplistic, of course. Not all of us can buy billions of dollars worth of a company’s shares, sometimes getting very favourable terms in return. For example, the US$5bil worth of preferred shares of Goldman Sachs that Buffett bought in 2008 paid 10% a year in interest.

That option wasn’t available to the average mutual fund investor.

Still, the idea of using Buffett as the symbol for her investing approach is effective.

There seems to be a (probably misplaced) rule in publishing that no one will take a personal finance book seriously if it has fewer than 40,000 words. This book rounds out its simple, clear and relatively short argument with four interviews with fund managers who share the author’s beliefs, and includes an ode to the joys of compound interest, none of which seem to be needed. And the book finds several ways of reprising its eight rules. That grows tiresome after a while – explaining the principles twice would have been just fine. For the latest updates PRESS CTR + D or visit Stock Market news Today

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