Say you want a crash course on everything best books for investing in your 20s need to know about investing. If your goal is just to set up a retirement plan and move on, it’s tough to improve on the basic advice University of Chicago professor Harold Pollack cleverly squeezed onto a single index card. Most of us, though, live somewhere between those poles: We’re happy to outsource most stock picking to a mutual fund manager, but we feel compelled to pay attention to the markets—especially at a time like this, when equities are racking up record highs. Now, I should admit here that this recommendation is a little devious, because these two books disagree on a pretty fundamental point.
In essence, Random Walk argues that the hive mind of the market is so good at determining the fair price for a stock that there’s little point in trying to second-guess it. Irrational Exuberance, meanwhile, shows that stock prices sometimes get insanely high or low, and that you’d be equally crazy not to notice that. But learning to wrestle with ambiguity and uncertainty is good mental training for owning stocks, which is never going to be a comfortable experience. That said, these books don’t merely argue two sides of an important and interesting debate. Taken together, their insights can help you craft a smarter, safer financial plan. Malkiel is an emeritus professor at Princeton, but his book, first published in 1973, is not an academic tome. Instead, it’s a how-to guide to building a balanced, diversified portfolio, preferably with low-cost index funds.
Along the way, however, he popularizes some big, hairy ideas. The idea that stock prices wander randomly doesn’t mean they don’t make sense, but that they’re very hard to predict. For all practical purposes, tomorrow’s price may as well be random. Past moves up or down won’t tell you much. More controversially, neither will a company’s income statement or balance sheet. Because if you could really use such information to predict where a stock was headed, other investors would’ve done it, and the price would be there now. 100 bill on the street, reasoning that if it was really there someone else would have taken it.