Charles Ellis is a Wall Street legend and Winning the Loser’s Game ranks as one of the classics of investing. I read an earlier edition many years back and when McGraw Hill offered to send a review copy of the fifth edition of the book, I jumped at the chance to re-read and review the book. And I’m glad I did because this book does contain, as the subtitle suggests, “timeless strategies for successful investing”.
Mr. Ellis famously likens investing to a game of amateur tennis, which is typically not won by the player who tries to hit winning shots. Instead, the player who makes the least number of unforced errors usually ends up in the winning column. Therefore, the amateur tennis player should eschew the fancy shots and concentrate her game on simply landing most of her shots in her opponent’s court. Likewise, an investor should focus her energies, not on potentially winning strategies such as timing the markets or picking the right stocks, but on defensive strategies such as cutting costs, paying attention to taxes and sticking to a well-thought out plan.
As you might expect from a director at Vanguard, Mr. Ellis is an ardent proponent of index investing. He points out that the much-maligned mutual fund manager finds it so difficult to beat the benchmarks because the market is dominated by institutional investors who are equally smart, equally hard-working and backed by equally good research and resources. If all Mr. Ellis had to offer was indexing and a caution against trying to beat the market, you can obtain it elsewhere in books by John Bogle and Burton Malkiel. The key message in the book, in my opinion, is Mr. Ellis’ recommendation that all investors develop a carefully considered investment policy and commit it to writing:
The principal reason you should articulate your long-term investment policies explicitly and in writing is to protect your portfolio from yourself — helping you adhere to long-term policy when Mr. Market makes current markets most distressing and your long-term investment policy suddenly seems most seriously in doubt.
Quite correctly, the author says that the responsibility of crafting an investment policy rests with the investor; it’s far too important to be delegated entirely to a financial advisor. But that’s not all there is to the book. Every page drips with wisdom gathered from a lifetime of experience in the investment trenches. I did have some minor quibbles, including an entire Appendix running more than 30 pages on Serving on an Investment Committee. If you are interested in another opinion, Michael James recently reviewed this book and found that Mr. Ellis “provides consistently solid investing information from beginning to end”.
The book is published by McGraw Hill and is available on Amazon.ca for $23.79.