Every year, we receive dozens of books from publishers hoping for a favourable review. They fall into two broad genres. There are analyses of why something in the recent past happened, and what should be done to prevent it happening again. For obvious reasons, we've had quite a few of those since 2008. Then there are what I call 'get rich quick' books, describing various trading systems or investing methodologies that purport to abolish the ancient trade-off between risk and reward.
Some are very good, and others are downright awful. But someone wanting to be versed in the basics of investing need read none of them. Instead, he or she should head straight to a marvellous source of investment wisdom and advice that's totally free of charge.
I'm talking, of course, about Warren Buffett's annual letters to Berkshire Hathaway shareholders. You could take any of the letters since 1977 - they're all available free at www.berkshirehathaway.com - and find something worthwhile and laudable in it.
Like the honesty and directness. Billions of words have been written about the credit crunch and its causes, but how's this for an executive summary: "The US went off the rails in its home-ownership and mortgage lending policies, for which our economy is now paying a huge price. All of us participated in the destructive behaviour - government, borrowers, lenders, media, the rating agencies - you name it."
Like the humility. A man whose returns have averaged 19 per cent a year since 1965 is not too big to admit that he "totally miscalculated the gain/loss probabilities" when he bought $2bn worth of bonds in an energy business, or that he was "dead wrong" about a housing recovery last year.
Then there's the unquenchable optimism. "As has been the case since 1776, America's best days lie ahead," he is fond of saying. But optimism does not come at the expense of realism; Mr Buffett measures Berkshire's success by the growth in book value per share, not the share price. His definition of investment is "the transfer to others of purchasing power now in the reasoned expectation of receiving more purchasing power - after taxes on nominal gains - in the future." In other words, positive returns net of inflation and taxation - not just positive returns.
If that's whet your appetite, then there's more Buffettology coming next week. In the meantime, it's interesting to think what Mr Buffett would put in his Isa, were he an 'ordinary' investor. He told CNBC last week that he invested in eight European companies at the end of 2011. We offer rather more suggestions for enhancing your future purchasing power in our Isa coverage, which you can read here.
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