I've finally gotten around to reading William Bernstein's popular 'The Four Pillars of Investing', first published in 2002 by McGraw-Hill.

As the title suggests, Bernstein approaches understanding investing via four broad themes:

1. Theory - emphasizes that investment returns are primarily a reward for risk, and provides a basic introduction to the theory behind the returns generated by various asset classes. He also provides a sound introduction to the value of portfolio diversification.
2. History - describes the historical returns generated by different asset classes, and the times when the markets have become separated from reality.
3. Psychology - explains why many of us are bad investors.
4. Business - why much of the investment industry is structured in direct conflict with investors best interests.

The book finishes off with some sobering news on the assets required to support oneself during retirement, realistic portfolio withdrawal rates, and practical steps towards building a sound investment portfolio.

Chapter 2 should be required reading for any casual investor who dabbles in the stock market. The chapter delves into the math behind expected rates of returns using the Gordon Equation (market return = dividend yield + dividend growth). Bernstein concludes the chapter with "a stock or bond is worth only the future income it produces... discounted to the present". I know of many casual investors who don't have a basic understanding of how returns are generated, and consequently buy stocks without a thorough analysis of the companies they are buying into.

I found this an easy and informative book to read, and recommend it for all investors.