Friday, April 22, 2016

What to Do When It's Your Turn, by Seth Godin

Do you remember the book, What Color is Your Parachute? It was big in the late 1970s. This book is, to me, a more mature version of it, updated for the times, and more crisp. (My comments on the 1979 edition, not the latest update.)

It is, however, otherwise difficult to describe. It isn't about anything precisely, it is just supportive of the reader taking chances and risks, and following their passions. I recommend it to my class of college seniors and juniors. I'm just not sure they get it.

Thursday, April 21, 2016

The 5 Mistakes Every Investor Makes and How to Avoid Them, by Peter Mallouk

I admit that I was skeptical about Mr. Mallouk's book, expecting just an advertisement for his company, Creative Planning, and not providing much real value. I was wrong. The book delivers exactly what it promises, a fairly compelling story in favor of buy and hold investing.

The mistakes that are covered:
  1. Market timing. Or trying to do so. Mr. Mallouk shines a light on so called experts and calls them out as charlatans.
  2. Active trading. Between buying high and selling low, and trading costs, he makes a case for index investing.
  3. Misunderstanding performance. This section is really about not believing what you see in the press.
  4. Letting yourself get in the way. Another way of saying, buy and hold.
  5. Working with the wrong advisor. Mostly a discussion of conflicting interests and the value of a fiduciary advisor.
How about guidance? The title doesn't promise guidance, it only promises to illuminate big mistakes. It does just what it says. Yes, there are a few pages on how to think about a portfolio, but they are very basic. For example, the "I need 7 percent to hit my long-term goal" portfolio comprises 25% large cap US, 15% small cap US, and 20% international stocks, and 25% US and 15% international bonds.  Nothing too earth shattering here. Not much of a discussion about the relative benefit or problem with a market capitalization -based index.

So this made me wonder: how does Mr. Mallouk's firm justify its assets under management based fees? For picking five ETFs? For finding sector indices that compose the five portfolio asset groups in order to reduce market weighting impacts? Or for hand-holding that helps prevent mistake #4 (selling in a frenzy when the market declines)?

This is a good book. I could pick at some of the arguments, but my guess is that for 99% of individual investors, reading this would be valuable.

Friday, April 1, 2016

A Wealth of Common Sense, by Ben Carlson

Mr. Carlson's book is intended to convince investors that simplicity trumps complexity. It is a fast read, and for folks who are well read on the topic there isn't much new news. For those who are trying to figure out how to manage investments, or if it is worth paying an investment firm a significant percentage of their assets for expert advice, this book can provide substantial value.

The net net messages are: most of the expert advice you might pay for is not, in the long term, all that useful. You should buy and hold (if you aren't likely to need the cash flow for several years) in the least expensive asset vehicles (e.g., ETFs). Don't sell just because the market crashed (it simply locks in your losses); ride it back up over the next few years.  Etc.

If Wes Gray's "DIY Financial Advisor" (which I highly recommend) is the advanced college class on getting the best results for the least cost and effort, then Mr. Carlson's book is the "investing 101" course on the topic.  For the right person, it will return value far in excess of the cost.