Archives for Experts category
2
Oct
Posted in Experts, books by Roger |
If you’ve done much reading in the financial sector, you’re probably aware that there are many, many experts out there, all offering advice. Many of them have published books or written numerous magazine articles to express their opinions, but you don’t have the time or inclination to read through all that information. What if there was a book that enabled you to get the most pertinent information from dozens of investment and money-management experts all in one place?
That’s the general concept behind The Best Investment Advice I Ever Received
compiled by Liz Claman. She has assembled a collection of essays from some of the most famous financial advisers currently working (Orman, Cramer, Kiyosaki, Forbes, etc.) as well as numerous professional money managers (most famously, Warren Buffet). Their collective investing advice is boiled down to simple essays ranging from five words (’”Buy Low, Sell High”-Unknown’, contributed by C. John Wilder) to several pages long. Does cutting down on the length still leave you with good and pertinent advice? Let’s read on and see!
Pros
-Short, concise segments: Each article in the books is fairly short, but in general, they get across the major points the writers tend to stress in their other work. John Bogle’s article, for example, stresses the benefits of index investing (and the costs of market timing), while Steven Forbes emphasizes diversification and sticking to your investment plan. You won’t get all the detail found in the individual authors’ works, but as a broad, quick guide, this books serves rather well.
-Good Advice (Mostly): Even though there are sixty-six different contributors to this book, the same advice keeps coming up, time and time again: diversify, plan for the long term, do lots of research, and regard your stock broker’s (or other financial adviser’s) suggestions with a grain of salt, as they might be trying to benefit themselves more than you. Hearing the same advice from so many different commentators, stated in a variety of ways, helps to reinforce it as well as highlighting just how many people believe in the advice.
-Genuinely Entertaining: Too many personal finance books tend to get bogged down in the math and research needed to manage your money or do well in investing, and tend to be a bit dry as a result. The Best Investment Advice I Ever Received manages to avoid that fate, in part by having virtually no math content, and also because most of the writers tell stories rather than make lists of facts. The structure of the book has many authors relaying stories from their childhood or younger adult life, giving the book an overall feel of a group of people gathered to share stories, rather than a usual personal finance book. All of which makes for a much easier and more entertaining read.
Cons
-Some Unhelpful Advice: As with any book that attempts to gather so many different voices, there’s going to be some that aren’t as useful as the others. Some of the ‘best investment advice’ the writers rely was highly situational and wouldn’t be as helpful now. The most glaring example is from John W. Brown, chairman of the Stryker Corporation, who notes that the best financial advice he ever got was… to join the Stryker Corporation. Not exactly something that’s easy for the average investor to apply to their portfolio.
-Lack of Detail: The disadvantage of having so many different perspectives packed into a single book is that there’s little room for the contributors to flesh out their comments. If you’re seeking specific investment recommendations, or even a detailed procedure for investigating and determining your own financial plan, this isn’t the book for you.
-A Bit Overwhelming: Let me be frank: this should not be the first investment book that you read. If you’ve got a basic understanding of investing and a handle on the general concept, you should be able to follow the suggestions easily enough, but if you are still learning, it could prove a bit tricky to understand what these advisers are discussing. Trying to sort through the advice from over sixty people, to determine which ones are giving you good advice and which ones are not, is something a bit beyond the skills of the average would-be investor just getting his or her feet wet. Save this book for when you have a basic financial plan and want some second opinions.
Overall
I like this book in general. It’s definitely an easy read, and the advice given by (most of) the included writers is helpful and entertaining. That said, I would treat this book as more a collection of mini-biographies of famous financial people, rather than a guide to investing. As mentioned in the ‘Cons’ section, trying to develop an investment plan just from the information in this book would prove quite difficult, if not impossible. If you have an investment plan already, the tips included in the book might help you to refine and improve it, but building from scratch is a much different story. In any event, it does make for a decent read, so pick it up and enjoy some of the commentary from the financial professionals included.
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10
Jun
Posted in Experts by Roger |
In the latest issue of Time Magazine, there was a rather interesting article considering three different financial experts’ views on how stocks will perform over the long term. (You can find the article here on the Time website; luckily, they haven’t (yet) taken the advice they put out a few months ago, about charging tiny fees any time people wanted to view their content.) In case you don’t feel like reading the whole thing, what follows is my synopsis and thoughts on the experts’ opinions that were discussed.
The article opens with some interesting background; apparently, prior to the 1920’s, bonds were considered the only good long term investment, with stocks regulated to speculation. That is, until Edgar Lawrence Smith did some research and found that in almost every twenty year period previous, stocks had actually beaten out bonds in total investment returns. The Great Depression made it hard for many people to believe this point for decades, but eventually it became a commonly accepted fact: stocks will outperform bonds over the long (multi-decade) term. (Although, I’ve already mentioned that I’m afraid the ‘Great Recession’ will be held up as an argument against stocks in the future; the Time article mentions the oft-cited note that over the past ten years, an investment in the S&P 500 would have actually lost money, for example.)
A staunch defender of this notion is Jeremy Siegel, professor of Finance at the University of Pennsylvania’s Wharton School. He’s also the author of Stocks for the Long Run
, an examination of stock and bond performance going back to the turn of the century; that is, the turn of the nineteenth century, in 1802. His findings were the same as Smith’s: given a multi-decade time frame, stocks almost always come out ahead.
That small almost does open the door to critics of a stock-centric portfolio, though. The article goes on to mention two of them: Robert Arnott and Zvi Bodie. Arnott is a money manager who helps to manage a ‘go anywhere’ fund for Pimco, which can invest in just about anything. He noted in the Journal of Indexes that investments in 20 year Treasury bonds in March 1969 would have beaten an investment in stocks over the same period. His primary argument is that you need to look at the value of an asset you intend to purchase, and buy the cheap ones.
Zvi Bodie, on the other hand, seems to harken back to the pre-Edgar Smith days, maintaining that when saving for retirement, investers should avoid stocks entirely and instead simply invest in Treasury Inflation Protected Securities (or TIPS). He argues in Worry-free Investing
that since they are (a) back by the US government, (b) increase their payments according to inflation, and (c) pay a fixed interest rate besides, they make the ‘perfect’ investment.
My Thoughts
First, with respect to Mr. Bodie, the prospect of investing in a vehicle that will only return about 1-2.5% beyond inflation isn’t that appealing, especially when stocks typically yield 5-6% beyond inflation. It’s an effective tactic, but only if you’re willing to save at least twice as much, and possibly four or five times as much, as you would have to save with stocks and other growth investments. Don’t get me wrong, TIPS do have their place in many portfolios, but mostly as a hedge against inflation and a way to secure the money built with riskier benefits, not the entire portfolio.
Arnott’s point is a bit harder to dismiss completely; if you buy any asset when it is overpriced, it’ll be harder to recoup your investment and show any gains. The best solution to that would be to hold both bonds and stocks, and buy whichever one is undervalued. If you regularly rebalance your portfolio, you’re doing this already; selling the assets that perform the best and buying the weaker ones when they are low. In this way, you keep from buying too much of any asset that is on the rise and sell your stake in any that are rising, allowing your portfolio to more easily weather any economic storm. As long your desired asset allocation is a good one for your financial goals, this will help to keep your portfolio progressing towards your goals.
When it comes to investing for retirement, especially if that retirement is decades away, it’s hard to find fault with Siegal’s basic premise. If you hold stocks for the long term, you will be rewarded eventually with higher performance over time.
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29
Apr
Posted in Experts by Roger |
Oh, Suze, Suze, Suze. What are you doing? If you keep changing your advice like this, it’s going to be hard to defend your recommendations.
If you haven’t heard yet (in which case, you probably are dangerously below your recommended dose of personal finance commentary), Suze Orman has started recommending that you only pay the minimums on any outstanding credit card debt. Previously, she had told her readers and viewers to pay down any high interest debt as their second financial priority (after funding a 401(k) up to your employer’s match).
Why the sudden change? Well, Suze is noting that with banks and other creditors cutting down the credit available to credit card users, you could find that your credit cards are canceled or the available credit severely restricted when you pay off your debt. In other words, it’s getting tougher to rely on credit being available should you want to use it. (Whether this is a good turn of events for the nation in general is a topic for another day.)
I’m torn about how to approach debt repayment in light of our current situation. On one hand, it used to a be a no-brainer that paying down your credit card debt would benefit you financially; you wouldn’t be charged interest on the debt and the credit would still be available if you had an emergency and no emergency fund. However, now you might find that when you pay off your credit cards, they close down the card and deny you credit. If this happens and you have a financial emergency, you could find yourself without an emergency fund OR available credit to tide you over.
On the other hand, the mathematically advantageous route is still paying off your credit card debt (preferably, starting with the highest interest rate debt). Putting $1000 in an account yielding 3% rather than paying off $1000 in credit card debt at 30% will leave you owing more than an additional $270 one year from now. Plus, as Liz Weston reminds us, paying only the minimums on your debts is the sort of thing that attracts the kind of wrong attention from lenders. (The sort of attention that leads to said lenders getting nervous and cutting down your credit limits, exactly the situation you’re hoping to avoid.)
My suggestion: keep paying off your debt anyway. Most debt repayment plans suggest putting aside at least a small rainy day fund (I recommended one month of expenses) anyway, so you are not working completely without a net. If you are really worried about having a sizable emergency fund, consider splitting your additional money (the amount beyond the minimums for all the outstanding debts) between paying down your debt and adding to the emergency fund. Put half the extra payment toward cutting down your outstanding debt, and the other half into your emergency fund. You can cut the amount you put into your emergency fund as it gets higher and put more money towards debt repayment.
This techninique will slow down your debt repayment schedule, and lead you to spend more money in order to repay those debts. However, we can’t forget the human element of the financial situation. Hopefully, building up a sizable emergency fund makes you feel better about your situation and keeps you from shirking debt repayment altogether. If this is the case, I’d say it’s reasonable, if not ideal, course of action for a non-ideal world.
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12
Feb
Posted in Experts by Roger |
Over on The Big Money, James Scurlock has written a rather scathing piece on Suze Orman. To judge from the comments, though, it appears most of the readers don’t quite agree with his perspective, or at least, with how he’s chosen to express himself. So, here’s a quick guide on how NOT to write a piece critical of a financial adviser (celebrity or not):
1) Start the article with a snippy personal comment: The opening line of the article describes Suze Orman as ‘a bottle-blond former waitress and self-described “55-year-old virgin” with a taste for the good life’. Multiple problems here:
-Making reference to her as a bottle-blond seems pointlessly snide at best, and sexist at worst. Not exactly the way to endear yourself to her fans and change their minds (as is arguably at least one of the goals for this article).
-Calling her a ‘former waitress,’ as if her previous work experience mattered at this point in her life, comes off as insulting to anyone who started out in a low-paying job (I certainly wouldn’t appreciate someone feeling that the best way to address me once I’ve established myself in a solid career was as a ‘former McDonald’s grill worker.’)
-The ‘55-year-old virgin’ comment (a reference to Ms. Orman’s sexuality) is irrelevant (as is any other detail of her sexual history) and frankly, comes off as homophobic.
If this isn’t starting out on the wrong foot with anyone who likes Suze Orman, I don’t know what is; add in a few more personal insults, like ‘cougar’, thrown out during the course of the article, and you’ve pretty well alienated a large part of your perspective audience.
2) Misunderstand a common piece of investment advice, and make it your main attack. Mr. Scurlock presses his primary case against Suze Orman as opposition to ‘dollar cost averaging’ (or DCA). DCA is process where you regularly purchase new shares of a stock or mutual fund on a regular basis, spending the same amount of money with each purchase. In this way, you buy more shares when prices are low and fewer when prices are high, decreasing the average amount of money you spend per share. To which Mr. Scurlock asks,
Since when does throwing good money after bad make you rich?
The answer is, when you’re investing in mutual funds (particularly, as Ms. Orman and many others suggest, in index funds). Yes, for individual stocks, DCA is a dangerous proposition; companies can and do go bankrupt, taking the stock price down to zero. BUT, if you invest in funds that hold hundreds, if not thousands of individual stocks, the chance of enough of them going bankrupt (or losing nearly all their value) to make your investment worthless is shockingly slim. Furthermore, if you follow the advice Ms. Orman lays out in her books, like Young, Fabulous, and Broke, you’ll be investing in a fund that owns essentially all the available US stocks, and another fund that holds stock from all the countries in the world. Short of a massive, world-wide economic collapse of unprecedented proportions, there’s virtually no way that such a portfolio will lose money over the long term. (You might, of course, believe we’re in the first stages of just such a collapse right now, but that’s an issue beyond the scope of this blog entry.)
3) Accuse the guru of hypocrisy. Besides the comment on DCA, Mr. Scurlock also makes a few remarks on Ms. Orman’s spending and investing, which seem to contradict her philosophy as expressed in her books and other media. He notes that she spends up to half a million dollars on private jets, sells ‘Cruise with Suze’ cruises, and has the vast bulk of her money (roughly $32 million) in government bounds, rather than stock market as she recommends for most people.
I think the best to answer these concerns is to paraphrase Ernest Hemingway, ‘The rich are different from you and me; they have more money.’ Given Ms. Orman’s multi-million dollar fortune and the sizable income she can expect this year, she can certainly afford to spend a few million on whatever indulgences strike her fancy. As for her investments, she is simply doing what most people who find themselves holding such a fortune tend to do: focusing on preserving, rather than growing, their wealth.
Overall, I don’t think Mr Scurlock’s piece did much justice, either to him or to his case against Suze Orman. A more nuanced view of Ms. Orman (and one more aligned with my own feelings) was written by Trent of The Simple Dollar. I recommend it as a good example of how to write about financial gurus.
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