Top critical review
Don't Agree with his Strategy, but Still a Good Book
Reviewed in the United States on October 17, 2018
Note: I received a copy of this book in exchange for an honest review. Thank you, ClydeBank Media!
Oh, boy. This was a good book overall, but I definitely have some Opinions on it.
First, the good.
1. This is truly an absolute beginner's guide to investing. When many books say that they're a beginning guide to fill-in-the-blank topic, a lot of times they're only sort of right in that they expect you to know some definitions and some basic idea of the topic already. Not so with this book. Probably the book's greatest strength is that it starts from the very beginning. In that vein...
2-3. I loved how the first few chapters had really great fundamentals of investing, including really great definitions and little story problem math examples on how the various items worked.
3. The chapter on various financial statement analysis metrics was another very good introduction to the topic.
4. He had a really good emphasis on not freaking out when your investments are down and selling off based on feelings. Buy low, sell high is a fundamental that you cannot go wrong on. It's just figuring out the highs and lows that can get ya, as is the way that "traditional" investing works.
And the weaknesses. For the sake of full disclosure, many of these items I consider to be weaknesses because I do not agree with the author's strategy of investing. I'll explain as I go.
1. Throughout the book, I felt really confused as to whom this book was meant for. The beginning chapters had all the great definitions and story problems. There was another chapter where he talked about how he as a financial advisor wasn't snobby enough not to want to advise middle class people (vs those advisors that only accept people with over a certain threshold to invest). Those things made me think that this was for the Average Joan like me who wants to save for retirement. But then, there was this whole long chapter on derivatives, futures, options, etc. His warning about how risky these instruments are was not as fear-inspiring as I felt it should have been had this truly been a book for the Average Joan like me. Which also leads into...
2. YOU CANNOT HAVE A DISCUSSION ABOUT ROTH IRAS WITHOUT DISCUSSING NOW VS FUTURE TAX RATES. I'M SORRY, BUT YOU CANNOT. Seriously. The author does not misstate the benefits of Roth IRAs in that their growth is not taxable, but you also have to take into account that if you're waiting until retirement to pull from the Roth, you will PROBABLY have a lower tax rate by then (in which case you should think about putting the bulk of what you can into traditional IRA so that you pay less money in taxes OVERALL IN YOUR LIFETIME.
3. Here's where we get into critiques because I do not agree with the author's overall strategy. The author believes that "The mark of an excellent investor is to consistently outperform the market." Over time, the total stock market average growth is 8%. Why shouldn't I just come up with a good asset allocation and just invest my money in a total stock market index fund?? As the Average Joan investor, I don't have time to perform fundamental analysis for every stock I pick, and I am certainly not going to have any sort of information that gives me any insight that people who actually do this for a living will have. The author briefly mentions indexes, but he doesn't present a compelling case either for or against them. Which brings us to....
4. Fees. There is a short discussion of mutual funds/index funds, but there is NOT ENOUGH EMPHASIS on how actively traded funds include all sorts of micro fees and commissions and everything that absolutely DEVASTATE your investment growth over time. There is no discussion on the numbers behind why you want a fund that has 1% or less in fees as well as being a fund that doesn't generate a high trading volume (back to point 3: as the Average Joan investor, I buy and hold because I'm literally investing in the ENTIRE stock market with my low-cost index fund. Unless the literal apocalypse comes, I'm betting with my money that the market will rally over the long term, and I'd rather have the stability of the entire stock market than have to make guesses about what's going to go up and down in an attempt to beat the market).
5. The author overstates the benevolence/effectiveness of financial advisors. To be fair, he did mention that you should expect your advisor to have an ethics statement as well as to be fully transparent about their fees. However, he did not emphasize enough that they need to be EXPLICIT about whether they are legally required to act as your fiduciary or not. If they're not your fiduciary, there is no incentive for them not to push you into riskier investments where they might have a commission you don't know about. I do concede his point that advisors potentially help keep a client from selling off in times of panic, but you have to have the right advisor.
6. There is a cursory chapter on FIRE at the end of the book. Which is fine, but....due to his own interests of being a financial advisor (and therefore wanting your business to come to his company) there is no discussion on the actual fundamentals about how most FIRE people go about it. There's no discussion of the benefits of index funds and no discussion on safe withdrawal rates (which I consider to be two of the most fundamental parts of most FIRE plans).
So there you have it. As a "traditional" investment book (i.e. pick your specific stocks, use an advisor, etc.) this is a good book. But when there's so much data out there on how likely it is that you will consistently beat the market with your individual investments (view spoiler) I'm just not convinced that my total stock market index fund will be any worse than the alternative. In the words of John Bogle in The Little Book of Common Sense Investing, “Don't look for the needle in the haystack. Just buy the haystack!”