Top positive review
5.0 out of 5 starsFrom the Mouths of Babes
Reviewed in the United States 🇺🇸 on January 30, 2015
Investment luminaries like John Bogle, Burton Malkiel, Charles Ellis, and a host of others, have written extensively about the keys to successful investing. The common theme running through their books and articles is easy to summarize: invest your money in a collection of broadly diversified, low cost index funds; allocate your dollars among these funds according to the risk you wish or need to bear; rebalance regularly; periodically add savings to your portfolio; maintain a long-term perspective; then go about living your life. Yet many investors unnecessarily complicate their portfolios with overlapping investments; sell in a panic when markets decline; trade too much incurring excessive costs; and generally earn below-market returns. Behavioral finance economists have a field day with them.
Maybe the human animal with its psychological quirks is unable to follow this advice. Perhaps we are hard-wired to needlessly complicate things. Not so, says author Allan Roth. There are people who invest this simple way and do quite well thank you. For an example, he introduces us to his son Kevin, a second grader at the time this book was written. Young Kevin began with a modest portfolio financed with a gift from his grandparents. It has done well over time, outperforming most professionals. How does Kevin do it?
Well, for starters. Kevin has certain advantages that adults lack. He goes to school, plays with his friends, and watches SpongeBob on TV. He doesn't fixate on his individual investments nor does he follow the market. He spends his time enjoying his childhood and wondering what he will be when he grows up. As a result, he doesn't churn his portfolio nor does he develop anxiety when the market drops.
Of course, Kevin is fortunate to receive sage advice from his Dad, a highly regarded financial adviser. But the reason he beats the Street is because he doesn't beat himself. Kevin ignores the daily dance of stock prices and lets his investments compound. In short, he behaves the way investment notables say we all should behave. We adults can learn a great deal following Kevin's example. And that is the point of the book.
Now some may complain that this is all too simplistic. A young boy doesn't have to earn an income to feed his family nor save for his children's education or his own retirement. And given his long investment horizon, he can afford to be nonchalant about the current value of his portfolio. But that misses the point. Wealth for both children and adults must be given time to grow; it usually does not come in a burst of good fortune. We often detract from wealth accumulation when we chase performance, sell in a panic, or bet the ranch on a few targeted investments. Building and maintaining a sound portfolio is not difficult and Kevin's Dad explains it clearly with a touch of humor. It may be humbling to us adults, but following the example of a second grader may just bring us closer to achieving our financial goals.
