Lifecycle Investing: A New, Safe, and Audacious Way to Improve the Performance of Your Retirement Portfolio [Audiobook, CD, Unabridged] [Audio CD]

Ian Ayres (Author), Barry Nalebuff (Author), Gerry Gartenberg (Narrator)

Book Description

Publication Date: May 24, 2010

The coauthors of the bestselling Why Not? shake up how we think about retirement investing as they show us how to grow a healthier nest egg in a nicely feathered nest.

Editorial Reviews

Review

Robert Shiller, author of Irrational Exuberance
" A most provocative book. The real advantages of time diversification have never been laid out so clearly or with such a program of action."

Tim HarfordFinancial Times
"Here are the chief investment lessons of the financial crisis for today’s young people: they should be buying more shares and running up debts to do so. . . . [T]here is nothing intrinsically risky about regular borrowing to get that fund off to an early start. . . . Not only does the concept make sense, it has paid off in the past. . . . Ayres and Nalebuff have looked at historical stock market data. . . . For every single cohort, the early leverage strategy beat the conventional wisdom."

Moshe A. Milevsky, Ph.D., Finance Professor, York University, and author ofAre You a Stock or a Bond?
“This bold book promotes more early equity exposure for the masses, precisely at a time when many practitioners are re-thinking the ‘buy and hold stocks for the long run’ mantra. Whether you are comfortable with this strategy or not, the book is a must read for anyone who claims to think about their personal finances in a rigorous and logical manner.”

--Various

[Audio Review] Ian Ayres and Barry Nalebuff, both economists and professors at Yale University, have come up with an idea they believe will help long-term investors earn higher returns with lower risk: borrow money to invest in stocks when you re young. It s a controversial strategy that can use the help of a persuasive narrator. Gerry Gartenberg handles the task skillfully, navigating this well-written but sometimes technical text with ease. He moves at a fast pace during the conversational passages and slows down appropriately when working through the calculations. While some of the mathematical illustrations are hard to follow on audio, all of the book s diagrams and tables are available on the book s Web site. D.B. © AudioFile 2010, Portland, Maine [Published: JULY 2010] --AudioFile

About the Author

Ian Ayres is an economist, a lawyer, and the William K. Townsend Professor at Yale Law School. He has written for the New York Times, Wall Street Journal, Financial Times, Slate, and The New Republic, and his research has been featured on PrimeTime Live, Oprah, and Good Morning America. He is the author of ten books, including the bestseller Super Crunchers. A graduate of Yale and MIT, he was recently elected to the American Academy of Arts and Sciences. He lives in New Haven, Connecticut.

Barry Nalebuff is the Milton Steinbach Professor of Economics and Management at Yale School of Management. He is the author of fifty scholarly articles and multiple books—including Co-opetition and The Art of Strategy—and is the cofounder of Honest Tea. A graduate of MIT and a Rhodes Scholar, he earned his doctorate at Oxford University. He lives in New Haven, Connecticut.

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Product Details

• Audio CD
• Publisher: Tantor Media; Unabridged CD edition (May 24, 2010)
• Language: English
• ISBN-10: 1400116902
• ISBN-13: 978-1400116904
• Product Dimensions: 5.5 x 6.5 x 1.1 inches
• Shipping Weight: 6.4 ounces (View shipping rates and policies)
• Average Customer Review: 3.2 out of 5 stars  See all reviews (12 customer reviews)
• Amazon Best Sellers Rank: #4,394,774 in Books (See Top 100 in Books)

More About the Author

Ian Ayres is the William K. Townsend Professor at Yale Law School and the Yale School of Management, and is editor of the Journal of Law, Economics and Organization. In addition to his best-selling SuperCrunchers, Ayres has written for the New York Times, the Wall Street Journal, Financial Times, International Herald Tribune, and The New Republic. He lives in New Haven, Connecticut.Barry Nalebuff is Professor of Economics and Management at the Yale School of Management. His books include The Art of Strategy (an update of the best-selling Thinking Strategically) and Co-opetition. He is the author of fifty scholarly articles and has been an associate editor of five academic journals. He lives in New Haven, Connecticut.

Customer Reviews

Most Helpful Customer Reviews

64 of 73 people found the following review helpful:

2.0 out of 5 stars Before you try this, a few red flags, April 20, 2010

By 

Daniel P. Smith "Daniel P. B. Smith" (Massachusetts, USA) - See all my reviews
(VINE VOICE)    (REAL NAME)   

Amazon Verified Purchase

This review is from: Lifecycle Investing: A New, Safe, and Audacious Way to Improve the Performance of Your Retirement Portfolio (Hardcover)

This book advises twenty-somethings to put not just 100% of their retirement savings in stocks, but 200%. 2:1 leverage. Young workers, they say, should buy twice as much stock as they can afford, either by buying on margin, or, since the law (which the authors would like to change) prohibits buying on margin in a retirement account, by using "deep-in-the-money LEAP call options." Either way, 2008 would have wiped out everything they had saved, but this, the authors say, is to be expected from time to time and is no big deal in their simulated total-lifecycle statistics. Young workers don't have very much saved, so a total wipeout isn't much of a loss in dollars, and they have enough time to start all over and save it all again.

Before you try this, be aware of some red flags.

Red flags #1, #2, #3, #4, #5, and #6 come from Ayres and Nalebuff themselves, who say you should not try their strategy if ANY of these situations apply to you:

* You have credit card debt.

* You have less than $4,000 to invest.

* Your employer matches contributions to a 401k plan.

* You need the money to pay for your kids' college education.

* Your salary is correlated with the market.

* You would worry too much about losing money.

If any of these apply to you, save your time: you don't even need to read the book.

Red flag #7 is the book's title. It's self-contradictory! The dictionary says "audacious" means "fearless, often recklessly daring." Something cannot be both "safe" and "audacious." You'd better darn well decide for yourself which this plan is. Personally, I think it's audacious.

Red flag #8: the strategies they recommend involves the use of either investing on margin, or the use of "deep-in-the-money LEAP call options." These are investments suitable only for sophisticated, experienced investors. Their step-by-step directions note that "You can buy options at pretty much any brokerage account, although you will have to demonstrate some degree of financial sophistication." This is your life savings you're dealing with, this is no time for posturing or wishful thinking. I've been investing in mutual funds for thirty years, but I haven't got a clue about trading options. I don't think very many people really do. The brokerages make you sign off on those "suitability" statements for a reason.

The authors tell the story of a graduate student in economics who tried his own homebrewed version of a leveraged investing plan. He got a margin call in 2008, could have stopped having merely lost everything, but panicked. Trying to recover, he doubled and redoubled, did something unclear involving credit cards, and lost $200,000 MORE than he had, $200,000 of borrowed money. They tell it to illustrate the danger of not following their plan. But it also shows that some kinds of leverage really are playing with fire--and that very bright people can get into very deep trouble making sophisticated investments they _think_ they understand.

The first rule of investing is "Never invest in anything you don't understand." Take it seriously.

Red flag #9: keep in mind that no human being on earth has ever actually completed their retirement savings using this strategy. Professor Ayres himself is 51. He has not done it. He is far from retirement. And he couldn't have started in his twenties, because LEAPS, introduced in 1990, were not available until he was in his thirties. He can't tell us how it worked out for him.

The authors have some impressive backtesting analysis of how this strategy would have performed in the past. The theory is great. But I would point out that Amazon also sells a book on a "progressive cluster roulette" betting system. It, too, has been extensively backtested, on no less than 40,000 random numbers--as many as there are in a century of daily financial numbers--and, according to its author, it always works.

If you are going to read "Lifecycle Investing" I strongly advise reading it together with Nassim Nicholas Taleb's book, "The Black Swan." Stuff happens. He has a lot of stories of how brilliant, sophisticated investors "blew up" because events that ought to have been rare have a bad habit of happening more often than they should. If a brilliant and extensively backtested theory blows up, it is not much comfort to have the theorists tell you that it shouldn't really count because it was a ten-sigma event.

(P,S: Amazon allows reviews to be revised. Professor Nalebuff's review mentions this one and justly criticizes my snarky remarks about the "cult of equities." I've removed those remarks, and changed the review title, which formerly was "A Dow 36,000 for our time"--an inappropriate comparison to a silly book. I've modified the paragraph about a grad student to make it clear that he was NOT following Ayres and Nalebuff's plan).

40 of 45 people found the following review helpful:

5.0 out of 5 stars This book is attracting flak, April 30, 2010

By 

Robert J. Shiller (New Haven, CT) - See all my reviews
(REAL NAME)   

This review is from: Lifecycle Investing: A New, Safe, and Audacious Way to Improve the Performance of Your Retirement Portfolio (Hardcover)

I have been getting flak for endorsing the Ayres and Nalebuff book (see above on Amazon.com), just as the authors are for writing it. People are thinking it certainly sounds reckless for young people to leverage two to one into stocks. For some young people, it certainly is. Those who do this with their personal savings and are contemplating buying a house soon could lose their down payment, and thus be unable to buy. This factor is increasingly important after the subprime crisis since no-down-payment mortgages are hard to find now. But Ayres and Nalebuff are advocating such aggressive stock market investing only for retirement portfolios. Most young people could survive an annihilation of their retirement savings; they still have plenty of time to rebuild it later and it may generally be a good bet to take just such a risk. This is the basic point that Ayres and Nalebuff make, and it is right. I worry that this book in the wrong hands (of people with a gambling impulse or who are really more precarious in their financial situation) the book could encourage irresponsible investing. At the present time, the stock market looks rather pricey, and I am less optimistic about young people leveraging stock market investments right now. But, as a general, long-haul advice book, for savvy people who can judge their situation and not get themselves into a corner, the book is indeed valuable. This is not "Dow 36,000" again, as one reviewer says. This is a book about overcoming standard prejudices about investing, and as such it is an important book.

Robert Shiller

8 of 9 people found the following review helpful:

3.0 out of 5 stars Too much sale, too little substance, May 22, 2010

By 

Volker Hetzer - See all my reviews
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This review is from: Lifecycle Investing: A New, Safe, and Audacious Way to Improve the Performance of Your Retirement Portfolio (Hardcover)

Ok, I've just finished reading it and I'm a bit disappointed.

For me it was too much of trying to convince the reader and too little of trying to enable he reader to make his own decision.

I always felt that they were trying to dumb it down to their idea of some sort of average family investor. Only this is exactly the kind of investor that drives the behavioral finance guys nuts because he burns his money by not having his emotions under control. And therefore is much better off with the sort of fire-and-forget strategy offered by a target fund. There's a reason that the general public is not encouraged to trade options or on margin.

I really do not think this "average family investor" ought to play the role of "early adopter" of a new retirement savings strategy, regardless of how politely it is pushed. And pushed it is and if you go solely by their rhetorical tactics you always wait for the and-here-is-our-product-extra-cheap-just-for-you plug.

That said, sometimes an idea may be good, despite of being pushed like by a door-to-door salesman. I think there is a chance of this being the case here.

So, this is my plan:

I finished the book and am I'm not put off. Since I really don't like going into debt, I prefer the options approach. Therefore, I'll read Options as a Strategic Investment next in order to learn more about them. If I still like them, I'll do some portfolio simulations using Excel. If those convince me, I'll figure out a way of automating most of the decision making in order to keep my emotions from busting me. If I can do that too, I'll go for it.

If you aren't prepared to put in this kind of effort, then I suggest you wait until this strategy is packaged into a retail product.

Some smaller points:

The authors cap leverage at 200%. They give no reason for that particular limit. Yes, they /say/ it's okay, but unlike other points they don't illustrate this one by tabulating or charting the results of using different leverages. To me it feels like they just pulled that number out of a hat.

The authors compare the strategy only to a fixed allocation strategy and the 110-minus-age strategy. I was hoping they'd include the lockbox strategy (100% equity, rampdown to 0% during the last 10 years before maturity) in their comparisons. It is fashionable right now and, at least for me, is the benchmark to beat.

Finally, a quote to remember when reading this book:

"On one point, however, I am clear. I will not abandon a previous approach whose logic I understand (although I find it difficult to apply) even though it may mean foregoing large, and apparently easy, profits to embrace an approach which I don't fully understand, have not practiced successfully, and which possibly could lead to substantial permanent loss of capital." -- Warren Buffet

This book promotes a new and untried strategy using either options or borrowed money. Proceed with extreme caution.