Customer Reviews

Why Smart People Lose a Fortune

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Oh boy, I've acted like the people that Neal Frankle describes in "Why Smart People Lose a Fortune." I'm one of those "buy and forget it" people and I have lost money in my investments.

"Why Smart People Lose a Fortune" is one of the best investment guide books I've ever read. The author spends the first part of the book talking what we want and how we make decisions in the market. In other words, most of us have made decisions either based on the advice of our financial advisers, or based on emotional reactions. Emotions and money don't mix. I love how he points out that we feel worse when we take action and lose money than when we do nothing and lose money. His point is that emotions are strange and are not good indicators of what's really happening (i.e., that we lost money both ways).

He also talks about how the media is a poor source of information about the market because they want to sell advertising and newspapers, not help us. He also talks about how we do better by ignoring headlines because the American economy can and does recover from all manner of disastrous world events.

The author also reviews the more common mistakes that people make (buying and holding or buying bonds thinking they are the magic bullet), and tells you what a financial adviser should do (and how to pick a good one). He tells you how to choose the right investments for your goals, and finally, the 5 steps to market sensitive investing. That's the best part of this book:

- Take the market's temperature: Is the market strong enough that you want to be in it?

- Determine which quadrant of the market is strongest - that's where you'll invest.

- ID the specific mutual or index fund: How do you pick the right fund or funds for your needs?

- Move Forward: Apply the same steps to the rest of your capital (it's invested in quarter increments)

- Sell: When to sell. This is the hardest part and the part that the author says is where people lose money. Very important.

The author combines humor, word puns, inspiration quotes with rock-solid advice that you can actually use. What I love about this book is that I feel empowered. I don't have to know the whole financial universe, just the parts that affect my investing (He gives great resources to look at). It narrows that universe into a tight focus that I can use. It really is a straightforward formula that any investor can use to be an empowered financial person.

This author is not afraid to take on the establishment and demonstrates his disdain for the often-touted buy-and- hold approach. In this book, Neal Frankle, CFP, provides investors with a clear and realistic picture of the investment landscape. This 203-page book is composed of 10 chapters and four short appendices (24 book bibliography, how bonds, stocks and mutual funds work).

Frankle is not swayed by the incessant flow of useless information from the financial media or the conventional wisdom on investing in espousing his investment principles. For example, he believes that "asset allocation as a way to improve performance is a myth." Furthermore, he states that buy-and-hold may be a terrific strategy for your broker and mutual funds, but not for individual investors. He points out that asset allocation and buy-and-hold can lead to catastrophic losses. Investors must be educated to understand that being fully invested all the time is neither a riskless nor an intelligent strategy. On the contrary, buy and hold can result in your investing portfolio being decimated as it may been in the crash of 2000-2002.

Instead of hanging on every word of financial gurus and media stars, Frankel believes that investors should listen to what the market is actually doing and not what prognosticators are saying.

Frankel puts forth a simple five-step plan for investors looking for an alternative less risky investment approach. Since mid-2001 he has personally used this approach to invest in ETFs and mutual funds. One of his key points is to protect your assets in market downturns. In brief, Frankel's 5-step process is as follows:

1. Determine the overall market's health. He provides criteria for determining this in a separate chapter. In essence, if the market is strong, then begin investing 25% of your capital in specific ETFs or mutual funds, depending upon your risk tolerance.

2. Invest in the strongest of the four market segments (large and small cap growth and value).

3. Select and invest in specific mutual funds, index funds and ETFs. He suggests subscribing to the NoLoad Fund*X service which ranks all no-load funds on performance.

4. Invest in the market over a six-week period, if it is a strong market. Invest 25% the first week, and every 2 weeks thereafter until 100% of the funds are invested.

5. Sell when your funds lag in a strong market or when the market itself loses strength.

Overall, Frankle provides a penetrating look at the stock market from the eyes of a professional investment manager. His goal of pointing out the important factors in achieving stock market success is accomplished. This book should be in every investor's reading list, especially those just starting out or those who have no idea as to what the stock market is all about but continue to invest with poor results.

I sure wish this book had been out 5 years ago, when like many investors, my idea of asset allocation was different technology sectors and that I should just buy and hold on to "good stocks" even as the market tanked and took my portfolio with it.

I'm still licking my wounds but find that the logical, emotion-free, disciplined investing method described by Mr. Frankle to make perfect sense to me. As an engineer, it's easy to see how preventing big losses stabilizes long-term growth, while at the same time being too conservative and afraid to invest will also hurt my nestegg.

After watching the damage 2000-2001 did to my investments, I thought I'd never be able to sleep and stay invested at the same time. Now I think I can do just that and still retire before my body falls apart.

Thanks, Neal!!!!