Top critical review
132 of 145 people found this helpful
Recommended but Ignore Rule 9
on November 21, 2011
As with most reviewers have said, the author's writing style is non jargon and causal which makes it a fun read. I love books from non professionals as they are so rare and bring to the investing table a personal experience not shared from the volumes of professionally written finance books. The best part of the book is its focus on the investing process, living within ones means, shunning advisers and seek a low cost diversified index portfolio. And we can learn this stuff! Wonderful. I anticipated he would show us exactly how he made his million on an educator's salary.
His reference to the brilliant book on the subject of frugal living, Millionaire Next Door, which every living human being should read, was a great source of information. He rightfully quotes those authors often. From this reference, this author explains the crucial difference between the image rich and the real rich. It's the assets stupid, not the arrogant Jag owner with car payments, $2500 sport coats and bounced checks. True millionaires wear their finest and dine at home in their work clothes and drive a f150 Ford truck. His frugal experiences were so extreme I felt that his authenticity was at risk IMO. It's hard to believe that he had the heat off in a Canadian winter and he didn't want to turn it on with his father's visit! I know about winters, growing up in Wisconsin. But he was making an important point about frugal living and living within our means so we have the capital to invest and he showed us. I think it might be important to expand on what people can do such as always purchasing good used cars and keeping them for years--the number one expenditure that is never an asset.
I commend the author for his excellent metaphors to explain complex concepts such as using Willy Wonka's Chocolate Factory on what exactly does an investor own when he or she owns a share of stock. Brilliant. It one of those things that may be shocking, but so many people in our profession as educators don't know what a share is and are rightfully embarrassed to ask at a seminar.
The book has nine rules or chapters. Most are devoted to the investing process, specifically to index or passive strategy by John Bogle. He references all of the great authors on this subject, Bernstein, Swedroe, Samuelson, Buffett, Malkiel, Sharpe, Burns and the Bogleheads. I agree that investing is not that difficult as most people think. Learning what your "knowledgeable" and super "nice" financial adviser is doing with your money is crucial. Index investing is so simple to use, but it's hard to teach a subject when the learner does not have to do much with a passive portfolio. But he does an excellent job of explaining this popular strategy by rebalancing with a bond allocation. By reading the first 8 chapters the reader should learn that the best way to invest is by using the established "couch potato" or "lazy portfolios".
My harshest criticisms resides with his last rule, rule #9 and its implications for the rest of the book. Here I part philosophical company with the author BIG TIME after agreeing with every word in the first 8 Rules. IMO he is pandering to those folks (and the publisher?) that think they can pick stocks by following the authors detailed methods, after explaining all the way through the book that the active managers of funds cannot! What?
I was dumbfounded. Mutual fund companies and brokerages firms have entire departments devoted 24/7 to researching stocks. They have analysts who do this for a living using powerful computer technology hiring quants from Ivy league schools to try and pick the winning stocks and beat the market? The author explained in great detail with graphs of past returns comparing active management to passive management with passive strategy generating better returns over the long term.
Also, the author spent a good deal of time rightly explaining that we should not use newsletters! The author then says that he uses and recommends one newsletter, Value Line, to pick his individual stocks, after debunking all of the other newsletters. Heck, I read Value Line newsletter that he touts years ago and bought one or two of their recommendations--I'll won't make that mistake again. The author appears to want it both ways and thinks nobody will notice: Stock picking and index investing are as far apart philosophically as the moral fabric of Pope and Attila the Hun.
As a literature teacher he should have known as a writer that the author SHOWS the reader what the author has done. With the sole exception on his frugal living experiences, he unfortunately LECTURED us on everything else. He might as well have been a professional investor writing a book. Yes, it's good, but it's impersonal. As everybody else has said, it was funny, different, entertaining and encouraging, but nevertheless, he broke a cardinal rule in writing: "thou shall not tell, but show."
At the beginning of my review I was anticipating a case study about how this non financial professional made his million. But it's not here, unfortunately! I was disappointed.
Since he did not show us how he made his million before age 40, we are left guessing how he actually did it, outside of the fact that he started young. What if we are older, what do we do? Is it too late?
I read an interview online where he said that he recently sold $700,000 in individual stocks and is now invested in the 3 VG funds he suggested throughout his book. Did he make his million investing in individual stocks or index strategy or combination? Did he use timing?
He spend a good deal of time explaining about the investment club he formed and some of the stocks he bought, but that's all he reports. He didn't say how much he contributed, how much he lost (except for the $7000 example) what were the returns on his investments over the years. How much was his wife involved in tabulating his million or their million? Again we are left guessing. This book would have been great if he finished the job.
Aside from my 2 criticisms, I highly recommend this book with one qualification: Read and apply the first 8 rules, but ignore rule 9.
I would rated the book a 5 star without the last Rule. Rule nine is a 0 and his lecture style brings it to a 3.
Rule 9 is all about individual stock picking. IMO investing in individual stocks is speculation for us ordinary investors, the authors he quoted above would agree.
Here is an excellent example of another book written by non professionals: The Average Family's guide to Financial Freedom by Bill and Mary Toohey. He was a teacher and she was a secretary. Its over a decade old, but it's still current. The authors show in great detail how this Iowa family of five, saved $467,000 in only 8 years while raising 3 children (one with disabilities) in a 1 bathroom house making $65,000 a year! They cover a lot of ground in their book and they were in their late 30s. Highly recommended.
After reading these two books, readers will be on their way to their financial freedom.