Yes, You Can Supercharge Your Portfolio! Paperback – January 1, 2009
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About the Author
- Publisher : Hay House (January 1, 2009)
- Language : English
- Paperback : 192 pages
- ISBN-10 : 140191764X
- ISBN-13 : 978-1401917647
- Item Weight : 10.2 ounces
- Dimensions : 6 x 0.48 x 9 inches
- Best Sellers Rank: #1,737,930 in Books (See Top 100 in Books)
- Customer Reviews:
Top reviews from the United States
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I've read a lot of Geoff Considine's articles on Seeking Alpha, and he addresses the problem of single company risk in portfolios. Geoff also mentions that you can use leveraged mutual funds or ETFs instead of individual funds to increase your portfolio return. I wish the book had addressed leveraged funds and/or ETFs.
Maybe because I retired at 56 after a perfectly ordinary job with a negligible pension, people ask me about investing. A week ago, I was asked by someone with more money than I what percentage of his portfolio he should invest in international stocks. My answer was that he should read the first 60 pages of this book (what I call "Book 1" out of 2). He wasn't asking the right question(s).
It is apparent that very few people know how to diversify their portfolios properly. ("Properly" to me means getting the return you require for the least volatility and risk.) The first 60 pages explain this in easy to understand language and provide lots of useful examples. In fact, I expect many people will latch onto one of the example portfolios and live more happily ever after. For people who really want detail, this isn't the right book - I suggest Roger Gibson's Asset Allocation (a new edition is just out, but be warned that if it's like the third edition, it is much more difficult reading than Supercharge).
"Book 2", the other two-thirds of Supercharge Your Portfolio, discusses how to construct a proper portfolio that meets the reader's individual needs (vs. the generic portfolios of "Book 1"). This is more complicated, as you'd expect, and requires a tool. The book uses the quantext tool, QPP, for its examples. Armed with the book and the tool (I did the free trial and now have it on order - I used to rely on a weaker tool on Fidelity's web site), I expect to be able to take my current portfolio, use my investing preferences, and improve my portfolio to perform at least a little better with less volatility. Remember, I depend on my portfolio for retirement.
Two more notes, sorry for the long review. This book does not address how to determine what your individual needs are - my current favorite here is Lucia's Ready, Set . . . Retire! However, Supercharge DOES encourage you to combine mutual funds and ETFs with individual stocks, which may help those who find mutual funds too boring to become both more successful while being adequately entertained.
The content is good overall and the content of "Book 1" is excellent. That said, this book seems less tightly written than the authors' earlier books and many of the analogies are downright awful. I will continue to recommend Supercharge to my friends, anyway.
The book opens with a TV show where Ben Stein and one of Jimmy Kimmel's friends picked investments. Stein and DeMuth use these portfolios and how they performed to tease out the basic principles of this book. Of course, Stein's did well and the other guy's did not. But it is WHY one performed well and the other did not that is the point of this book. It wasn't luck; it was statistics. Let me hasten to add that you do NOT need to be a statistician or even schooled in statistics to use the method Stein and DeMuth present or to read and enjoy the book. The few concepts they use are clearly and simply explained to the level required.
Let me also point out that this book will be very helpful to you even if you don't want to create and manage your own portfolio because it will help you become informed about what your financial adviser is suggesting, what to look out for, and what to ask about.
The book presents six steps and adds in a couple of special topics, two appendices, a glossary, an index, some info about the authors, and also points you to a few free websites that will be immensely helpful to you including the one run by the authors.
Step 1: Evaluate your needs. That is, pursuing maximum returns is not enough. You have to decide what you are after and develop the right portfolio to deliver that. Where you are in life, your present financial circumstances, and your goals will all influence the course of action that is BEST FOR YOU, not some financial planner or stockbroker.
Step 2: It's your whole portfolio that matters. Your investments will vary in their performance and it is the way they behave when taken as a whole that matters. If all your stocks go up or down at the same time you are in for a wild ride. However, if you can build a portfolio that delivers more consistent returns because some zig while others zag, well, now you are on to something. The authors show you how to do this in simple and pretty safe ways.
Step 3: Take on risk intelligently. The authors do a great job in explaining how to combine investments with a clear understanding of their individual and, what is more important, their combined risk versus return. If two portfolios have the same expected return, you will want to choose the one with lower risk, right?
Step 4: Diversify. This is not simply getting as many companies in your portfolio as possible. The authors show you how combining different sectors changes your risk-return balance. I found their explanation about supercharging your portfolio by carefully combining different balances of indexes to be especially interesting. Again, this is about getting more return for a similar risk exposure.
Step 5: Use the Monte Carlo Simulator to test drive your portfolio. The authors use the QPP simulator and explain why. The point is that by running tens of thousands of simulations on a portfolio you tease out its range of behaviors. This technique is quite important as you consider how to combine your portfolio. The authors caution you about spending too much time trying to fit historical data into a "perfect" portfolio. The future isn't going to be exactly like the past. What you are after is an understanding of the range of possible outcomes rather than predictions. The authors also point out that the more extreme the components you have in your portfolio the more suspect the outcomes of the simulator will be.
Stein and DeMuth then talk about how people use Bonds to alter their risk exposure and how you can sue other investments to similar effects with a likely better return. They also show you how to build your own simple hedge fund to balance your portfolio without having to be a high net worth investor. They also spend a chapter for people nearing or in retirement or other circumstance where they prefer income to capital gains return.
Step 6: Do a portfolio reality check. This is a series of common sense evaluations. For example, don't worry about maximizing a small return on $10,000 in savings while you have several times than in expensive credit card debt. The section on the value versus costs of rebalancing is quite interesting and important to consider.
Appendix A shows you how to simulate something like "Berkshire Hathaway" using substitutions for the pieces that you can't get on the market. This is an exercise not a recommendation. Appendix B takes you through a method to carefully correct a portfolio that is too concentrated in one investment (for example, your company stock).
This is an excellent and helpful book for anyone who wants to think responsibly about his or her investments in aggregate and I think it is something you should get, read, and think about. You should also consider these helpful books from Stein and DeMuth:
Yes, You Can Time the Market!
Yes, You Can Become a Successful Income Investor! Reaching for Yield in Today's Market
Yes, You Can Get A Financial Life!: Your Lifetime Guide to Financial Planning
Yes, You Can Still Retire Comfortably!: The Baby-Boom Retirement Crisis and How to Beat It
Reviewed by Craig Matteson, Ann Arbor, MI