Kenyon Meadows, MD is a radiation oncologist and an author who submitted a guest post a while back. He sent me a review copy of his book, Alternative Financial Medicine, subtitled High-Yield Investing In A Low Yield World a while back and I told him I would review it. Be aware that Dr. Meadows has purchased advertising on the site, although this is not a sponsored post (as will be easy to see if you read through it.) Books links on this page, like every book link on the site, is an affiliate link, meaning I get paid if you buy stuff at Amazon after going through these links. (Don't worry, it doesn't cost you any more.)
Alternative Financial Medicine is a 118 page self-published book that reads like a 40 page book and is sold on Amazon for $14.95 at the time I wrote this review. He is obviously targeting physicians with the name and the content of the book.
- Peer to Peer Lending
- Peer to Business Lending
- Mortgage Lending
- Crowdfunded Real Estate Investing
- Distress Mortgage Notes
- Hassle-free Rentals
- Student Loan Investing
The book has an “incomplete” feel. It is very much a compilation of his personal experiences with each of these types of investments. However, given that most of these are very new, and even a full-on high-yield advocate like Meadows hasn't had very many round trips through these types of investments, there is little objective data or theory behind it. However, given the limited data and books on the subject, this might be about as good as it gets. Certainly my posts on these subjects have that same incomplete feel and so when I do recommend investments like these, I do so with great caution and many caveats.
What I Really Like
Dr. Meadows states his criteria:
It was important for me to come up with criteria by which to evaluate and potentially participate in certain asset classes. Number one, I wanted high yield, generally defined as at least double the official inflation rate. I therefore chose 5 percent annual returns as my minimum threshold. In reality, most have a track record of returns in the high single-digit to low double-digit range (8 to 12 percent). Number two, I wanted risk that was uncorrelated with the equities market, meaning the next time stocks took another precipitous decline, my investments wouldn’t necessarily go down in parallel.
Who wouldn't want higher returns and lower correlation to the rest of the portfolio? We all would. And this is why I find these investments intriguing. Boglehead-style investing (a mix of broadly-diversified, low-cost, passively-managed stock and bond mutual funds invested in the most tax-efficient manner possible) compares very favorably against picking stocks, picking actively managed mutual funds, technical analysis, or timing the market. But how does it compare against some of these other types of investments, many of which are only available to accredited investors and many of which weren't available a decade ago. Well, nobody really knows. There is no data and there are precious few of us who have done both. The information that is out there is anecdotal at best. Well, add Meadow's anecdotes to the collection.
What I Didn't Like
This was hardly a dispassionate look at these investments. Dr. Meadows comes across as an advocate and a cheerleader, which makes the book seem like a one-sided analysis at best. For example, in the Peer-to-Peer Lending chapter he tells about Renaude Laplanche, the founder of Lending Club, and his brilliance. But there is no mention of LaPlanche's accounting “irregularities” that came to light prior to publication of the book. Later in the chapter, he talks about how he considers Peer to Peer Loans as a “new type of savings account.” The difference in risk between even a diversified portfolio of peer to peer signature loans and an FDIC-insured savings account is monumental.
To be fair, he does cover the risk aspect later in the chapter, but I think a savings account comparison is totally inappropriate, not only due to the massive difference in risk, but also in the amount of time and effort required to implement a strategy using his recommended $25 per borrower. He gives no discussion of the difficulty of liquidating a portfolio of these notes, other than “I count on holding the note for the stated duration when I make an investment through this platform.” So make sure you stop buying them 3-5 years before you want the money to spend or invest elsewhere. As another example, the chapter on crowdfunded real estate has no discussion of platform risk or fees, which are hardly insignificant.
Overall, the book is short, inexpensive, easily read in a single sitting, and gives a broad overview of your options along with personal anecdotes about his own investments. It gives you real, first-hand information from someone who has been there and done that as much as anyone has. What it lacks in data and theory, it makes up for in honesty and openness. Am I convinced to ditch “Boglehead-style” investing for higher-yield investments? No, and this book didn't move me any closer to being convinced. But I am interested enough to dabble a bit with a small percentage of my portfolio. My experiment with 5% of my portfolio in Peer to Peer Loans had mixed results (not bad, but not as good as promised). Now I have investments with a handful of online syndicated real estate companies (again not a huge percentage of the portfolio), and so far have had an experience similar to that described by Dr. Meadows- higher returns, low correlation with the rest of my portfolio, and plenty of cash flow. We'll see how it goes and I'll keep you up to date. In the meantime, check out Alternative Financial Medicine to get another doctor's take on these newer investment options.
What do you think? Have you read the book? What has your experience in high-yield investments been? Comment below!