I recently read a rather unique, but very good, book aimed at the relatively new investor called The Gone Fishin' Portfolio. In the tradition of the great “Boglehead” books, it discusses how to set up a low-cost, low-maintenance, fixed asset allocation portfolio of index funds (or ETFs) that you can “set and forget” and then “go fishin'.” It was written by Alexander Green, who surprisingly writes a stock-picking newsletter with a rather good track record (although he acknowledges it is unclear if he is good or lucky) called the Oxford Club Communique'.
In his preface to the book, he states:
Investment professionals don't get into the industry because the work is meaningful, but low paying. You become a broker, a financial planner, an insurance agent, or a money manager to get rich. And most of us do, eventually. In truth, what you're paying your financial advisor is probably too much. Many investors aren't doing that well because their advisor is doing TOO well….
I don't mind telling you that many of these truths I learned the hard way. You can save yourself a lot of trouble–not to mention a boatload of money—by learning from my experience….In the pages that follow, I'm going to share with you the best long-term investment strategy I know.
In the introduction, he explains why this book is so much different than most others. It's written so well it's worth quoting rather than paraphrasing:
This book does something that virtually no other investment guide does. I'm going to show you–very specifically–where you should put your money. And then I'm going to show you how to manage it year after year. Once you've set up your portfolio, the whole process will take less than 20 minutes a year to implement….It is based on the only realistic premise for an investment philosophy–that, to a great extent, the future is unknowable…We're going to use uncertainty and make it our friend…Investing is serious business. Getting it right is the difference between a retirement spent in comfort (or luxury) and spending your golden years counting nickels…
Up until now, you may have been tempted to turn your investment portfolio over to someone else to manage. After all, your financial security is paramount. You may not think you can take the risk–or handle the responsibility–of running your money yourself. I fully intend to disabuse you of that notion. I also want to point out there are serious risks to turning your money over to someoen else. That person may manage it poorly. Or be terribly expensive. Or both.
If you're skeptical on this point, it may be that you've bought the story Wall Street is selling: Investing is so complicated–or your personal circumstances so exceptional–that you should not be trusted to run your own money. I'll concede that if you don't know what the heck you're doing, this is absolutely true. But one solution is learning what to do, rather than turning your financial welfare over to someone else.
He then goes on to explain the four basic mistakes investors who wind up with too little money made:
- They were too conservative
- They were too aggressive
- They tried–and failed– to time the market.
- They delegated unwisely.
Mr. Green designed the Gone Fishin' Portfolio to overcome those 4 problems. It's not too conservative, not too aggressive, requires no market timing, and can be done yourself. I'll discuss the actual portfolio in my next post (or if you just can't wait, go buy the book.)
I love that one of the first chapters in the book is dedicated to what I feel is the most important part of any investment plan- an adequate savings plan. He says save 10% if you're under 30, and 15% if you're over. My advice is 20% for doctors and other highly paid professionals, since they had negative savings when they were under 30, and social security and pensions won't be nearly as significant for them as for others. That's JUST for retirement. If you're saving for a boat, a car, or your kid's college, that's in addition.
He has an entire chapter on how you don't need to predict the future to be successful. (Where have you heard that before?) He explains:
Investment success begins with a strong dose of humility–not just about your own knowledge but, just as importantly, about the knowledge of the so-called experts. Understand that you're finally on the right track the day you say to yourself, “Since no one can tell me with any uncertainty what the economy or the stock market is going to do next year, how should I run my portfolio?”
The second section in the book “Get Wealthy” opens with a chapter explaining the benefits of stock investing.
It is clear to anyone who takes the time to investigate that stocks have outperformed all other liquid investments–and illiquid ones, too, including real estate and other tangibles. And while no one can tell you with certainty what investment returns will be in the future, most investors need a fairly high percentage of their portfolio invested in stocks to meet their long-term goals….Never forget that the greatest risk you face as an investor is the possibility that your investments won't last long enough to meet your long-term spending requirements.
This section also explains the “six crucial factors” to investing:
- How much you save
- How long your investments compound
- Your asset allocation
- Your investment return
- How much you pay in annual expenses
- How much you pay in taxes
He then, naturally, goes on to explain that you can only control 5 of those factors. (Guess which one you can't control?) The next few chapters introduce the Gone Fishin' Portfolio, and tell you in excruciating detail how to implement it. If you already hold a fixed asset allocation portfolio, you'll find the implementation sections exceedingly boring. Feel free to skip over it. But for those who have never designed and implemented their own portfolio, this is the single best “how-to” guide I've ever read. This is now my “go-to” book for handing out to friends and family who are either starting out investing or in the process of firing their advisor. He also explains how to implement the portfolio using ETFs and has a brief chapter on minimizing investment taxes.
The last chapter is perhaps the best in the book. It is titled “Your Most Precious Resource”, and it explains why your time is so valuable. He quotes William Bernstein extensively in discussing why discipline is so important, and explaining how to weather stock market downturns and economic recessions. But he also emphasizes the importance of getting started now. He says, “Don't make the mistake of waiting until the “right time” to get started. If all the stoplights had to turn green before you left home, you'd never get out of your driveway.”
You can skip the last 70 pages of the book, leaving you only 169 to read. His after-word is actually quite disappointing. It's more of a brag list and an advertisement for his newsletter. After reading the rest of the book and being excited to implement a “know-nothing” fixed asset allocation of index funds, he goes on to say that while it is very hard to pick stocks, and almost no one can do it, he can and you should buy his newsletter. What a strange chapter to include! Sure, the efficient market hypothesis has its issues, but even Mr. Green admits that “I'm ready to concede that beating the market over the long haul is harder than it looks–and many if not most amateur investors will fail.” The data readily shows that most professional investors have. I think he is far too optimistic on this point. The appendices are basically just “cut and pasted” out of Vanguard prospectuses for the funds he recommends in the portfolio. If you've never read these, you probably should. But for those of us who have been investing with Vanguard for years, skip it. But since he wants this book to tell the new investor exactly what he should do, it's probably a worthwhile inclusion in the book.
The book is subtitled “Get wise, get wealthy….and get on with your life.” If you read nothing else about investing in your entire life, and follow his prescription exactly, you will be highly likely to reach your financial goals. The book is a wonderful resource and I highly recommend it.
In my next post I'll discuss the actual portfolio.
Image Credit: SteveF, via Wikimedia, CC-BY-SA