TITLE: How to Really Ruin Your Financial Life and Portfolio
AUTHOR: Ben Stein
GENRE: Non-Fiction, Investing
PUBLISHED: August 2012
RATING: ★ ★ ☆ ☆ ☆
PURCHASE LINKS: Amazon
MOBILISM LINK: Mobilism
Review: Ben Stein's, How to Really Ruin Your Financial Life and Portfolio, could have been, should have been, much better than it is; a clever conception that fails in its execution.
So what is the book's concept? From the preface...
Your basic human is not a great investor. Successful investing requires extreme patience; we humans are impatient. Rewarding investing requires nerves of steel—or else perfect forgetfulness; we humans are frightened, nervous animals. Making money by investing requires singleness of purpose; we humans are scattered and distracted, pulled in all directions at once. The great investors carefully think through their moves, guided by eons of experience; we real-life human being investors are rash, impulsive gamblers.
Great investors are not swayed by fads and fancies. The ones with two feet and receding hair are wills-o’-the-wisp, blown all about by what is happening at the moment.
The ones who make money over their lifetimes are steadfast of purpose, well informed, listen to wise guidance, reject counsels of impatience and despair. The real-life investor gobbles up misinformation, listens to fools and knaves, and gyrates wildly in his actions, almost always against his own best interest.
Over the last many years, your humble servant, moi, has written and published many books seeking to help investors make sound decisions. I have given so many speeches about it that it scares me. I always preach the basics. But listeners often do not care to hear the basics. They want frills and fads and they usually are wrong to point themselves in that direction. Men and women make terrible mistakes, often because someone they trusted told them to do so.
So I guess making affirmative suggestions to investors has not worked very well, or at least not perfectly.
Now I am going to try a slightly different approach. I am going to suggest ways to ruin your investment portfolio. That’s right: I am suggesting ways to ruin your portfolio. Possibly, if you see that you are doing some of these things, you will step back and think about whether you really want to make such efforts at self-destruction. Or maybe you won’t. I know that I rarely learn from experience until I have been hit over the head a million times. Maybe the approach of this book will be more helpful than that.
Sounds like fun, right? And this book is fun, is funny, is clever, is witty -- until you realize that each Chapter, each idea, is a replay of the one before; the whole lot of them. Your speed of recognition might vary - for me, it took only to the end of Chapter 2 - but sooner or later, you will begin to speed-read, skim through the content because it all is so achingly familiar.
I should back up and clarify a few (investing) terms. You, as an investor, can invest in different asset types or classes (stocks, bonds, commodities, real estate, etc), each of which has its own subsets. When you invest in stocks, two primary methods exist, value and growth.
- - Value investing attempts to purchase stocks that sell for less than their perceived intrinsic value. That intrinsic value itself relies on different metrics that each has its own interpretation. Famous value investors include Warren Buffett and Warren's mentor, Ben Graham.
- Growth investing attempts to purchase stocks that could sell for more than their perceived intrinsic value. And almost always do. That intrinsic value relies on different metrics such as the ratio(s) of price to earnings (PE), price to earnings growth (PEG), and the currently preferred, Enterprise Value to Sales (EV:S).
That all is great. I happen to have my own definitions. A value investor prefers investments with little downside price risk - which means they also offer little upside reward. A growth investor embraces the risk of price failure for the opportunity to profit from massively large upside price moves. (And leads to a subset of growth investing called momentum: a company's earnings momentum that could beget share price momentum.)
Got all that? Good. Because it becomes quickly apparent that all of Stein's investing heroes are value investors. His logic is obvious if facile (and incorrect):
Value investors = smart money
Growth investors = dumb money
Ha. Yeah, right. There you are, Joe Investor, you and your formidable intellect alone and apart from the crowd, all those stupid investors, while you discover true investment gold no one else sees. You buy. You wait. And wait some more. Waiting for what, exactly? Oh yeah, that crowd of (dumb) investors to buy and thus to power your investment higher. You might be smarter than anyone, but you are not smarter than everyone. Which notion is crucially true when it comes to investing. Stein seems to argue (repeatedly), 'If my brains and general braininess did not create the gains my portfolio enjoys, what value, what differential advantage, did (do) I provide?' Sorry, Ben. A bull market makes geniuses of us all.
Elsewhere in the book, Stein offers hosannas to another of his investing gods, George Soros...
George Soros reportedly made a billion dollars personally, back when that was a lot of money, by selling short the British pound. When the pound was in fact allowed to float radically downward, he reaped the rewards...
Yes, Soros did just that: a US$1,000,000,000 profit in one day when the British pound's value plummeted. What is forgotten by most people and Stein chooses not to share is that Soros had held his short Pound position for months, added to his position repeatedly, and was down US$1,000,000,000 on the day the plummet finally occurred. That was how large that move was for the Pound and in turn for Soros, a US$2,000,000,000 reversal in fortune from one day to the next! The lesson? That George Soros, the great investor that he is/was (a lot of his early success was thanks to his partner back then, Jim Rogers) held a position beyond all levels of accepted and programmatic risk control; Soros violated a primary and key discipline of all investors everywhere. I am glad he made the money he did, I am glad financial sanity came to the Bank of England in the manner it did, but it is bullshit to cherry-pick your data and information to bolster your argument as Stein is guilty of doing here and throughout this book.
And so, in the end, I can definitively state, avoid this book. (Or read only its preface and any one chapter; you'll get its gist quickly enough.) There are many other investing books that will help you achieve your objective; How to Really Ruin Your Financial Life and Portfolio is not one of those [better books].