Archive for the 'Book Reviews' Category
Wednesday, July 5th, 2006
Recently, I have been avoiding reading more investing books that were basically ‘invest in index funds, invest in index funds, invest in index funds’. Great message, but I get it already. I wanted a more detailed analysis of the different asset classes, and more advice as to what to actually buy. And so I found All About Asset Allocation by Richard Ferri, which does exactly that.
The beginning of the book starts like most other index fund books: great investment skill is very rare, asset allocation determines much of your investment return, expenses matter, and you should invest for the long term. The book also explains (better than I can here) how asset allocation works by reducing your overall portfolio risk by introducing asset classes that have a low correlation to each other.
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Wednesday, March 15th, 2006
The Intelligent Asset Allocator (IAA) by William Bernstein does exactly what it says on the cover, it teaches you ‘how to build your portfolio to maximize returns and minimize risk’. However, I would recommend that 95% of readers not buy it. Come again? Instead, I would recommend the later book by the same author, The Four Pillars of Investing (review). Even though Bernstein himself refers to it as for the ‘liberal arts’ audience, I have an engineering background and I still like Four Pillars much, much more. It just feels more refined and easier to follow.
Both books seem to cover the same general topics, with IAA giving you a clearer mathematical basis for his conclusions. To me, here are the main ideas within the book:
1) There is very little evidence that, on the whole, actively managed funds outperform the market. In fact, if you just buy what’s been hot the last 5 years, history has shown that you would consistently underperform the S&P 500 afterwards. In other words, don’t chase past performance.
2) As risk increases, so does the return. But that doesn’t mean you should just go out and buy the one riskiest thing you can stomach. Your goal is to get the maximum return out of your acceptable amount of risk.
3) To achieve the goal in #2, you must construct your diversified portfolio out of multiple asset classes which will work in combination to reduce risk. The vast majority of your returns come from your asset allocation mix.
4) You can’t guarantee your future returns, or expect them to follow historical returns exactly. What you can do, is to optimize your portfolio using that data to give you the best chance at achieving the highest returns.
5) Minimize expenses and taxes by choosing no-load index funds with low expense ratios, and by carefully placing each asset where it will be most tax-efficient (taxable vs. tax-deferred accounts).
Finally, in the end, the book gives you some advice on how to choose your specific asset allocation and then implement it using Vanguard or DFA funds. Again, I found the same section in Four Pillars to be easier to follow, and I’ve found myself referring back to it instead of IAA to plan my portfolio.
Summary
Read Four Pillars of Investing first. If you like things like standard deviations and statistics, then pick up The Intelligent Asset Allocator. They are both excellent books, with different approaches to teaching the same material.
Overall Rating: 
(ratings explained)
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Friday, February 17th, 2006
Ponzi scheme. You’ve most likely heard of the term, although you may not know exactly how it works. A Ponzi scheme is a scam where investors are promised amazingly high returns on their money based on some ‘secret super-investment’, but in reality the money to pay older investors is simply taken from the money of new investors. Of course, this can’t go on forever, and the investors involved at the end are usually left with nothing.
Let’s take the most recent ‘investment program’ which reeks of being a Ponzi scheme, 12DailyPro, which is now being investigated by the FBI. The story of this interested me so much I started reading ‘Ponzi: The Incredible True Story of the King of Financial Cons‘. The similarities between his story and 12DailyPro are astonishing.
Let’s start with Charles Ponzi, an Italian immigrant in the 1920s who promised a 50% return in only 45 days, compared to the 3-4% that banks were giving out at the time. He stated that the crazy returns he got were from some sort of international transactions involving postal stamps and currency exchanges. The first people involved were skeptical, but when he delivered on the promise in 45 days, people started rushing in with their money. At his peak, he had about $10 million (in 1920s money!!) of other people’s cash. Of course, there was a spectacular collapse when the government finally stepped in and shut it down. Even at the end, Ponzi still had many devoted followers who refused to believe it was a scam.
Ok, now fast forward to the present:
12DailyPro.com debuts, and promises a 44% return on your money in only 12 days, as compared to the ~4% APY banks are giving out now. The investment program states that the money comes from users surfing websites with advertisements for about 5 minutes a day, amongst other vague things. The first people involved were skeptical, but as the site consistently delivered the said returns, people started rushing in with their money. Millions of dollars are reported to have went through the company. Due to recent investigations by various state and federal authorities, the site has shut down, with many people losing tens of thousands of dollars. Even during this collapse, 12DailyPro still has many devoted followers who refuse to believe it was a scam.
(Want to see some blind believers? Just check out the 12DailyPro Forums.)
Eery, isn’t it? I believe some people invested in 12DailyPro knowing full well it was a Ponzi, but also aware that the early adopters could come out well ahead. I think the rest truly thought they had found a gold mine that would erase all their debts and give them passive income forever. Anyways, the book was really good and almost made you root for Ponzi and want him to come out on top. I couldn’t put it down, the story really shows how greed can blind people.
For more on 12DP, check out this Wall Street Journal piece. A quote from the article:
Asked if he thought the gains were too good to be true, Mr. White said, “I suppose there was a possibility it was a Ponzi scheme. You always had that at the back of your mind.” He added: “144% in 12 days? You don’t get that from your bank.”
Now, another good question is, was *I* sucked in? Oh, my, look at the time, it’s late and I’m pooped… 
Posted in Book Reviews | 14 Comments »
Wednesday, February 8th, 2006
How do you know when there’s too many personal finance books out there? When comedian Dave Barry does one. In his new book Money Secrets: Why Is There A Giant Eyeball on the Dollar?, he pokes fun at corporations, Suze Orman, and everyone else.
He shares such gems as the solution to soaring college costs: Don’t let your kid study too much, so they can’t get into private school. State schools are much cheaper. Just like the gurus, he’s got a financial assessment quiz for you, with questions like:
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Friday, January 20th, 2006
Smart and Simple Financial Strategies for Busy People. Whew, what a long title. I was putting off reading this book because it seems like ‘just another personal finance book’ by another so-called Money Guru. (I’d never heard of Ms. Quinn before getting this book from the publisher.) And in many ways it was. But I also learned a couple of new things.
I found it amusing that she makes fun of David Bach’s “latte factor”, while the rest of her book is so similar to his Automatic Millionaire book. Save a certain percentage of your money automatically every month. Invest it into diversified index funds. Let it compound happily. Sound familiar?
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Sunday, January 8th, 2006
The predominant investing mantra nowadays is to pick some nice index funds and stick with them, since you can’t know when the market is going to go up or down. In this appropriately titled book Yes, You Can Time The Market!, Ben Stein and Phil DeMuth argue against that. Instead of using fundamental valuation, where someone tries to analyze a company and find it’s “true” value vs. market value, they argue that a market index as a whole, such as the S&P 500, can be viewed as cheap or expensive by comparing it against it’s 15-year moving historical average.
For example, you can take the average of the P/E ratio of the S&P 500 for the last 15 years. If the current P/E ratio is greater than that average, then it is overvalued. If the current P/E ratio is less, then it is undervalued, a signal to buy. (Right now it’s 25 vs. 19, undervalued.)
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Friday, January 6th, 2006
The Number by Lee Eisenberg was generously provided to me by the book’s publisher. It sounded neat, so I agreed to read it and review it.
The Number, as you may have guessed, stands for the specific amount of money that people have in their mind that they need to retire on. For example, a person may say “Once I get $1 million saved up, that’s it. I’m off to the golf course forever.” You may think, as I did, that this book is about how to deduce your Number and how to invest to achieve it. We’d both be wrong. I kept reading and reading, looking for financial enlightenment, only to be left wanting.
Don’t get me wrong, Mr. Eisenberg is a very talented guy – his writing is funny, witty, and easy to read. In fact, he is a past editor of Esquire magazine. I’m sure he’s very wealthy too, given his resume.
However, the majority of his book is to put it bluntly, fluff. Not that fluff is necessarily bad, I just mean that it’s more entertainment than substance. He talks about how Americans are too consumerized, how they have “Debt Warp” from borrowing so much, and so on. He has clever little stories about friends, and some good advice about being wary of many financial salesmen/advisors. I did enjoy the brief history of how the idea of retirement evolved over time.
Another thing that led me not to love this book is that the target audience seems to be affluent 40-somethings who want to retire soon. He talks about wanting to get that 2nd house in Vail, or upping your “Number” from $5 million to $10 million when your hedge fund does well. I didn’t feel like he was talking to me, as a guy in his 20s whose doesn’t even have his first house yet.
I think the best way to describe this book is that it’s for all those people who want to have a lively discussion about retirement, but have nobody to talk about it with. If you’re in your late 40s and worrying about early retirement, this book is for you. If you are in your late 40s and worrying about making your next mortgage payment, skip it. For a taste of what this book is about check out Lee’s article in New York Magazine “Nailing Your New York Number“.
Overall Rating: 
(ratings explained)
Other Blog Reviews (e-mail me if I missed yours)
FreeMoneyFinance’s Review
AllThingsFinancial’s Review
The Number Giveaway!
Decide for yourself! As promised, since I got this book for free, so can you! Just leave a comment with your e-mail for your chance at getting The Number shipped to you for free.
* Fine print: One entry per person. You can leave multiple comments with the same e-mail, I’ll just enter you once. I’ll pick randomly. Giveaway ends 1 week after this is posted. You must leave your e-mail so I can contact you (you can stop it from showing online by typing something in the URL form). Book will be sent via Media Mail free of charge. U.S. Residents only for this one, sorry. Your personal information will not be shared or sold as per my privacy policy.
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Thursday, January 5th, 2006
Some of you may have noticed that several blogs are reviewing the same books at the same time. No, we have not joined some Oprah book club. We are getting these books for free from the publisher’s PR firms. Does this mean you’ll get biased reviews? Nah. I’ve never gotten anything but a free book, which I hope is not enough to swing anyone. I’m pretty sure all those movie critics get to see movies for free too. Now, if they offered free trips to Hawaii…
My new bright idea is to give away every book I get for free to a reader. The only book I’ve gotten for free from the publisher so far is Free Gulliver – Six Swift Lessons in Life Planning. So just leave a comment with your e-mail if you want a chance at my copy of Free Gulliver sent to you for free! And be on the lookout for more free books!
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Tuesday, January 3rd, 2006
I’ve got several book reviews I plan to post up soon, so I’ve been feeling the need to come up with some sort of book rating system. I tried to think of something creative, but I stuck to a boring but simple 4-star system.
– Disappointing, don’t bother reading it.
– Some useful info, but not really worth the time reading it.
– The time and money spent reading it was worth it.
– I would recommend everyone to read this book, it is a permanent part of my library.
Please remember that all these reviews are my own personal opinion. I don’t expect everyone else to agree. I have my biases, which if you read my blog you’ll know. Anyhow, here are my retroactive ratings for previously reviewed books (click for my more detailed review):
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Monday, November 14th, 2005
Like I’ve mentioned, I’m a bit weary of personal finance/retirement books at the moment, and more in the business ideas mood. So when I came across this book I had to read it. Titled The eBay Millionare: Titanium PowerSeller Secrets for Building a Big Online Business, it profiles 25 of the biggest sellers on eBay. Titanium Powersellers are those than have more than $150,000 in gross sales each month (Example: GlacierBayDVD). Umm… I was a Silver Powerseller for about 3 months ($3k/mo)… As you can imagine, these guys are not just cleaning out their garages. They have 10,000 square foot warehouses, several employees, and multiple suppliers. But they virtually all started out with just one or two people and an idea.
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Saturday, September 17th, 2005
I grew weary of my real estate textbook, so I picked up Freakonomics at the obligatory overpriced airport bookstore. You may have heard of this book as the one that suggests that the legalization of abortion is the main cause of recent decreases in violent crime. In short, this books tries to apply the math of economics to issues like crime, cheating, and parenting. It’s is co-written by an Economics Ph.D., and a New York Times writer. The NYT writer imparts a very strong “dumbed-down” flavor to the book, and as such the book reads like a newspaper article with a lot of sensationalization.
Still, the book was a fast read and mostly entertaining. It boils down economics to it’s basic idea: what do people do to get what they want? But it goes beyond supply and demand. For example, the book talks about real estate agents. It’s commonly known that the commission on a house is 6%. So on a $300,000 house that’d be $18,000. Sounds like a lot of money right? You’d think it would be a good incentive for your agent to sell your house for as much as possible. But wait.
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Thursday, July 28th, 2005
First, let me say that I used to find the Suze Orman Show really annoying. I guess the main thing was her habit of asking a question, and then say “Now, you say XXX, but what you REALLY mean is XXX? Now let me guess, your husband/wife/lover actually does XXX”. Inevitably, the caller agrees with her, calls her a genius, and promises to do better. Yay Suze.
So, it took me a while to want to read The Money Book for the Young, Fabulous & Broke. Actually, it took the library a while to lend me this book. I was like #88 on the waiting list or something. Then two weeks ago I was notified that it was being held for me. Yay for libraries with online hold systems.
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