Off the Shelf: In Two New Books, Strategic Advice Before You Invest

Instead of telling you what to buy and when, Ken Fisher, who runs Fisher Investments, a large money management firm, and Barton M. Biggs, the former Morgan Stanley partner and hedge fund manager who died before his book was published, mainly provide ideas to consider before you even think about placing your money.

Let’s begin with Mr. Fisher. He makes two very solid points in “Plan Your Prosperity” (Wiley, $26.95), which he wrote with Lara Hoffmans.

First, Mr. Fisher writes, “many investors and even some professionals distinguish between financial planning and retirement planning like they’re two distinct phases, or the two are inherently radically different.” That, he says, is wrong. Your approach — save as much as you can, invest wisely, and so on — should always be the same. It’s just that your time horizon, and therefore the investments you choose, will vary depending on whether you are saving for a long-term goal like retirement or a near-term goal like buying a house or paying for college.

Second, he argues that your investing should be “benchmark” driven.

Here is how this could work — and the example is ours, not his: You decide how much you want to make on your money — say, 8 percent — and what kind of investments you are comfortable with. We will assume that it’s a mix of 60 percent stocks and 40 percent bonds. Then you find an appropriate measuring stick. For this example, you would use a balanced index — 60 percent of which tracked a broad stock market index like the Wilshire 5000, and 40 percent of which mirrored a broad bond index like the Barclays Capital U.S. Aggregate.

Then you would either buy a mutual fund, like the Vanguard Balanced Index fund, designed to match the benchmark, or build a portfolio on your own that mimicked it.

The fact that we had to create an example underscores a flaw with the book: it is very short on specifics. And that is by design. Mr. Fisher says up front that he is not going to offer benchmark or asset-allocation recommendations. His reasoning is that he doesn’t want to make explicit suggestions without knowing your specific hopes and circumstances. One size, he says, does not fit all.

That’s fair enough. But detailed — if only hypothetical — examples of how to put his advice into practice would have been helpful. It makes sense that your investing approach should be all of one piece, but how exactly do you save for a house you want to buy within five years while still investing for your retirement, which could be decades away?

True, there is no single answer. But laying out a series of possible routes would allow readers to make an educated choice.

The lack of specifics is particularly frustrating for two reasons.

First, the subtitle says that this is “the only retirement guide you’ll ever need, starting now — whether you’re 22, 52 or 82.” It’s not, unless you’re an extremely experienced investor, in which case you don’t need the book anyway.

Second, when you read Mr. Fisher’s biography on the book jacket, which notes that he has written a Forbes column for 28 years and is ranked No. 764 on the Forbes World’s Billionaires list, you may be expecting more in the way of “how to’s” from what he has learned along the way.

The big ideas are fine, but you are left wanting more.

YOU probably won’t have that reaction to “Diary of a Hedgehog” (Wiley, $29.95), which is actually a diary from the last few years of Mr. Biggs’s life.

My diary, if I kept one, would include things like: “Jan. 5: Tuna fish salad for lunch. Too much celery.” Mr. Biggs’s contains entries like: “The investment process is only half the battle. The other weighty component is struggling with yourself and immunizing yourself from the psychological effects of the swings in the market, career risk” and the like. He also writes: “We are all vulnerable in varying proportions to the deliberating and destructive consequences of these malignancies, and there are no easy answers.”

You can skip over the day-to-day details of what was going on in the markets from mid-2010 to early 2012, the period covered by the diary. (On the other hand, it is interesting to see that despite his stellar record as a stock picker — Institutional Investor named Mr. Biggs to its All-America Research Team 10 times — he agonized when his picks were down for extended periods.)

The important parts are his comments, which often come as asides:

• “Warren Buffett has said he prefers to get his emerging-market exposure through companies like Coca-Cola, McDonald’s, etc. I prefer mine through more direct participation.”

• Commodities are “not an investment,” he says. “An investment by definition is either current income or a stream of future income. When you buy a commodity, you have to be assuming that you are going to be able to sell it at a higher price to someone else, because it has no income. Thus, it is not investing — it is speculating.”

• “Sometimes twiddling your thumbs is the least malignant activity.”

• “I can seldom remember such overwhelming bearishness by the great wise men, professors and stock market soothsayers. My experience has been that it is almost always right to bet against them when the consensus is the largest and the loudest.”

• And, he says sagely, as investors, we “always have to be aware of our innate and very human tendency to be fighting the last war.”

The combined take-away from these two books underscores one of the oldest pieces of financial advice, which is often ignored: Think before you move your money into stocks, bonds or any other investment.

Article source: http://www.nytimes.com/2013/01/13/business/mutfund/in-two-new-books-strategic-advice-before-you-invest.html?partner=rss&emc=rss