Book Review: The New Retirementality by Mitch Anthony

Mitch Anthony is a sales consultant to the financial services industry.  He's not actually an investment adviser, he teaches investment advisers how to get clients.  His skill is in inspirational public speaking.  If I had known this up front I would not have bothered to read this book.  But it was interesting.  "The New Retirementality: Planning Your Life and Living Your Dreams... At Any Age You Want (Third Edition)" was a bit of a hodge podge.

The first part of the book appears intended to help grasshoppers feel okay about not having saved for retirement.  He comes at why this is okay from a bunch of happy angles.  For example, he doesn't see why you can't just start now and get 15% return on your investments if you want to play it safe, or maybe 50% return if you care to gamble a little.  Oh, did I mention, this was originally written at the top of the internet bubble in the late 90's?

And, hey, if investing isn't your thing, you can always sell your house at an enormous profit and move to a cheaper location.  But, uh, he also suggests you keep your social circles intact.  Maybe by cheaper location he means an apartment in your same town.  (The second edition was written in 2003.)

His other main thrust is that it's perfectly fine to not save because you can keep working.  After all, people really benefit from working.  It helps their soul.  All you have to do is find a vocation that you love and structure it so you can work part-time.  He then goes into a few chapters stolen straight out of "What Color Is Your Parachute" to inspire you to go find a job that makes you happier.  Because, he says, the workplace is so desperate for employees that they will gladly bend over backwards to accommodate aging baby boomers.  (Did I mention that the most recent edition was written in 2008?)

But, anyway, to "retire" is to get sick and die.  (He has a causation vs. correlation problem here, in my opinion.)  Instead of being incapacitated by old age, though, he suggests that it is way better to stay vibrant and young, which you can do by continuing to work.  And don't you worry none about social security imploding.  This is the baby boom we're talking about, and they are rule-breakers!  Not ones to let simple math get in the way!  No one dare defy the Baby Boomers when they want something.  So relax.  Take a cruise now if you want.  You'll be fine later.

Then he goes into a section on "Your Money and Your Life" which is radically different than the excellent "Your Money or Your Life" by Robins & Dominguez.   Mitch Anthony's point is that you shouldn't care about Return on Investment - which he says is outside your control - but instead be concerned about Return on Life.  I kind of liked this, to be honest.  He said not to be a gerbil on a wheel, but rather to use your money as a sail on the boat taking you places.  He said that a good return on life meant:

• I'm living well within my means.
• I'm investing time, energy and resources in those I love.
• I'm allowing myself to have experiences and live whenever possible.
• I'm saving with discipline.
• I'm not comparing my progress to others who live with a different set of circumstances.

I agree that you need to have a vision of what you want out of your life, and harness money to achieve that vision rather than just accumulate money for the sake of money alone.

He also had a nice section on "Maslow Meets Retirement" where he asks you to identify the part of your budget that is:

• survival,
• safety
• freedom (hobbies, travel)
• gifting,
• dreaming. 

Then he bids you to identify the sources of funds you will allocate to each of these categories.  I thought that was a useful concept.  He flew right past it, though, without every throwing any actual numbers at it.

He also gets into a section on "Money Maturity" that appears to have been cribbed from George Kinder's "Seven Stages of Money Maturity".  At this point I'm being impressed that he has read all the same books I have.   I liked his section on "wealth-care checkup".  He says to watch your balance, or else:

• Physical rest becomes laziness
• Quietness becomes noncommunication.
• The enjoyment of life becomes intemperance
• Physical pleasure becomes licentiousness
• Enjoyment of food becomes gluttony
• Self-care becomes selfishness
• Self-respect becomes conceit
• Cautiousness becomes anxiety
• Being positive becomes insensitive (his term, mine would be "oblivious")
• Loving kindness becomes overprotection
• Judgement becomes criticism
• Conscientiousness becomes perfectionism
• Interest in possessions of others becomes covetousness
• Generosity becomes wastefulness

The theme emerging here is that you don't need to save for retirement, you just need to find a job you love, stay healthy and age well, and not worry about material things.  See?  The New Retirementality.  Oh, and have an extra $250K stuck aside for health care spending you're really going to want to do, and maybe another $50K to help your centenarian parents when they run out of money.  But, hey, other than that kick back and relax.  Except when you're at work.  Work hard then.  Because you've got shit-all to fall back on.  But don't worry, be happy!

Oddly, I did get some business management tips from the section on how to find a good employer.  I might write those notes up as I'm probably going to be hiring some staff next year (as I work hard getting set up for retirement) and can always use more tips on managing employees.

Book Review: The Age of Deleveraging: a tome by A. Gary Shilling

I heard Gary Shilling speak at a conference last month and his discussion of demographics was interesting and insightful so I sought out his most recent book: "The Age of Deleveraging: Investment Strategies for a Decade of Slow Growth and Deflation".  This book was 500 pages long.  Five hundred.  I told B. I felt like I was taking a graduate level course in economic forecasting.  I'm not even sure how to integrate this book into my body of knowledge, but here's my attempt.

The first 125 pages or so are on the subject of why we should listen to him.  Each chapter is about triumphs in prognostication he had over the years, his "Seven Great Calls" when he predicted major economic changes.  I found the history to be occasionally interesting and skimmed the chapters looking for what he considered the markers of change.  The main thing he appears to do is to really dive down into the STORY that the economic indicators are telling.  Look at the big picture: where are the demographics?  What is the existing inventory level?  What makes SENSE to happen next?  I found his methods to be plausible and in line with the way I look at the world, too.  Each of the many threads emerges into a tapestry if you stand back and look at the big picture.  This is why I read so many threads and go for long walks to let it gel.  I'm not Gary Shilling, but I don't have to be if I can listen to people who see the big picture.

The central premise of this book is that Gary Shilling sees slow growth ahead.  Period.  He stands with Mish Shedlock in the deflation camp (although he never mentioned Mish Shedlock.)  Instead, he takes on more esteemed heroes of mine.  He pooh poohs Peak Oil (we'll switch to natural gas, he says, and doesn't sound cornucopian when HE says it.)  He dismisses Milton Friedman's definition of inflation "as always and everwhere a result of excess money."  What is money, asks Shilling?  If you have a $10,000 credit line on a credit card - whether you use it or not - isn't that money?  American Express cards have no limits on them... what does THAT mean to the money supply?  Instead he talks about there being seven varieties of inflation/deflation:

1. Commodity
2. Wage-price
3. Financial asset
4. Tangible asset
5. Currency
6. Inflation by fiat
7. Goods and services.

I have to admit, I really liked having seven dimensions to this issue.  It is far more satisfying that Friedman/Martenson/Austrian versions.  It fits reality better.  It's hard to hold them all in my head at once, and they often move in tandem, but they actually are NOT identical and our current world situation has allowed the effects of different parts to be teased out better.  If I ever re-read this book it'll be for Chapter 8: "Chronic Worldwide Deflation".  This is where he makes the case that he isn't just some cranky old man moaning about how things were better when he was young (and get off my lawn, kid!)

Chapter 9 talks a bit about what help we can expect from the Fed, IMF and Congress.  It's a short chapter.  (Synopsis: none.)

Chapter 10 is about the outlook for stocks.  The short version there is that he expects very low earnings going forward.  He pretty much stayed away from the question of whether to buy index funds or managed portfolios in a confusing way, by saying managed portfolios will do better, except most of the time they don't.  He is not a fan of long-term buy and hold and hates asset reallocation strategies, too, thinking it's foolish to sell your winners to buy your losers.  Far better to just buy winners low and sell them high.  (D'oh, why didn't *I* think of that?) So, all in all, this chapter was pretty worthless to me.  (Because every book that says, "first, start by buying a high quality stock cheap right before it goes up" is similarly worthless, although is certainly fine advice.)

Chapter 11 was his explanation of twelve investments to sell or avoid.  This is worth elaborating on:

1. Big Ticket consumer purchases (because people will be more austere and expect prices to fall so they'll wait to buy.)
2. Consumer lenders (who are about to find out that "deleveraging" means that they don't get paid back)
3. Conventional home builders (demographics suck)
4. Collectibles (there's a distinct shortage of greater fools)
5. Banks (see #2)
6. Junk securities (did you notice how the lenders faired in #2 and #5)
7. Flailing companies (uh, when WERE those a good idea?)
8. Low tech equipment producers (becoming obsolete and fungible at the same time)
9. Commercial real estate (low growth = high vacancies)
10. Commodities (they're being played by speculators)
11. Chinese and other developing country stock and bonds  and
12. Japanese securities.

Japanese securities were because Japan is a stagnant aging population with a serious debt problem whose heroes all die in kabuki plays (or something like that.)  But the Chinese and other developing country stocks and bonds was because of currency risk and because the economy is still too dependent on exports to the First World.  Until a country develops a sizeable middle class that can purchase its own GDP the economy is too tied to ours, he claims, and so you just end up with the currency risk that will eat up any growth.  He also thinks that China has been stimulating itself into creating too much capacity that they aren't yet using.  In other words, he's expecting deflation there, too.

Instead, he suggests you buy:

1. Treasuries and other high-quality bonds. (This guy loves him some long bonds.  He had a unique voice on that subject and I should probably reread this section because I find myself really confused how the Long Bond could be a good investment in a 0% world.  He appears to be expecting the interest rate to go still lower!)
2. Income-producing securities (sort of the opposite to #7 above, I mean, duh.)
3. Food and other consumer staples (because they won't be subject to people putting off buying them.)
4. Small luxuries (fluffy toilet paper?  Watches?  Cosmetics?)
5. The U.S. dollar (he made the case that no one else has anything better.)
6. Investment advisers and financial planners (Wuhoo!  He makes a case that we're worth our keep.)
7. Factory-built housing and rental apartments (so, buy those REITS but make sure they aren't commercial, merely residential housing.  Uh, good luck with that.)
8. Health care.  (Demographics, government unicorn funding, the thing people want above all else)
9. Productivity enhancers (because everyone wants to run their business without actual people)
10. North American energy (because we're massive hogs who care not one whit about climate change and want our air conditioning RIGHT THIS MINUTE without having to negogiate with Iran for oil.   Sounds like a solid bet to me.)

The pieces I find myself thinking about in new ways are 30 year treasury bonds (it comes as a surprise to me that someone LIKES those) and that emerging country growth won't be as solid a play as I was thinking.  He also gave me some instruction on how to think about the Big Picture, and my brain may be ready for more on that subject after I rest up from reading this book.  It was tough going at times, and he occasionally veered into stories about his days meeting with captains of industry or highly placed officials.  I guess he's allowed.  He's pretty proud of the job he did replumbing the house he bought in 1968 and still lives in.  I found myself liking the man, much the way I like Jack Bogle and Bud Hebeler.  Overall, recommended, but be prepared to skim some parts.

Two Very Different Books about Integenerational Wealth

I've recently finished two books that are very different but I'm going to review them together because they are oddly similar.

The first one I read was "(Not) Keeping Up With Our Parents: The Decline of the Professional Middle Class" by Nan Mooney.  The gist of this book is that people who went to college for degrees in creative writing or art history are pissed because they came out of school with massive amounts of student loans and can't get jobs that pay enough to cover their apartments in Manhattan, much less a nice detached split-level in New Jersey.  The entire book is devoted to exploring the raw deal that the "creative professional class" gets when their special snowflakeness turns out not to command the income they would prefer.  In other words, it turns out that the middle class, unlike being poor or being rich, is NOT an inherited position, but one each generation must earn themselves.  And it's HAAARRRDDD.

Whiny doesn't begin to describe it.  The entire book whines about how easy it is to lose the house you purchased with 0% down (or, in some cases, a 110% mortgage) and how no one could be expected to save what with what things cost now-a-days.  The solution is for more government support of artists at the style to which they would prefer to become accustomed.

It's a well-researched book and full of references to Brookings Institution studies and every Barbara Ehrenreich book or article ever written.  In fact, there's an 11 page bibliography that is heavy on Paul Krugman and Elizabeth Warren.  Notably absent: Hayek.  The other thing notably absent: any suggestion at all that people refrain from going to Harvard or becoming artists if they can't afford it, and save up for things they want in life.  In fact, she specifically pooh poohs the concept of saving:

"There's a pervasive notion in recent media that, though retirement security might be a legitimate concern for low-income workers, when it comes to the middle class, lack of savings is a question of more discipline and less procrastination.  If only educated professional could start saving early and sensibly, they'd be fine.  But stories like Lewis's reveal the flaws in this sort of logic.  The reality is that stagnant salaries and higher health-care, housing, child-care and education costs make it very difficult for even educated middle-class professionals to save anything at all.  Because we're pushing so many major financial decisions to later in life - in the hopes that later will be when we can finally afford them - those high-cost expenditures are bumping up against our retirement years.  With so many people going back to school later, having children later, and buying homes later, the balance of our financial ecosystem has changed.  Retirement can hit at the same time we'll be trying to put our kids through college, and before we've managed to pay off our mortgages.  Not only is there less to stow away these days, but there's less time in which to do it."

This book had me grinding my teeth wanting to yell at her about personal responsibility.  But, hey, that's explicitly what she was TRYING to offload.

"Over the fifteen years I've spent in the workforce, I've been personally responsible for covering most of my own health care and all my retirement savings."  She then goes on to say how unacceptable this is and how it drove her to write this book "to understand what we as a society must do so that circumstances for those in situations similar to my own might change." 

Later, towards the end, she has a heading called "personal responsibility".  It was amusing.  You could tell that editors and reviewers had been trying to tell her something.  "You need to put something about PERSONAL RESPONSIBILITY in your book" they must have been saying.  So she put two pages in where she suggests you become educated about your own finances and try not to live beyond your means.  Even here she still doesn't mention saving, just getting help in understanding how to refinance your debt.  Then she suggests that you not resign yourself to the fate of living on what you can make, but get involved in a revolution to get the government to pay you better.

When I googled her I found out that she left Manhattan after writing this book to move in with her parents when she was "single, broke and pregnant" at the age of 38.  I'm sure her parents are thrilled.  Oops, maybe not.  More googling shows that she then had another child (so she has two under the age of 4 now as a 42 year old unmarried writer) and her Dad just died.  Well, maybe her Mom had a good job.

The next book was "The Legacy of Inherited Wealth: Interviews with Heirs" by Barbara Blouin & Katherine Gibson.  It came out of their experiences being therapists counseling people who suffered from being inheritors of great wealth.  It was told with great heart and a total lack of snarkiness, even when "I'm An Alcoholic" screamed across the page like a watermark on one of the stories (where a woman rants how her lousy ex-husband stole all her money - by giving it to her to spend.)

There were 17 different stories about how people handled being plunked into the upper class without deserving it.  Some of them longed to be middle class.  A few longed to be poor.  A few were just fine and dandy with circumstances as they were.  Several of them talked about their desire for social justice and to use the money they had philanthropically.  One gave away all his money and started on the lecture circuit preaching that everyone else ought to, too.  There were suicides and alcoholism and drug addiction represented at the levels I've noticed.  But there was an undercurrent of hope as eventually all these people damaged by too much money learned to be okay with it after all.  The ones that hadn't died from drug overdoses, that is.

Barbara Blouin is active in a group called "The Inheritance Project" that tries to help the very wealthy be decent people, despite their significant personal challenges.  In an odd way, I found it more hopeful and inspiring in terms of people taking personal responsibility than I did the book about people demanding they stay in the middle class.

Another thing I found interesting is that the desired lifestyle of the inheritors is PRECISELY the desired lifestyle of Nan Mooney: working in the arts or in low-paid not-for-profit sector in jobs where you are not worried about having to trade your day's actual labor for money.  I've tried to tell this to my clients before: the people who are "making it" as sculptors or artists?  They have trust funds buying their houses, cars, health insurance and education.  This is also true for a lot - although by no means all - of the people working in not-for-profits for $24K/year, and often times the wealthy person donates to the organization enough to cover their own salary.

These two books were about "class" and I've always found this a bit murky.  Nan Mooney describes it as people making $30K to 100K.  Barbara Blouin describes it as "people who do not need to work for a living."  Both of them were trying to nail down how people's parents' class affected their own class.  As someone who is "bi-classal" I find this interesting at a personal level.  I may do more reading on this, but I'm not sure I will.  I never know what to do with these conversations.

Because, in the end, it doesn't matter to me what my parents have or don't have.  It's 11:30 on a Monday morning and what happens to me depends on what I do next.

Book Review: Julie Jason's AARP Retirement Survival Guide

Julie Jason's book is entitled: "The AARP Retirement Survival Guide: How to Make Smart Financial Decisions in Good Times and Bad".  It's a title done by committee.  Really it's a guide to avoiding the sharks swirling around you in retirement.  It's filled with hints of things to watch out for, with sections called "Julie's Don't-Be-Fooled Rules".   I liked her clear explanations and approved of her hints and warnings.  I think it did good coverage of the issues and clearly specified which issues she was NOT covering as beyond the scope of this book.  I appreciated that and approved of the scope she chose as wide-ranging enough for most people.

There was not enough about budgeting.  Budgeting skills are HUGE in retirement, and having a decent handle on your budget is the foundation of all the other pieces.  (How much annuity should you buy?  Depends on your budget needs.  Should you take that lump sum or a pension?  Depends on your budget needs.  Should you delay taking social security?  Yes, if you have assets to plug the budget gap until you're 70.  Should you get Medicare Part D?  Depends on your medical spending habits.  Budgets are HUGE and she did a very cursory version of this.  I preferred "Getting Started In A Financially Secure Retirement: Pre- and Post-Retirement Planning In a Time of Great Uncertainty" by Henry Hebeler for a more thorough treatment of budget issues including potential budget busters to watch out for.

My other quibble with Julie Jason's book is that her guide to finding an advisor would find only her.  She's a "Retirement Income Advisor". Huh?  Personally, I'm a CPA.  My clients come to me each year to discuss their finances in the context of paying taxes on their income.  I expand on that service to offer them advice on how to get a handle on their budgets, how to build net worth by managing debt and saving and investing, and keeping an eye on financial planning issues like saving for college or planning for retirement, disability or death.  I do not sell securities.  Many of my clients do their own investing and I guide them in asset allocation buying low cost index mutual funds or ETFs, although some of my clients also have a financial advisor who gets a fee for assets under management who might do budgeting and planning, I don't know.   Some do, some don't.  A few of my clients have brokers who just get paid on commission and never talk to my clients.  I advise my clients to save the money and just invest it themselves.  Some do, some don't.  (Store-front commission-based advisors are lacking in fiduciary responsibility, I've noticed.)

Most of my clients also have a lawyer to draw up wills and POAs and possibly estate planning documents like bypass trusts.  But a "retirement income advisor"?  Seriously.  I'm glad she has a niche clientele in her Stamford Connecticut practice.  But 99% of the readers of this book aren't going to find a "retirement income advisor".  Sheesh.  Ask the CPA or personal financial planner or lawyer you already USE these questions!

But I liked her writing style and I'd read other books by her.

Book Review: "All Your Worth" by Elizabeth Warren

I've heard wonderful things about Elizabeth Warren and I was intrigued by the concept of this personal financial husbandry book.  The title of the first books I read, "All Your Worth", made me cringe as it makes me think of a misspelled contraction.  But it's not a pronouncement or a discussion of what you are worth.  Instead, it is a suggestion that you might be better off if you built some net worth.

The basic breakdown of this book is that you should set up your personal financial situation so that your "must haves", non-discretionary stuff that you couldn't cut back on if your paycheck went away for some reason - should be no more than 50% of your income.  Savings and other things to build net worth should be 20% of your income.  And, voila, now you have 30% for fun money.  See, wasn't that easy?  Don't try to arrange your budget by cutting out the fun stuff, arrange it by cutting out the FIXED NECESSARY stuff.  Get a room-mate.  Drive an old car.  Don't send your kid to private pre-school.  Don't buy a house you can't afford on just one salary.

The premise here is that if you stay in these guidelines you won't have problems with debt or feeling deprived.  It's a workable budget.  I like the premise and have loosely followed it my entire life, although we did it slightly differently: I always saved 10%, not 20%, and we more or less set up our finances so that the fixed stuff was covered by my husband's regular salary and all the intermittent (and largely discretionary) stuff was covered by my intermittent income (combine with occasionally discretionary extra hours).

It's a nice idea.  I liked this book, although I felt a lot condescended to by the crooning voice.  (I listened to it as a book on tape as well as read the hard copy, depending on my location as I read/listened to it.)

Then I went on to read her "Two Income Trap".  It's more the research version that lead to her upbeat positively framed prescription of how to live your life in "All Your Worth".  The "two income trap" is the results of her in depth multi-year research project into why people declare bankruptcy.  What went wrong?  Why are the middle class in such awful shape? 

Her conclusions are that we raised the ante on what we wanted and expected when we had two available workers, and therefore went off and bought higher priced homes and more effective (and expensive) health insurance and paid through the nose for expensive education.  And at the end of the day we have less savings and less discretionary spending than ever because more of the expected income is dedicated towards these big three things and now we're more vulnerable because we need BOTH workers to be working and we've doubled the chances that one will be injured or die or be laid off in any given year.  At the same time we've lost the safety net of having a spare worker that can swing into action and/or provide necessary care-giving and home economics chores.  This is the main insight into this book and is an interesting concept worth pondering.

But she doesn't just illuminate, she pontificates.  Her solution is to suggest that women should stay home and live a reduced lifestyle because if something happens then they will have to live the reduced lifestyle anyway.

I boggle at this conclusion at many levels.  So, since there's a 1 in 7 chance of financial failure from this arrangement we should make it a 100% chance of failure by not engaging in it at all?   Does this make sense to anyone?  And where is the acknowledgement that we are actually spending our money on extra things we WANT?  Buying more effective health care, larger more comfortable houses and more specialized education are actually things we WANT!  Want bad enough to send the second spouse into the workforce to get!

And why must the WOMEN stay home?  We live in a world where men's skills and strengths are not as valued anymore, where the majority of the good jobs are more in line with women's skills and education.  Where in all of her points does she make the leap that suggests that stay-at-home spouse should be the women?  This really bugged me at a very deep level: it's not just the weird sexism, but also the total lack of grasp of the nature of the 21st century workforce and/or distribution of educational achievements.

A lot of the book is designed to push policy objectives, some of which make sense.  I found her to be fairly independent-minded politically - she said things that would piss off both Republicans and Democrats - but even though I largely agreed with her main points (regulate interest rates that banks can charge) I still found myself irked with the conclusion that people are stuck because of the system that leads them astray.  It's like blaming McDonald's for obesity.  Her refrain of "there oughta be a law" started to bug me.  (Perhaps, to be fair, it bugged me because of my own personal belief that our political system is completely incapable of effective solutions to any problem and you just waste time and energy by pursuing that.  I acknowledge that my cynicism isn't universally shared.)

I like her compassion.  I like her scholarship.  I like most of her common sense advice.  But in the end I find her solutions to be annoyingly flawed primarily because they ARE so close to the truth.  No, you should NOT pledge all your income to fixed expenses precisely BECAUSE stuff will come up that you didn't expect.  I think she would have done well to devote more attention to outlining for people the things that they should attempt to put in their budgets rather than just wave hands and say, "shit happens".  In my experience a whole lot of the shit that happens can be reasonably predicted: cars will need repairs, dogs will need vet visits, Christmas presents will probably be purchased again this year.  Intermittent expenses creep up on people and a decent budget accounts for them.  She just called for  50% for fixed, 20% for savings and 30% discretionary and done.  It has beauty in simplicity, but also stupidity in simplicity.

But, still, it's a reasonable concept and worth consideration.  I like rules of thumbs for people with thumbs, i.e., they do tend to work most of the time.

All in all, "All Your Worth" was a lot more useful than the "Two Income Trap".

Book Review: "Your Money & Your Brain"

"Your Money & Your Brain" explains just how stupid you really are  

I've heard this mentioned a couple of times and so, when I saw it on the shelves at the local library (what, you don't cruise the 332 section of the library just on spec?) I picked up Jason Zweig's "Your Money & Your Brain: How the New Science of Neuroeconomics Can Help Make You Rich."   I liked it.

I dislike the subtitle, though.  I bet there was a huge battle about it between the author and the publisher.  "I'm not telling them how it will make them rich!"  "You have to pretend to say that to sell the book!"  It's really not about how to make you rich.  It's how to try to keep you from being so stupid that you lose your money.  His basic premise is that human brains did not evolve to handle investment decisions and will almost always reflexively choose the wrong solution to every financial puzzle.  He wants you to fight these reflexes and use your REFLECTIVE brain, instead.  He points out common thought traps and some solutions for navigating around them.  This book is all about staring at human frailties and then dealing with them.   He starts out each chapter with a homey little anecdote: does bread always land butter side down?  How come?  And then he goes into the science of what ever he's talking about.  It kept my attention almost the entire way through.  Just when it started to drag a bit I discovered that the last quarter of the book are appendices.  (He and his publisher probably fought about *that*, too.)

The author is a journalist, not a scientist, and I think it's important to realize that pop science writing like this is probably about as accurate as Wishbone's version of Don Quixote.  But, speaking as someone who learned most of the opera she knows from an episode of Gilligan's Island, sometimes pop culture *is* the best lens through which to learn this stuff.  I thought this book was worth the read and his warnings were well worth heeding.

In brief, he wants you to stop and think.  If you like a stock at $x, why wouldn't you want to buy more when it goes on sale?  Instead, people tend to sell when a stock drops.  Don't do that.  Buy the company, not the stock.    He writes:

Take the global view.
Hope for the best, but expect the worst.
Investigate, then invest.
Never say always.
Know what you don't know.

The past is not prologue.
Weigh what they say.
If it sounds too good to be true, it probably is.
Costs are killers.
Eggs go splat.

Think twice, get it?

By the way, he thinks you should stick all your money in a Vanguard Target retirement fund and be done with it.   I'm inclined to agree.

Book Review: "Show Me the Money"

First, buy a stock right before it goes up...  

One of my clients passed along a book for me to read: "Show Me The Money: Covered Calls and Naked Puts for a Monthly Cash Income" by Ron Groenke.    It was all about the uses of covered calls and naked puts and how much money a few good stocks you have in your portfolio could make for you by selling these options to other people, essentially making money renting out the option to buy your stocks to people.  What a grand idea: ignore dividends and capital appreciation, just make money because you OWN the stocks.   I read it with some interest.

It goes like this:  first you use your superior stock picking skills (or buy his software) to pick good stocks that are about to go up.  You can tell which ones those are from their technical charts, they're the ones currently at their 52 week lows, among other criteria.

Then you sell options at a high premium, something like 10% of the stock's underlying value, knowing that it's likely to expire.  Apparently someone will take the other side of this trade because someone somewhere wants to pay high premiums for things that are likely to be worthless to them.  Which is interesting, because every time I've looked at this the premiums are so low that the commissions eat a significant portion of their value.   But, anyway, the way he tells it you just buy these great stocks and sell people the option to buy them from you for good money.

Then you sit back and let the money flow, putting on new covered calls every month or three on the same stocks as they keep expiring worthless, picking fruit from your money tree.  (Without, of course, the premium people are willing to pay being reduced.)

The book thoughtfully takes you through a gedanken exercise where some of your stock picks go bad.  After all, it happens to the best of people (although what could go wrong when you buy a stock at its 52 week low?  It's already low!  It must be about to make a sine wave shape!)  The author allows that maybe 15% of the time you could lose a little money.  He figures that you'll make some capital gains along the way when you have to produce a stock for an accepted call at prices above your cost, and that will more than offset any commissions you might have to pay on these calls so he discounts that in his calculation.

See, it can't go wrong!  o.O

As a tax accountant I truly hate the options markets.  My clients always lose money.  Always always lose money.  It's like the new Amway pyramids: someone somewhere made it work for a while and passed along a rumor that they got rich and it just sends droves of pawns into the market.  Oh, there'll be wins.  Short-term capital gains wins, that is.  In MA short-term capital gains are taxed at 12%, so someone in the Federal 25% bracket will pay 37% of their winnings to taxes.  But, of course, they don't have winnings over time, because options premiums are NOT priced irrationally.  So eventually they slink away with their losses, leaving survivor bias to carry the banner.  And they are big honking carryforward losses until they have no more portfolio left to generate any corresponding gains.  In MA you can only use capital losses against investment income, which of course there isn't any if you aren't bringing in any dividends or interest because your money is tied up in short-term stocks.  You never even USE those losses.  Sigh.

I can see *MAYBE* doing a naked put if I'm sort of maybe interested in buying a stock if it goes low and I'm too lazy to keep an eye on it myself.  But here's the thing: it's utter hubris to think that I can pick a stock.  I pick stocks just about the same way I picked horses at Churchill Downs: I look over their information using my own personal training (as a CPA with a MBA for financial statements on the one hand, and as the daughter of a man who raised and raced thoroughbreds on the other) and then I listen to my hunches and make my pick.  I am right just about the exact amount of time that random odds suggest I would be.  Maybe I'm fooling myself about my level of ability to evaluate, maybe I'm not.  The markets can stay irrational longer than I can stay solvent.

But I'm trying to understand and appreciate the wonders of options.  I really am.  But I just keep getting stuck on the initial premise: that you can look at history and it will tell you the future.  Yes, that works in some arenas.  But stock picking?  Really not.

Oh, and I hate it when my clients raise horses just as much as I hate it when they play the options markets.  Don't even get me started on the folly of the thoroughbred industry!