The Physicians Guide to Investing, A Practical Approach to Building Wealth

[SuzySunshine]

This one is written by a physician who self educated himself on finance. The book is recommended by Warren Buffet in the front.

It is a much longer book then the other one and while I think it is important to read the whole thing entirely I think it will be more of a regular reference then the other one. You can easily look up a topic and if you don't have time to read the whole chapter you can read the bullet points at the end of the chapter.

I thought about returning this one after reading the other one but I will definitely keep them both.

[samssugarmomma]

Thanks for the recommendations. I got both books.

[spotty_dog]

Wow. I did NOT like this book very much. However, I'm glad I read it. It helped me to really think hard about our family's goals for investing and helped me to feel more clear about my current knowledge and opinions about investing -- most of which clashed horribly with the author's.

I think that three things bothered me the most. One is that the advice simply did not feel relevant. The author retired in 2005, so although this edition was published in 2009 after the housing market crash, his experience and therefore his advice is completely out of sync with our modern reality. He also admits that as part of the first generation after the Great Depression, those events weigh heavily on his financial outlook. And he has strange biases about understanding the investments he makes -- he is frightened of market sectors I find straightforward, but blathers on and on about completely mindblowingly esoteric aspects of Wall Street.

Another problem is that he contradicts himself CONSTANTLY. There's no internal logic whatsoever and it kills me. And finally I just don't like his writing style. He needed better editing and less rambling.

Pros: I like his caution against physician arrogance and excessive greed. I like his emphasis on being thrifty regardless of appearances, and his insistence that one stays in the loop for every investment decision being made on one's behalf. I appreciate his caution against Home Equity Loans (aka second mortgages) and against mixing insurance with investment -- his arguments against whole life insurance and annuities are succinct and really illuminate the issue nicely. I also like that he advises so strongly against paying excessive fees, in particular forbidding the reader EVER to purchase a mutual fund with any kind of a load attached to it. He does mention the strengths of passive investing, diversification, and asset allocation.

However. He does all his examples using 10% as an expected return for equities -- though he admits in a later chapter that the experts agree 4-7% is more likely going forward (my calculations based on Gordon's Equation put the current prediction at 5-6% and I see that number a lot in my reading). He suggests paying a professional 1% of your portfolio annually to manage it, despite urging you to avoid fees and stay involved. He doesn't advise utilizing a HELOC...except if you've tied up all your money in illiquid investments and are presented with an irresistible opportunity. Hello, why don't you have an emergency fund and what opportunity is worth putting up your home, that you live in, as collateral? He has an unreasonable focus on collectibles, despite admitting these are not in fact investments (so why do they get so much attention in a book about investing? Especially one that urges thrift and clipping coupons to avoid unnecessary expense?) -- I suspect that he uses his prowess as a baseball card collector and art afficionado to underscore his awesome dawkter status, despite all his admonitions against getting a big head and allowing social climbing pressures to affect how you spend your money.

He advises pre-paying the mortgage as an investment strategy, using a 7% rate as an example. I don't know about you but my mortgage is under 3% and new 30-year rates are at 3.5. On the flip side he doesn't think that student loans should be paid off in a hurry because the rates are low...um, currently THOSE are running at about 7.9%.

He's completely positive that in 2008 interest rates have hit bottom and are rising (sorry, still low). He is afraid of 529 plans for college investing, insisting that they are so complicated you need an expert and that they are completely controlled by the states that sponsor them and so subject to the whims of government. (I don't know about you, but our 529s are in a simple program that has the money invested in passively managed index funds that we can track.)

He thinks you should avoid jumping on hot untried investments like IPOs, but waxes poetic about the IPO he missed. He admonishes that when you conduct an investment transaction, there's a buyer and a seller, and the person on the other side of the deal is almost always a professional; it's difficult to impossible to beat Wall Street. But beating the market by 150% should be your goal, and you should hand-pick stocks and hold as much as 20% of your portfolio in any given specific stock. Don't try to time the market, but do make predictions about future interest rates and "buy the dips", rotating your asset allocation based on what you perceive in the market trends. An investment that doesn't keep up with inflation is a net loss, but you should buy physical gold (which has a centuries-long history of keeping pace exactly with inflation) and pay for a safe deposit box to keep it in (negative return much?), as well as keeping the entire fixed-income portion of your assets in CDs (also not netting a real return in 2008 much less now). He gives four profiles of famous and successful investors (and mentions another), all but one of whom strongly advise investing in passive index funds -- yet the book gives approximately 20 times the attention to other kinds of investments, mentioning passive investing in just a few brief paragraphs about how relatively boring it is. The contradictions are mind-blowing!

In the end, my quibbles with his underlying message on investing are just based on my personal preferences and ideas about investing at this stage of life. Reading this book really rammed home that our #1 priority at this point is not to die poor, our #2 is to help with our children's educations to the extent we were helped, and our #3 is to enjoy a long and comfortable retirement with some travel. We don't need the stock market or exotic investments to make us rich, his income will do that just fine if we don't squander it. Yes, there's money to be made in the market by snagging great deals and timing the market -- but there's proportionally the same amount to be lost. I'm happy to be the tortoise and not the hare. To be like the author we might spend hours upon hours reading financial literature, poring over the ticker, hoping against hope to get lucky and snag that IPO or discounted stock and ride it to the top, selling for thousands of dollars...and then sink all that profit into a collectible statue. Or we could just go on our current path, set up an investment strategy featuring index funds and stick to it, and just...have a life. We can't afford not to be in equities (we really need compound interest working for us if we're going to amass enough to retire comfortably) and we can't afford to accept so much risk that we stand to lose everything. We can't follow his advice.

He wants to be Warren Buffett (and the hero-worship is obvious) or Peter Lynch. I want to be Jack Bogle or Bill Bernstein. *shrug* To each their own.