Asset Allocation and Risk-Return Analysis

 

 by Roger C. Gibson

by Harry Markowitz

I decided to review these books together because the subject matter is quite similar, yet the approaches of the two authors couldn't be more different. Harry Markowitz is a Nobel Prize winner who more or less defined the concept of risk in investments and how to weigh it in the construction of a portfolio.  Roger Gibson, on the other hand, is a financial adviser with many years of experience and a unique view on balancing a portfolio to limit risk and maximize profit. Both advocate asset class and securities mixes that lead to portfolio diversification and limit risk. Markowitz does it with lengthy examples and complex formulas. Gibson does it with hypothetical portfolios and performance evaluation of investment classes.

Markowitz’s book, which is the first of four volumes on this ostensibly deep subject, is much like a college textbook. The financial jargon is at times a slog, and the formulas are nearly incomprehensible without an advanced mathematics degree. The parts that can be understood by the typical layman (like me), however, are interesting and useful. They make it very possible to analyze one’s own portfolio in the light of Markowitz’s experience and research, and that should lead to risk minimizing, return maximizing portfolio.

Gibson’s book does not suffer from the academic bent that afflicts Markowitz’s book, but it does have the drawback of being partially directed toward financial planners and investment advisers.  He shows historical trends and their effect on hypothetical portfolios, and then strengthens his argument with critical analysis of the performance of various asset classes during up, down, and sideways markets. The heart of his strategy ends up being diversification, rebalancing, and risk avoidance which individual investors and investment advisers can put to work in their personal and client portfolios. He then spends the last third of the book explaining how an investment adviser can analyze a client’s risk tolerance and use the principals contained in the book to build a suitable portfolio. Some people will find this interesting and useful, but as a long time investor who is not a CFA or investment adviser, I found it to be not that useful.

Risk-return analysis and risk avoidance are important cornerstones of any investment strategy, which is what makes these books so important. Without the benefit of the other three volumes of Markowitz’s work, and not needing the investment adviser sections of Gibson’s work, it’s hard to give them full marks for their books, but the material that is pertinent and understandable is so valuable, that a four-and-a-half dollar mark for each is more than justifiable.

Income Investing

 by Jason Brady

Normally, when I review a book in this blog, I write a review that I usually adapt from one that I post on Amazon.com. This time, I happened to wake up in the middle of the night the day after reading this book in one sitting, and the words came to me naturally and flowingly, so I typed them into my phone at 2 in the morning. I liked what came to me in my sleep, unbidden yet inspired, so this time, I’m reproducing my Amazon review verbatim. Here it is:

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Brace yourself for reality

This is one of the soundest, solidest books on investing that I've ever read. It covers all the basics in an almost advanced overkill sort of fashion. The author draws on his many years of experience as a fund manager to explain the major classifications of investments and the subtle differences between the average guy’s understanding of the instruments and what they really entail. The object of these explanations is to make it easier for the investor to understand where profit comes from and how better to avoid losses that erode that profit. That’s all well and good and it is very useful and sound information.

The book does go a little bit astray, however, because even though the subtitle says " an intelligent approach to profiting...", there is no strategy outlined and there is certainly nothing resembling an "approach" to investing in this book. The latter chapters serve mainly to expound on the former, driving down a road that basically says, if you understood everything so far, you should also understand this. And if I understood the author correctly, “this” is his personal investing mantra, which in a nutshell is: buy dividend paying stocks with a growing dividend, buy bank stocks, and diversify into other categories of investments (bonds, options, etc.). Mr. Brady takes just a short 200 pages to explain why this makes sense and will be profitable. You’ll get no argument from me. I’ve owned dividend stocks forever and bank stocks of late and I’m not rich, but I’m doing okay, thank you very much. I think this is a sober, useful book, and even had I not received a gratis copy for purposes of writing this review, I'd have been genuinely glad to have read it in any event. I thought about giving it four stars, but even with the misleading subtitle, this is five star material.

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Or, on this blog, five dollar sign material. 

One Simple Idea

by Stephen Key

Stephen Key is touted as a sort of acolyte of Timothy Ferriss, he of The 4-Hour Workweek, Expanded and Updated: Expanded and Updated, With Over 100 New Pages of Cutting-Edge Content. fame. Key's key (sorry) idea is very similar to the 4HWW: It is possible to break free of a workaday, humdrum life and have everything you want without becoming a corporate drone working for a paycheck by working for "the man". Simple Idea, however, is different in its methodology. Rather than the "do the same things better, become more efficient through outsourcing, spread out, travel, work globally, and become rich" approach in 4HWW, Key's approach is that you become a source of ideas to people who will pay money for them. All you have to do is think of things that nobody else does, then market the idea yourself or license or sell it to somebody else so they make money for you. Key's plan is achievable, concrete, well-formulated, and certainly executable. But again, due to the similar nature of Simple Idea to the 4HWW, the majority of readers will simply not have the skill set, determination, or willingness to make the sacrifices needed to fully implement the strategies in this book. This is not to say that the ideas, strategies, and their approach and methodology. are unrealistic. In fact, Key's made millions (he says) doing just what he spells out in the book. That may be true, but what's for sure is that Key has been teaching his plan in college courses and many of his students have successfully implemented his ideas and plans, so it is difficult to doubt the veracity of his claims and the feasibility of his plans (which again, is like 4HWW in that its author, Timothy Ferriss, as also the living proof of his book’s tenets). One Simple Idea itself is well laid out and efficiently organized. The writing is crisp and clear, like you would expect from an educator, but it may be just a little bit too pushy and repetitive for some readers. (The beginning goes on endlessly with rah-rah-ing: "You can do it. You can do it.") Still, all around, this is an excellent book that I enjoyed reading, and learned a lot from, even though I know I'm not going to be much of an idea-monger in the near future. That is why I do not hesitate to give it five dollar signs and recommend it to anyone who enjoyed 4HWW or is interested in motivational, self-help, or contrarian lifestyle information. Key gives you the information you need. What you do with it is up to you. (Note: I received a complimentary copy of this book from the publisher.)