I was a guest, along with author Jonathan Clements, on Consuelo Mack Wealth Track. It was a great interview with a smart, seasoned host as it segued seamlessly from the topics discussed in Jonathan’s new book and mine. There aren’t many shows other than podcasts that give people the time to speak at length (they’re usually 45 second sound bites). If you’re curious about my book or Jonathan’s then check it out.
An excerpt of my book appears in today’s Wall Street Journal (front page of the Money & Investing section). It explains, using “Back to the Future Part II,” why market timing is so futile.
What follows is an excerpt of the excerpt (is there a word for that … excerptlet maybe?).
Investors are way off in their estimate of how their portfolio has done, routinely guessing several percentage points a year too high. While that comes as a shock, they are even more surprised to be told that it is missing good times rather than suffering through selloffs that hurt them the most.
Like Biff, investors sit out on some really good days by trying to avoid bad ones. Nearly all of those happen around scary episodes such as October 1929, October 1987 and in 2008 following the collapse of Lehman Brothers. Pretend, for example, that you took your money out of the market following the choppiest episodes over the last 20 years and wound up missing the epic rebounds that made up the 40 best days. You actually would lose money. A couple of days a year on average produce all of the market’s return.
Read the whole thing or, even better, buy the book. It just went on sale.
A very nice review of my book appeared in Forbes. By “nice” I mean three things. First, it was quite flattering, which of course is always welcome for an author. Second, it was written by a very nice guy, Simon Constable, with whom I overlapped for three years when both of us were at The Wall Street Journal . Third, the book’s message and unique perspective clearly came through.
Let me explain. Simon is, like me, a rare bird in financial journalism, having come from the finance industry. It’s a heck of a pay cut but also a heck of an advantage for the perspective it gives you. Like me, Simon knows that the emperor has no clothes when it comes to high-priced investing advice. Not only did he understand the book but he understood why I wrote it which is, well, nice.
A quote from the review:
The book gives a deep and realistic insight into how investing really works. I too worked in research on Wall Street, and what he says reflects how things actually work, or don’t work.
Jakab points out that there was more of a reason for him to write the book rather than fulfilling a demand for idle curiosity about the inner workings of one of the most misunderstood sectors of the economy. It’s that while most people can’t fix the appliances in their home, they are now required to be part time money managers of their retirement investments through their 401k or IRA plans.
Unfortunately, most people woefully lack the financial education to do so. His book makes a dent in that knowledge deficit, at least for those who read it.
Heads I Win, Tails I Win will be available everywhere fine books are sold on July 12th.
I was thrilled to see that my upcoming book was reviewed this weekend in Fortune Magazine and even more so when I saw that the reviewer was none other than Roger Lowenstein. He’s one of the most accomplished financial journalists around, the author of several books I’ve enjoyed, and also a former Heard on the Street columnist like me.
I was perplexed when I started to read the review, though. The first 264 words – as long as some entire book reviews – were about Benjamin Graham, the father of value investing, mentor to Warren Buffett, and a man I mention several times in Heads I Win, Tails I Win. After that he finally got to my book and said a couple of nice things.
He wrote that “Jakab has plenty of sensible advice” and that my writing is “anecdotal and witty.” But that’s where the praise ends. Lowenstein laments that the author, “a former security (sic) analyst … spends many pages debunking the idea that investors should try to time market breaks (he aptly likens this to astrology). He devotes not a paragraph to how one might estimate the future profitability of a business…One does not learn how to evaluate stocks. One learns that value investing has worked, but not why.”
While a more positive review would have made me happier, the weird thing was that Lowenstein really seemed to want to have read an entirely different book – one that taught my mostly mom and pop audience how to value stocks and beat the market. The premise of my book, though, is that this is mostly a wasted exercise, whether you try to do that yourself or pay some clever broker or stock picker to do it. My own work as a securities analyst and overwhelming academic evidence support this.
But the weird thing is that he invokes Graham. I guess Lowenstein isn’t familiar with the great man’s final interview in 1976 in the Financial Analyst’s Journal, the year he died. Here’s the money quote:
I am no longer an advocate of elaborate techniques of security analysis in order to find superior value opportunities. This was a rewarding activity, say, 40 years ago, when our textbook “Graham and Dodd” was first published; but the situation has changed a great deal since then. In the old days any well-trained security analyst could do a good professional job of selecting undervalued issues through detailed studies; but in the light of the enormous amount of research now being carried on, I doubt whether in most cases such extensive efforts will generate sufficiently superior selections to justify their cost. To that very limited extent I’m on the side of the “efficient market” school of thought now generally accepted by the professors.
I received my first book review earlier this month from Publisher’s Weekly. It’s very nice. Below is the closing paragraph:
Jakab’s efforts to acquaint readers with the basic realities of the market and to provide an insider’s view of how to approach money management will be comprehensible to even the most intimidated reader. Energetic and engaging, this is required reading for anyone who’d like to retire ahead of the game.
I also set up an Amazon author page.
The book comes out on July 12th so watch this space.
I went on the WSJ Moneybeat podcast today for the first time and it was, um, interesting. For the first segment, Chris Dieterich of Barron’s, Stephen Grocer and Paul Vigna of Moneybeat, and Chuck Jaffe of Marketwatch and I discussed “smart beta,” the hottest trend in investment products. I talk about smart beta in my upcoming book.
In a nutshell, “beta” means stock market return whereas “alpha” is the extra gain that clever fund managers try and usually fail to generate. That’s why passive index funds are the best bet for most investors. But smart beta tweaks that by attaching allegedly smart criteria to a passive fund. These are getting more and more exotic, though they can be something as basic as equally-weighting stocks rather than using market value or favoring stocks with lower P/E ratios.
Some smart beta is a costly gimmick and other products are pretty sound, but beta can be as smart as a whip and not help investors who do dumb things. That tendency to buy high and sell low is hardwired into most of us.
It was a lively, respectful discussion. Then the gloves came off and we discussed the relative merits of Alexa, the Amazon.com talking speaker, and cheese. You see this week’s WSJ Heard on the Street podcast featured David Reilly’s very own Alexa. Stephen and Paul thought it was a cheap stunt to overshadow their podcast earlier in the week when they attempted to eat three pounds of cheese. You see there’s a big cheese surplus in the U.S. and every man, woman, and child in the country would have to consume that much of the stuff to deplete the excess.
Unfortunately, the lightweights on WSJ Moneybeat couldn’t eat all the cheese between them and had to leave plates of it in the newsroom for the rest of us to help polish off. Despite mild lactose intolerance, I bravely chipped in to whittle away at the surplus.
Today I was interviewed on the weekly Heard on the Street podcast about Warren Buffett and his displeasure with hedge funds. I touch on many of the issues with such funds and active management in general in my upcoming book and I even managed to get in a shameless plug for it about a minute into the show. The gist of it is that Buffett is not only right but puts his money where his mouth is.
The second part of the podcast is well worth a listen – my colleague Aaron Back talking about the mobile payment war.
Watch this space as the updates will soon become more frequent. The publication date of the book, July 12th, is just over two months away.
I cover a lot of investing errors in my book (coming on July 12th), but, sadly, the list of mistakes is way too long to fit in 255 pages. An interesting one I overlooked was what Vanguard calls “the procrastination penalty.” Now this is a little different than the old chestnut you may have heard about the awesome advantage of starting to save money early. One variant goes like this:
A young person begins saving at age 21, socking away $2,500 a year in a tax-free account until she reaches 30, after which she never sets aside another penny. The money grows at 7% a year compounded. Her brother starts at age 31 and puts away money the same amount until age 70, earning an identical return. In other words, he saves four times as much in nominal terms. Even so, his late start sees a nest egg grow to “only” $534,000 which is a little less than the $553,000 earned by his sister.
The effect highlighted by Vanguard is more modest but also far easier to avoid. They looked at their own company’s data for when people make contributions to IRAs (individual retirement accounts). Not surprisingly, since the deadline for the preceding year is on tax day in April, that’s the most popular month by far. For example, one could have made a contribution as early as January 1st of 2015 or as late as this Monday, April 18, 2016.
The stock and bond markets don’t always go up so waiting will occasionally work to your advantage (as it would have in spades in tax year 2008, for example). In the long-run, though, markets tend to rise. That small delay compounds over a saver’s working years into a not-so-small difference. Vanguard takes the example of an investor who contributes the maximum $5,500 over 30 years on either January 1st or April 1st. The “early bird contributor” would, at a 4% rate of return after inflation, earn $158,967 while a procrastinator would earn just $143,467 or nearly 10% less.
“They’re selling like hotcakes” is probably stretching things a bit because, you know, hotcakes cost money. The galley copies of my book that I received a few weeks ago, on the other hand, are priced to move at zero.
To avoid any confusion, the actual book won’t be published until July 12, after which time it will be available everywhere as a hardcover or an e-book. After getting several rounds of “congratulations” on a Facebook photo of the galleys, I should point out that they are uncorrected proofs meant for:
- People who review books or interview authors (and if you’re one of those people and didn’t get one, don’t be shy about getting in touch); or
- people who are very close relatives or friends and who think it is really cool to have something produced by an actual publisher with my name on it; and/or
- People who can’t wait three months to do this (all of whom I think fall into that last category too).
I was pretty excited to hold one in my hand too. It’s also been nice to read some of the advance praise (I’ll create a link here later).