The Little Book of Bulletproof Investing

February 24th, 2015

The Little Book of Bulletproof Investing by Ben Stein and Phil DeMuth front cover

Sensible, long-term money management is the order of the day here, and you'll see much of the same advice which has been presented by other authors (and the same authors in previous books):

  • Save as much as possible.
  • Keep a reserve fund.
  • Get a higher education.
  • Invest in index funds.
  • Be patient. Buy and hold forever.
  • Ignore the tripe spewed by the media (yet, strangely, read the Wall Street Journal every morning).
  • Diversify.
  • Simplify. Don't be fooled by high-fee financial products which are just complicated abstractions from what it's all about: tiny pieces of companies, and loans with a high probability of being repaid with interest.
  • Don't do drugs.

That last one was one of several instances where into my head would pop an image of two grumpy old men waving their canes at the TV while complaining how today's youth is running wild. There actually seems to be a pattern of old-timey references in books (co-)authored by Ben Stein. In How to Ruin Your Financial Life, he paraphrased a line from 1948 movie The Treasure of the Sierra Madre ("Diversification? We don't need no stinkin' diversification!") — although that line has admittedly been lampooned a number of times since that movie's release — and here Stein references Willie Sutton, a bank-robber who died at age 79 in 1980, as well as German World War II general Erwin Rommel. I half expect Stein to start referencing the DuMont Network or Mordecai "Three-Finger" Brown like Mr. Burns on the Simpsons.

Speaking of How to Ruin Your Financial Life, that book appears to have greatly inspired this Little Book's third chapter, as the authors crank the sarcasm up a notch or six and start writing in reverse psychology. I'm a big fan of sarcastic humor, and the chapter definitely works on a humoristic level, but it repeats some of the points already made previously in the book. Also, the shift in tone is quite abrupt, continues throughout chapter three and is then abandoned in the next chapter, not to be used again, making it feel out of place.

The authors recommend combining funds consisting of bonds, low-beta stocks, and small value stocks into what they call tangent portfolios, the bonds selected based upon what you are willing to risk losing in your worst year of holding that portfolio (20, 25, or 33 percent). Be advised that the authors get very specific with their suggestions for which ETFs you buy, dating the book.

Stein and DeMuth offer an interesting perspective on how the prime job of financial advisor is not to steer you towards the right investment opportunities, but to steer you away from the bad ones:

While you and the advisor may both think that he earns his money by asset allocation and account servicing, that is not really true. Nor does he earn his keep by finding you brilliant, market-beating investments, or by taking you to cash before the next recession. No one can do those things except by luck, and relying on luck is a poor investment strategy. [...] The advisor's real job is to protect you from yourself.

There's also an interesting point in the debate concerning renting vs. owning a home. Here, the authors state that owning instills in you a sense of responsibility and obligation to meet your mortgage payments, to a much higher degree than does paying some landlord you don't like. 30 years of favoring your mortgage payment over quick consumer fixes — buying stuff you don't need — is a valuable lesson in financial literacy.

It's not all about investing, as there's life advice of a more general nature to be found. This includes choosing an education and profession, marketing yourself as a brand, ensuring your financial well-being in retirement, and getting your affairs in order so your grief-stricken relatives don't have to worry quite as much when you're gone.

Read this book if you're new to investing or want a humorous overview of what to do with your money through the major stages of your life.