Book Review: Investing Demystified by Lars Kroijer

By The Banker | Book Reviews, How Not To Invest, Investing, Personal Finance, Wall Street
23 Nov 2013
  • Sumo


Can we invest our own personal portfolio in a sophisticated way, to maximize our risk-adjusted returns, without incurring high costs or having to be financial experts ourselves?

In his book Investing Demystified: How To Invest Without Speculation And Sleepless Nights, Lars Kroijer says yes.

Kroijer was a hedge fund manager who argues forcefully against hedge funds, because of their high costs as well as because most active managers claim an ‘edge’ on markets which they are unlikely to really have.

A priest’s guide to atheism

As he says in his introduction, the irony of his position is not lost on him.  It “may seem like a priest writing the guide to atheism.”

As “Anonymous Banker” of course I am personally all in favor of finance folks criticizing, from their experience, the financial industry’s areas of high cost/low value-added.

We need the Lars Kroijers of the world to tell us that “simple is better,” “low cost is better,” “retail investors should avoid complex financial products,” and a better solution exists.

The author says that he designed his book as the grey Volkswagen, rather than the red Ferrari, of investing.[1]

Volkswagen_style_investing

Sensible, unsexy, rational: The Volkswagen way to invest

 

 

60-Second Version of Investing Demystified.

Kroijer helpfully offers a “60-second version” of his book – the 4 take-aways to remember:

  1. We as individuals do not have an ‘edge’ in financial markets.  We should invest accordingly.
  2. We can construct a cheap and simple optimized portfolio using world-equity tracking indexes and the highest-rated government bonds.  We can then choose whether to add a level of complexity by deciding about a) What % of the portfolio should be in our ‘risky’ equities bucket, and b) Whether adding some corporate bonds or risky governments bonds also makes sense
  3. We need to think carefully about personal a) risk appetite b) Tax consequences c) non-investment assets and liabilities such as real estate, income, and debt
  4. We should pay attention to investment and transaction costs as these matter a whole lot in the long run

I like Kroijer’s 4 lessons because they are correct, simple, easy-to-remember guides to personal portfolio construction that eschew hype.  His VW will get you from here to there with minimal cost, minimal risk, and maximum performance.

I also like that Kroijer’s personal background and professional experience make his advice free of national bias.  What he says about personal portfolio construction applies equally to a Belgian, a Brazilian or a Bostonian.

International perspective advantage

One advantage Kroijer brings to the typical discussion of optimal, low-cost, low-maintenance personal investing is that he’s a Dane by birth, a Londoner by choice and profession, and a citizen of the world.  As a result, he solves the personal portfolio puzzle differently than your average American who has a US-centric view of the investing universe.  He’s unmoored from a parochial investment approach.

This matters because:

  • Your dominant currency may not be the US Dollar.
  • Your tax regime may not be the US tax regime.
  • Riskless bonds in your portfolio may not necessarily come denominated in your home currency, or from your own national government.
  • The best, low-cost diversified mutual fund from Kroijer’s perspective is not a Russell 5000 index tracker therefore, but rather a whole-world equity market tracker.  Only through a ‘whole-world’ index tracker, Kroijer argues, can you achieve the optimal point of an efficient frontier portfolio.

Recommendation

I would recommend this book to a friend who has a traditional “Left Brain” orientation with an accounting, engineering, or mathematical background, but who may never have studied personal finance up to this point.  For that person, Kroijer’s vocabulary and engagement with portfolio theory will be quite gentle, because Kroijer never actually goes too far with technical explanations.

For the creative or non-technically inclined, however, Kroijer’s grey Volkswagen approach – and especially the peeks under the hood at the financial theory – may leave them a bit cold.

The practical, diffident, Dane isn’t flashy, and he isn’t trying to entertain.  He’s just rational, right, and could help you get wealthy.

Please see related post:

Lars Kroijer on agnosticism over ‘edge’

Audio interview with Lars Kroijer Part I – On Global Diversification

and related post: Audio interview with Lars Kroijer Part II – On having an ‘edge’ in markets

and an Amazon link to his other book, Money Mavericks, Confessions of a Hedge Fund Manager

Please also see related post: all Bankers Anonymous book reviews in one place.

 


[1] The jacket cover confirms his sensible/boring/diffident approach, as the grey cover with block letters is unconvincingly enlivened with awkward rainbow-colored arrows all pointing in the same direction.  It’s not the red Ferrari of jacket covers either.

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