Book Review: The Only Investment Guide You’ll EVER Need

It pains me to write this[1], but Andrew Tobias’ hyperbolically titled[2] The Only Investment Guide You’ll EVER Need actually lives up to the name.

Tobias delivers solid personal financial advice, but in a playful tone.

He enlivens an entire chapter on saving money – the world’s dreariest subject – with anecdotes about his own fetishistic ways to scrimp.[3]

In the chapter about beginning to invest, Tobias delivers the punch-line early on: Trust No One, while offering fairly hilarious ways in which his younger, more gullible self, failed to head his own good advice.

In the stock-investing chapter, he hits the essential notes which readers of my earlier posts and reviews will know by now:

  1. The vast majority of individuals, could do a lot worse than just buying low-cost index mutual funds and never selling, as advocated by Nick Murray in Simple Wealth, Inevitable Wealth.
  2. Some money managers out of a large group will appear to ‘beat the market’ for an improbable-seeming time, but this type of result can be replicated with a coin toss experiment, as described by Nassim Nicholas Taleb in Fooled by Randomness.
  3. The intrinsic value of a stock derives from an enterprise’s ability to generate current and future cash flow, as Benjamin Graham’s Intelligent Investor explains.
  4. Investing your first slug of savings through an IRA or 401K vehicle is a no-brainer.  But even outside of tax-advantaged vehicles, the tax code heavily favors stock investing as a way to get rich.

 

Tobias made money early in his life – through best-selling books and then more significantly through best-selling personal finance software – so he managed to quickly accumulate a lifetime’s worth of successful and unsuccessful investment experience.  He spins his unsuccessful experiences into memorable and hilarious ‘How-Not-to-Invest’ stories throughout the book.

But the best part of the book, Tobias saves for last.  He comes up with an amazing way to teach kids about the power of compound interest, a personal obsession of mine.

Tobias suggests three versions of a Cookie Jar Experiment, which over a month can viscerally and intuitively teach the magic of compound interest to your kids.

 

  1. Version One.  Offer your kid $1 on day one, and put it in the cookie jar.  Offer to add 10% per day in interest growth on that original $1.  Thereafter – Day 2: $1.10 in the jar, Day 3: $1.21, Day 4, $1.33.  After a month you’ve got $17.45 in the jar, which shows how powerful 10% compounding can be, even if you begin with just $1.  Tobias suggests you probably won’t continue the experiment to the end of Month 3 ($5,313) or Month 6 ($28 million) but of course, that’s up to you and your own resources.  While ‘real life’ doesn’t let you compound that quickly on a daily basis, the experiment lets you demonstrate the amazing power of compound growth. [NOTE: I have since done this experiment with my oldest daughter, which I wrote about here.  And then a follow-up post on the same topic here, as this allowance experiment is even better than I first realized.

 

  1. Version Two.  Between your two kids, you offer the same deal, with a twist.  If one of them is willing to skip the first three days of interest accrual, they can get something desirable like a chocolate bar.  After they finish fighting over the chocolate, you run the experiment for two months.  The kid who went hungry has $304, while the ‘lucky’ kid who got the chocolate only has $228 in the Cookie Jar at the end of 60 days.  Lesson: Start saving early because it’s the earliest accruing period that matters the most.

 

  1. Version Three.  Run the same experiment, but use the interest rate associated with many credit cards, like 20%.  Start adding money to the $1 at a 20% growth rate and label this ‘Credit Card’ growth.  On day 19 the ‘credit card’ account has grown to $32, versus the $6 that the original savings at 10% per day grew to.  If you run the comparison all the way to day 35, the difference is $590 for the credit card account versus $28 for the ordinary 10% growth account.  The key to this version is pointing out that some people scrimp and save and achieve some growth on their savings, while others pay huge amounts to credit card companies.

 

I taught a personal finance course last Spring, for bright college students, and I plan to do the same next Spring.  One of my frustrations was with the textbook we used, a dry-as-dirt tome written by CPAs, seemingly for CPAs.  My co-teacher and I ended up hardly ever referring to it, because how can you expect anyone to read such a thing?

Unless I can come up with something better real soon, the students will get assigned Tobias’ book.  I think it’s all they need.[4]

Please see related post: All Bankers Anonymous Book Reviews in one place.

 

Only Investment Guide You'll EVER Need
Only Investment Guide You’ll EVER Need

[1] It doesn’t actually pain me to say this.  I use that turn of phrase to capture the sense of the Oscar Wilde aphorism “Every time a friend succeeds, a little something in me dies.”  And Tobias is not a friend, but rather, I am jealous because I’m attempting to write a personal finance book, and Tobias has done such a good job with his.

[2] Tobias is a fan of the hyperbolic title, such as his excellent and funny My Vast Fortune, which I reviewed last month.

[3] He apparently carries Crystal Light powdered packets when he travels to save on beverages, buys canned goods by the pallet at Costco, rarely accelerates his car (to save on gas), checks his bank statements for errors every month, and has substituted cubic zirconium for diamonds in any jewelry purchases he ever made.  In a related story, his net worth is above 99% of the people reading this right now.

[4] Until my book comes out, of course.

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Book Review: My Vast Fortune by Andrew Tobias


Andrew Tobias published  My Vast Fortune – The Money Adventures of a Quixotic Capitalist in 1997, the year I started to become interested in finance and the same year I managed to scrape together $5,000 in personal ‘net worth.’

I only discovered Tobias a few weeks ago, however, and I’m busy trying to make up for lost time.

Had you asked me a month ago to name all the writers I’ve read who are both sophisticated about finance and very funny, my list would have looked like this: Michael Lewis.

Now it’s a two-person list, Lewis and Tobias.[1]

In My Vast Fortune, a book less popular than his best seller The ONLY Investment Guide you’ll EVER Need, Tobias indulges in financial anecdotes from his life, fuel enough for a couple of useful investment ideas, but mostly just great stories.

Tobias combines impressive writing skills – he published his first best seller at age 23 – with great entrepreneurial zeal.  His writing serves to make the zealousness hilarious.

Real estate investing adventure

After Tobias makes the investment error of purchasing a distressed property sight-unseen in Miami, he compounds that error in subsequent years by purchasing a neighborhood’s worth of properties on the edge of blighted, drug-infested neighborhoods.  A series of property managers seemingly work miracles for him fixing up the properties, only to succumb themselves to vice.  At the time of publishing, Tobias isn’t sure whether the plunge into slum-lording will ever ‘pay,’ but it sure does make good material.

As serious as the experiences must have been, Tobias weaves his “I keep making terrible investment decisions” narrative into an entertaining and useful section of the book.

Tobias’ obsession with auto-insurance

Half-way through My Vast Fortune, Tobias hijacks the narrative, diverting us to the warzone of a political fight he picked in the 1990s over auto-insurance policy in California.

In a Chapter titled “Ralph Nader is a Big Fat Idiot,” Tobias explicitly links Nader’s opposition to “no fault” auto insurance – Tobias’ admitted obsession – to Nader’s deep, unholy links with the national trial lawyer lobby.

Tobias ultimately lost an expensive campaign for 3 related ballot referendum questions in California as he got outmaneuvered, as well as libeled, by Nader’s political associates.

Even though Tobias admires Nader’s principled advocacy for consumers, and would support much of his liberal political agenda, his take-down of Nader and Nader’s allies in the fight rings true.

While Nader personally avoided Tobias’ pleas for dialogue, Nader’s allies smeared Tobias’ campaign and lied about his motives, all the while fighting for trial lawyers, whose financial interest was served by the status quo.

What’s interesting to me, historically, is that this Ralph-Nader-as-horribly-misguided-bully narrative pre-dates Nader flipping the balance of the 2000 election in the Bush vs. Gore debacle.    Little did Tobias know at the time of publishing My Vast Fortune that Nader would be the root cause of horrific wars of choice in the Middle East, the shredding of constitutional principles of habeus corpus a policy of torture, and the financial meltdown of 2008.  I’d love to have been a fly on the wall as Tobias followed Bush vs. Gore and the subsequent 8 years, reflecting on the vast path of world-wide destruction wrought by Nader.[2]

Does the auto insurance fight have parallels with health care reform?

Tobias’ lengthy discourse – and it is lengthy! – on no-fault auto insurance and the evils of the trial lawyer lobby got me thinking about a more recent hot political topic.

Why do we often settle for expensive insurance rates, poor coverage in the case of catastrophic problems, and a group of under-insured on the margins of society?  One implication from Tobias’ book: The trial lawyer lobby.

While Tobias focuses on auto-insurance in California, I wonder if the same lessons may be applied, on a grander scale, to health care policy nationwide.  Compared to other developed countries we pay more per capita, have an under-insured underclass, and suffer worth health outcomes.  I wonder what Tobias would say?

While no doubt many self-interested groups keep us from an optimal health care policy, the interests of trial lawyers – preserving the ability to sue hospitals and doctors for catastrophic damages and massive malpractice payouts – must play a role in driving up costs for everyone.

Financial advice

I assume that because he’s given his most important nuggets of personal finance wisdom in The ONLY Investment Guide You’ll EVER Need, his direct advice remains light in My Vast Fortune.

Near the end, however, he can’t help offering a quotable nugget on the importance of saving money.

This gives the sense for how good Tobias is at his craft.

Here’s the trick (if it’s too late for you, please write it on some young person’s forehead – backward, for easy reading in the mirror): A luxury once sampled becomes a necessity.  Pace yourself!

You say you don’t particularly mind not having a remote-control clicker for your TV?  I can state with some assurance, in that case, you’ve never had one.  Touch-tone dialing?  Caller ID?  Microwave ovens?  Seaplanes vaulting Friday-afternoon traffic?  Stock markets that only go up 20 percent or 30 percent a year?  These are things it’s a cinch to be happy without before they’ve been invented; but so awfully hard to be happy without once you’ve gotten used to them.

Pace yourself!  Live a little beneath your means.  Don’t go into hock buying some whizbang&olufsen sound system right out of college; make do with one of those three-in-one $279 mail-order dealies I still use.  Tease yourself with anticipation.  Ease the fingers of your aspiration up the inner thigh of your cupidity.  Tickle your fancy.

Of course money buys happiness.  But both will last longer if you remember the importance of foreplay.

If you haven’t yet read Tobias, add him to the list of finance writers who are both insightful and wickedly funny.

Please see related post: All Bankers Anonymous Book Reviews in one place.

 my vast fortune

 


[1] Someday I’m going to re-check that list, and find to my delight it’s gotten longer: #1: Lewis  #2: Tobias. #384: Anonymous Banker

[2] I’m exaggerating Ralph Nader’s effect of course, because Gore himself should be blamed for not winning that election.  But it’s weird how history turns dramatically on certain pivotal moments and the unintended consequences of certain people’s actions, like Nader’s role as spoiler in the 2000 election.

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