The Little Book that Still Saves Your Assets

What The Rich Continue to Do to Stay Wealthy in Up and Down Markets

David M. Darst, David M. Darst

• Publisher: Wiley
• Year: 2012
• Print ISBN: 9781118423523
• eBook ISBN: 9781118497647
• Edition: 2
• Topic: Business
• Subtopic: Investments & Securities
• Index: Business

Protect assets during times of crisis with this new edition of the New York Times bestseller!

When the first edition of this book appeared it was before the economic crash. This new edition shows how David Darst's particular kind of asset allocation helped his investors during that volatile period. It also contains a discussion of downside and risk tolerance and new self-tests for determining your risk tolerance. And, finally, it reveals how the asset allocation model has changed since 2008. In all of these areas, the author will continue to include new insightful anecdotes like those that peppered the first edition.

• Shows how to tap into the use of asset allocation strategies to protect your investments
• Offers updated information on downside and risk tolerance
• The next step resource from a managing director of Morgan Stanley and the bestselling author David Darst
• Includes a Foreword by Jim Cramer

David Darst reveals how to use asset allocation to increase your portfolio that tap into the investment strategies of the wealthy.

Chapter One

What Happened?? What Happened!!

When The Little Book That Saves Your Assets first appeared in 2008, how little did any of us anticipate the steep and scary roller-coaster ride that was about to be experienced by economies, companies, financial markets, banks, governments, savers, workers, and retirees! Throughout 2008, crashing markets, widespread layoffs, loan losses, asset value write-downs, accelerated news flow, and extreme volatility severely tested the nerves, resources, patience, sanity, and resolve of investors, regulators, CEOs, politicians, and mainstream citizens in the United States and all over the world.

And in March 2009, just when it seemed as if the global economy was about to plunge even deeper into the abyss, governments acted, markets rallied, and economies stabilized somewhat. A back-and-forth, halting, faltering resuscitation began, although quite anemic compared to previous recoveries. Even today, disagreement persists as to whether a final bottom has been reached and a multiyear secular bull market can begin to unfold. Such a scenario appears unlikely until: (1) debt and leverage are brought down to manageable levels; (2) politicians cooperatively and central bankers resolutely pursue policies to address imbalances (of savings, consumption, deficits, indebtedness, societal entitlements, and currency values); (3) outmoded patterns of thinking and behavior adjust to the new realities of technology, globalization, and demographics; and (4) meaningful structural reforms begin to be implemented.

At times during the past several years, it has seemed as if the wheels were coming off the car of the global economy. Throughout this tumultuous, trying, turbulent period, I have received a great many e-mails, handwritten letters, and telephone calls (as well as in-person visits and faxes!) from anguished, distressed, even emotionally destabilized investors and financial advisors seeking solace and guidance. Quite a number of these communications, however, bore a different message. These missives—from, for example, a 70-year-old widow in Boston, a retired executive in San Antonio, a young couple in Orlando, an agribusiness owner in Brazil, and a biotechnology entrepreneur in California—expressed relief and thanks for The Little Book That Saves Your Assets having helped protect their portfolios and limit damage during the recent bout of financial carnage, and having prevented readers from giving up in despair just as a cyclical upturn was about to unfold. In their own, highly personal ways, these individuals recounted how they had understood, internalized, and applied the three major messages of this book to avoid disaster and then live to fight another day. These bedrock principles are: (1) adequate portfolio diversification (through having assets that truly zig when others zag); (2) judicious rebalancing (of asset weightings back to strategic asset allocation targets after dramatic price moves); and (3) active risk management (through defensive actions such as having extra cash or reducing exposure to economically sensitive assets, and offensive actions such as increased allocations to assets such as high-quality fixed-income securities).

It is indisputable that investors had to navigate extraordinarily volatile financial market conditions during the years 2008, 2009, 2010, and 2011. This four-year time period featured, in 2008, enormous financial system instability, bankruptcies, bailouts, and governmental rescues (see Exhibit 1.1 for selected key events).

Exhibit 1.1 Key Events in 2008

Sunday, March 16, 2008	Government-assisted rescue of Bear Stearns
Friday, July 11, 2008	Bankruptcy of IndyMac Bancorp
Sunday, September 7, 2008	Conservatorship of Fannie Mae and Freddie Mac
Sunday, September 14, 2008	Bank of America acquisition of Merrill Lynch
Monday, September 15, 2008	Lehman Brothers bankruptcy
Tuesday, September 16, 2008	Federal Reserve capital injection into AIG
Tuesday, September 16, 2008	Reserve Primary Fund money market mutual fund suspension of redemptions
Thursday, September 25, 2008	Office of Thrift Supervision seizure of Washington Mutual
Monday, September 29, 2008	U.S. House of Representatives’ rejection of Troubled Asset Relief Program (TARP) bailout by a vote of 228 to 205, leading to a one-day decline of 8.8 percent in the S&P 500 index, to 1,106
Friday, October 3, 2008	Congressional passage of the TARP bailout
Sunday, November 23, 2008	Special government rescue package for Citigroup
Wednesday, December 10, 2008	Revelation of Bernie Madoff Ponzi scheme

The following year, 2009, brought massive fiscal and monetary stimulus by the United States and China, altered accounting rules for banks’ assets, stress tests for large financial institutions, and quantitative easing (money printing) by the U.S. Federal Reserve (see Exhibit 1.2 for selected key events).

Exhibit 1.2 Key Events in 2009

February 17, 2009	Passage of $787 billion fiscal stimulus package in the United States
February 25, 2009	Announcement of stress tests for 19 U.S. banks
March 18, 2009	Federal Reserve Quantitative Easing plan
March 23, 2009	Approval of $585 billion fiscal stimulus package in China
April 2, 2009	Financial Accounting Standards Board (FASB) draft proposal on mark-to-market accounting rules for financial institutions
April 30, 2009	Bankruptcy of Chrysler Corporation
June 1, 2009	Bankruptcy of General Motors Corporation
October 20, 2009	Revelation by newly elected Greek government that its budget deficit is 12.5 percent of GDP, not 3.8 percent
November 25, 2009	Announcement by Dubai World of its proposal to delay debt repayments due to financial difficulties

In 2010, investors faced financial rescue packages for Greece and Ireland, the creation of a multi-hundred-billion-dollar European stabilization fund for Eurozone countries, the oil well blowout in the Gulf of Mexico, a “flash crash” in U.S. stock prices, a second round of Federal Reserve quantitative easing, and the passage of further fiscal stimulus measures by the U.S. Congress (see Exhibit 1.3 for selected key events).

Exhibit 1.3 Key Events in 2010

March 24, 2010	Congressional passage of landmark health care legislation
April 20, 2010	Blowout of Macondo oil well in the Gulf of Mexico
May 2, 2010	Eurozone and International Monetary Fund (IMF) agreement on a €110 billion, three-year Greek rescue package
May 6, 2010	“Flash crash” in U...

Table of contents

• Cover
• Contents
• Title
• Copyright
• Dedication
• Foreword
• Introduction
• Chapter One: What Happened?? What Happened!!
• Chapter Two: We All Do It (Even if We Don’t Realize It)
• Chapter Three: Everyone Needs an Uncle Frank
• Chapter Four: Building Your House
• Chapter Five: Parts of the Whole—Combining Dreams into a Plan
• Chapter Six: Two Strategies to Win the Battle for Investment Survival
• Chapter Seven: Do You Know Where You Are Going?
• Chapter Eight: Mix, Don’t Match
• Chapter Nine: Our Minds, Our Selves
• Chapter Ten: The Jockey Matters as Much as the Horse
• Chapter Eleven: Riding Out Storms
• Chapter Twelve: Build Your House on These Rocks
• Chapter Thirteen: Count to Zen
• Chapter Fourteen: Seven Quick Ways to Ruin
• Chapter Fifteen: The Road Less Traveled That You Should Take Right Now
• Who Are You? (Determining Your Investment Profile)
• What Do You Think? (Determining Your Investment Outlook)
• What Works for You? (Determining Your Investment Selection)
• Don’t Take My Word for It
• Acknowledgments