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The Only Investment Guide You'll Ever Need, Revised Edition
Andrew Tobias
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eBook - ePub
The Only Investment Guide You'll Ever Need, Revised Edition
Andrew Tobias
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About This Book
Fully Updated! Covering cryptocurrency and NFTs, Robinhood, GameStop, the after-effects of COVID, and how climate change impacts investing. The Only Investment Guide You'll Ever Need has been a favorite finance guide, earning the allegiance of more than a million readers across America.Using concise, witty, and truly understandable tips and explanations, Andrew Tobias delivers sensible advice and useful information on savings, investments, preparing for retirement, and much more. This completely updated edition will show you the best way to manage your money, no matter what your means.
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Desarrollo personalSubtopic
Finanzas personalesPart One
Minimal Risk
There is no dignity quite so impressive, and no independence quite so important, as living within your means.
âCALVIN COOLIDGE
1
If Iâm So Smart, How Come This Book Wonât Make You Rich?
You have to watch out for the railroad analyst who can tell you the number of ties between New York and Chicago, but not when to sell Penn Central.
âNICHOLAS THORNDIKE
HERE YOU ARE, having just purchased a fat little investment guide weâll call Dollars and Sense, as so many investment guides are (although the one I have in mind had a different title), and you are skimming through idea after idea, growing increasingly excited by all the exclamation marks, looking for an investment you would feel comfortable with. You page through antique cars, raw land, mutual funds, goldâand you come upon the section on savings banks. Mexican savings banks.
The book explains how by converting your dollars to pesos you can earn 12% on your savings in Mexico instead of 5½% here. At 12% after 20 years, $1,000 will grow not to a paltry $2,917, as it would at 5½%, but to nearly $10,000! Whatâs more, the book explains, US savings banks report interest payments to the Internal Revenue Service. Mexican banks guarantee not to. Wink.
The book does warn that if the peso were devalued relative to the dollar, your nest egg would shrink proportionately. But, the author reassures, the peso is one of the stablest currencies in the world, having been pegged at a fixed rate to the dollar for 21 years; and the Mexican government has repeatedly stated its intention not to devalue. Now, how the heck are you, who needed to buy a book to tell you about this in the first place, supposed to evaluate the stability of the Mexican peso? You can only assume that the author would not have devoted two pages to the opportunity if he thought it was a poor risk to takeâand heâs an expert. (Anyone who writes a book, Iâm pleased to report, is an expert.) And, as a matter of fact, you do remember reading somewhere that Mexico has oilâpretty good collateral to back any nationâs currency. Anyway, what would be so dreadful if, as your savings were doubling and tripling south of the border, the peso were devalued 5% or 10%?
So, scared of the stock market and impressed by the authorâs credentials, you take el plunge.
And for 18 months you are getting all the girls.* Because while others are pointing lamely to the free clock radios they got with their new 5½% savings accounts, you are talking Mexican pesos at 12%.
Comes September, and Mexico announces that its peso is no longer fixed at the rate of 12.5 to the dollar but will, instead, be allowed to âfloat.â Overnight, it floats 25% lower, and in a matter of days it is down 40%. Whammo. Reports the New York Times: âDevaluation is expected to produce serious immediate difficulties, most conspicuously in heavy losses for Americans who have for years been investing dollars in high-interest peso notes.â How much is involved? Oh, just $6 or $8 billion.*
You are devastated. But you were not born yesterday. At least you will not be so foolish as to join the panic to withdraw your funds. You may have âbought at the topââbut youâll be damned if youâll sell at the bottom. The peso could recover somewhat. Even if it doesnât, whatâs lost is lost. Thereâs no point taking your diminished capital out of an account that pays 12% so you can get 5½% in the United States.
And sure enough, in less than two weeks the float is ended, and the Mexican government informally repegs the peso to the dollar. (Only now one peso is worth a nickel, where two weeks ago it was worth 8 cents.) You may not know much about international finance (who does?), but you know enough to sense that, like a major housecleaning, this 40% devaluation in Mexicoâs currency ought to hold it for a long, long time. In fact, you tell friends, for your own peace of mind youâre just as glad they did it all at once rather than nibbling you to death.
And then six weeks later the peso is floated again and slips from a nickel to less than 4 cents. Since Labor Day, youâre down 52%.
Arenât you glad you bought that book?
(Everything changes and nothing changes. That was 1976. In 1982 the peso was devalued againâby 80%. By mid-2010 it was back to its 1976 value of 8 cents, but only because three zeros had been lopped off the currency in 1993. A thousand pesos purchased in 1976 for $80 and kept in a mattress . . . albeit an unlikely repository . . . would 34 years later have become one new peso worth 8 cents. And now, in 2022, just a nickel.)
This immodestly titled bookâthe title was the publisherâs idea; in a weak moment I went alongâis for people who have gotten burned getting rich quick before. It is the only investment guide you will ever need not because it will make you rich beyond any further need for money, which it wonât, but because most investment guides you donât need.
The ones that hold out the promise of riches are frauds. The ones that deal with strategies in commodities or gold are too narrow. They tell you how you might play a particular game, but not whether to be playing the game at all. The ones that are encyclopedic, with a chapter on everything, leave you pretty much where you were to begin withâtrying to choose from a myriad of competing alternatives.
I hasten to add that, while this may be the only investment guide you will ever need, it is by no means the only investment guide thatâs any good. But, sadly, reading three good investment guides instead of one will surely not triple, and probably not even improve, your investment results.
The odd thing about investingâthe frustrating thingâis that it is not like cooking or playing chess or much of anything else. The more cookbooks you read and pot roasts you prepare, the better the cookâwithin limitsâyou are likely to become. The more chess books you read and gambits you learn, the more opponentsâwithin limitsâyou are likely to outwit. But when it comes to investing, all these ordinarily admirable attributesâtrying hard, learning a lot, becoming intriguedâmay be of little help, or actually work against you. It has been amply demonstrated, as I will document further on, that a monkey with a handful of darts will do about as well at choosing stocks as most highly paid professional money managers. Show me a monkey that can make a decent veal parmesan.
If a monkey can invest as well as a professional, or nearly so, it stands to reason that you can, too. It further stands to reason that, unless you get a kick out of it, you neednât spend a great deal of time reading investment guides, especially long ones. Indeed, the chief virtue of this one (although I hope not) may be its brevity. This one is about the forest, not the trees. Because if you can find the right forestâthe right overall investment outlookâyou shouldnât have to worry much about the trees. Accordingly, this book will summarily dismiss investment fields that some people spend lifetimes wandering around in. For example: It is a fact that 90% or more of the people who play the commodities game get burned. I submit that you have now read all you ever need to read about commodities.
This thing about the forest and the treesâabout oneâs degree of perspectiveâbears further comment, particularly as for many of us it is second nature to feel guilty if we âtake the easy way outâ of a given situation. If, for example, we read the flyleaf and first and last chapters of a book, to get its thrust, instead of every plodding word.
I raise this not only because it could save you many hundreds of hours stewing over investments that will do just as well unstewed, but also because it leads into the story of The Greatest Moment of My Life.
The Greatest Moment of My Life occurred in the Decision Analysis class at Harvard Business School. Harvard Business School uses âthe case methodâ to impart its wisdom, which, on a practical level, means preparing three or four cases a night for the following dayâs classroom analysis. Typically, each case sets forth an enormous garbage dump of data, from which each student is supposed to determine how the hero or heroine of the caseâinevitably, an embattled division manager or CEOâshould ideally act. Typically, too, I could not bring myself to prepare the cases very thoroughly.
The format of the classroom discussion was that 75 of us would be seated in a semicircle with name cards in front of us, like United Nations delegates, and the professor would select without warning whomever he thought he could most thoroughly embarrass to take the first five or ten minutes, solo, to present his or her analysis of the case. Then everyone else could chime in for the rest of the hour.
On one such occasion, we had been asked to prepare a case the nub of which was: What price should XYZ Company set for its sprockets? Not coincidentally, we had also been presented with a textbook chapter containing some elaborate number-crunching way to determine such things. The theory behind it was simple enoughâcharge the price that will make you the most moneyâbut the actual calculations, had one been of a mind to do them, were extremely time-consuming. (This was just before pocket calculators reached the market.)
The professor, a delightful but devious man, noting the conspicuous absence of paperwork by my station, had the out-and-out malevolence to call on me to lead off the discussion. I should note that this occurred early in the term, before much ice had been broken and while everyone was still taking life very seriously.
My instinct was to say, with contrition: âIâm sorry, sir, Iâm not preparedââa considerable indignityâbut in a rare moment of inspiration I decided to concoct a bluff, however lame. (And here is where we get, at last, to the forest and the trees.) Said I: âWell, sir, this case obviously was meant to get us to work through the elaborate formula we were given to determine pricing, but I didnât do any of that. The case said that XYZ Company was in a very competitive industry, so I figured it couldnât charge any more for its sprockets than everyone else, if it wanted to sell any; and the case said that the company had all the business that it could handleâso I figured there would be no point in charging less than everyone else, either. So I figured they should just keep charging what everybody else was charging, and I didnât do any calculations.â
Ahem.
The professor blew his stackâbut not for the reason I had expected. It seems that the whole idea of this case was to have us go round and round for 55 minutes beating each other over the head with our calculations, and then have the professor show us why the calculations were, in this case, irrelevant. Instead, the class was dismissed 12 minutes after it beganâto thunderous applause, I might addâthere being nothing left to discuss.*
Now, let me return to commodities.
My broker has, from time to time, tried to interest me in commodities.
âJohn,â I ask, âbe honest. Do you make money in commodities?â
âSometimes,â he says.
âOf course, sometimes,â I say, âbut overall do you make money?â
âIâm making money now. Iâm up $3,200 on May bellies.â (Pork belliesâbacon.)
âBut overall, John, if you take all the money youâve made, minus your losses, commissions, and taxes, and if you divide that by the number of hours youâve spent working on it and worrying about itâwhat have you been earning an hour?â
My broker is no fool. âIâm not going to answer that,â he sort of gurgles.
It turns out that my broker has made around $5,000 before taxes in four years of commodities trading. Without a $10,000 profit once in cotton and a $5,600 profit in soybeans he would have been massacred, he saysâbut of course thatâs the whole idea in this game: a lot of little losses but a few enormous gains. He canât count the number of hours heâs spent working on and worrying about commodities. He went home short sugar one Friday afternoon after it had closed limit-up (meaning that he was betting it would go down, but instead it went up so fast he didnât have time to cover his bet, and now he stood to lose even more than he had wagered) and spent the entire weekend, and his wifeâs entire weekend, worrying about it. So maybe this very smart broker, with his very smart advisors, and their very smart computer, has made $2 or $3 an hour, before taxes, for his effort. And he wants me to play? He wants you to play?
If 90% of the people who speculate in commodities lose (and 98% may be a more accurate figure), th...