Sunday, March 11, 2012

Book Review: The Investment Answer

The Investment Answer (2011) by Daniel C. Goldie and Gordon S. Murray

In this very short book (< 100 pages) the authors provide their answers to the following five investing decisions:
  1. The Do-It-Yourself Decision: They argue that the stock market is too complex for the average investor, so they recommend having an independent, fee-only advisor. Not only does this insult the intelligence of many individual investors, but it is inconsistent with their later criticisms about professional money managers (e.g., high fees and sub-par performance).
  2. The Asset Allocation Decision: They give the standard spiel about investing in several different asset classes in a way that purportedly minimizes risk (volatility) while maximizing return. In this chapter they refer to value stocks as "distressed companies" that may have "bleak prospects for the future," yet they present data showing that value stocks tend to outperform growth stocks.
  3. The Diversification Decision: Similar to the previous decision, they advocate investing in a mix of domestic and foreign equities and bonds to balance risk and return. They firmly believe in Modern Portfolio Theory.
  4. The Active Versus Passive Decision: Being strong adherents to the Efficient Market Hypothesis, they argue that it is impossible to beat the market, so they recommend passive investing in various index funds.
  5. The Rebalancing Decision: They suggest rebalancing your portfolio to maintain the desired levels of asset allocation and diversification.
If you were to follow the "answers" given in this book, your portfolio would be comprised of a hodgepodge of index-based ETFs that you would simply buy and hold except for periodic rebalancing. However, you would be paying a financial advisor to manage this portfolio for you. Not surprisingly, I have a low opinion of this book, but at least I did not waste much time reading it.

Note: I read this book in March 2012.


  1. Wow you do a lot of reading! It doesn't sound like this particular book has much to offer. Out of all the investing books you've read, which are your favorites?

    I think we can both agree that dividend growth investing is a strategy that works. It's easy to dimiss bonds and fixed income right now while yields are depressed. Do you think you would allocate part of your portfolio to bonds in say 5 or 10 years if yields were strong?

    1. Hi Compounding Income,

      Interestingly, it wasn't until last spring that I started reading a lot (prior to that I would only read about one book per month). The initial motivation was getting a Kindle and reading free e-books (e.g., classics from Project Gutenberg), but then I started making more use of my public library, which is where I get the majority of my investing books. In the last 6 months of 2011 I read a total of 39 books, 17 of which were related to the stock market and investing (the rest were mainly mystery novels). So far this year I have read 9 books.

      I saw this particular book on the "new arrivals" shelf at my library last week, so I decided to see if it was any good (and it wasn't). Of the investing books I've read, my favorites are probably The Single Best Investment, The Little Book of Value Investing, and The Future for Investors. However, there are still some classics that I have not yet read (e.g., The Intelligent Investor, Common Stocks and Uncommon Profits, etc.), though I plan to read them at some point.

      Regarding bonds and fixed income, I could potentially see myself allocating a small proportion (e.g., 10%) of my portfolio to them in a few years if the yields were attractive. It would depend a lot on the status of dividend-growth stocks and my personal financial situation. However, I do not plan to adhere to the "standard" asset allocation model of having some age-related proportion (e.g., 100 minus age or 120 minus age) in stocks versus bonds. I will just go by whatever seems to be the best for me at the time, though I anticipate having my portfolio concentrated mainly in dividend-growth stocks for the foreseeable future.