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I made a few mistakes before I purchased this book and now I understand why. This book answers to a lot of questions I had about TIPS, Muni bonds and other alternative invetments. I will always use this guide as a reference before making a decision to invest in alternative investments, and I recommend to everyone This is The Only Guide you need to alternative investments. I couldn't get good answers to my questions from other books, covering alternative investments. Larry's book is for beginners and for experienced investors. Larry's knowledge and style shines through the book.
None the less the book is valuable as it covers twenty asset classes and explains which asset classes are flawed or dangerous and why. Still I give it a solid three stars as it is a good introductory book and one has to start somewhere, and for most investors the knowledge of what asset classes to avoid in general will be very helpful, but just remember portfolio asset allocation is a treacherous and complicated subject and this book only scratches the surface. It is relative and depends on the current and future economic environment and how cheap or expensive the asset class is. This is like saying the stock market is always a good investment, but not distinguishing between buying stocks when the market is dangerously high such as in late 2007 versus buying low such as during March of 2009.They discuss at length the theory behind buying collateralized commodity futures funds in that these will be negatively correlated with stocks and hence these funds "diversify the systemic risk of equity investing--the part that is not supposed to be diversifiable." I am slightly suspicious of this theory as the theory is based on historical correlations going back to only the early 1970s and doesn't take into account the rare but painful speculative bubbles in commodity prices. Six good asset classes are covered, along with eight flawed, three bad and three ugly classes. They barely mention the need to adjust one's asset allocation based on one's profession. These past correlations don't always hold and the correlations depend on what time period one examines and how far back one goes, such as twenty-five years or fifty years or one hundred years and whether the periods examined included recessions, depressions or bubbles. I consider this book to be just another investment resource that has to be critically examined and should only be used as a starting point for one's research or investment strategy.
The recent unprecedented (or at least unprecedented for the last 80 years) market conditions compel me to write an in-depth review. Except for the long chapter on hedge funds which is excellent it is not so useful to the advanced investor who is looking for an in-depth understanding of each asset class. For example, they are critical of covered calls in general, but make no effort to explain under what market conditions covered calls are a good investment strategy. In most cases it is assumed the investor will buy into a fund not individual commodities or equities.These correlations are somewhat suspect in my humble opinion. The authors start the book out by listing real estate as one of the best investments, but barely mention real estate/housing bubbles and the crashes that follow.
I found this book to be sometimes poorly researched in the sense that the research is often incomplete. I can't wait for the next edition). Rather than buying one book that treats each asset class in one chapter one would be better off buying several in-depth books on the various different asset classes. It can be misleading to say that a given investment class is good, flawed, bad or ugly. The bad consist of hedge funds, leveraged buyouts and variable annuities. The six good classes are: real estate, inflation protected securities, commodities, international equities, fixed annuities and finally stable-value funds.
However, inexperienced investors with lots of money will most benefit from this book as they will be forewarned of the dangers of many tempting investments.The book focuses on the asset classes, the historical correlations between asset classes and the need for asset allocation in one's portfolio. The eight flawed classes are: high yield (junk) bonds, private equity (venture capital), covered calls, socially responsible mutual funds, precious metal equities, preferred stocks and convertible bonds and finally emerging market bonds. (They devote one paragraph to real estate price declines. Instead they focus on the relative performance of the different asset classes. I also wonder if this correlation will hold up over time if large numbers of commodity futures are solely purchased for their negative correlation with stocks as the very process of buying commodities for this purpose would tend to eliminate the negative correlation as it is ultimately a sophisticated technique to "beat the market" by getting more return for the same risk. (I distinguish speculative bubbles from "legitimate" price shocks due to economic or political events). The ugly are: equity-indexed annuities, structured investment products and finally leveraged funds.This book will be most useful in helping the beginning or intermediate investor avoid the pain of investing in dangerous asset classes. Despite the claim that it is a comprehensive book I found it all in all to often be a superficially researched book on a multitude of topics of which only about 30-40 % are covered in sufficient detail for a serious investor.
For example, if one works in the oil industry then owning oil futures might be a real bad idea as they will perform badly about the time one is at risk for being unemployed, and a real estate broker or builder should in general be underweighted in REITs. Some chapters are excellent and are fully worthy of five stars and others are poor and only worthy of two stars. At any rate this kind of portfolio management requires a degree of sophistication that will be hard for the average investor to implement based on this book as only a limited amount of theory and practical advice is given as to how much of one's portfolio should be allocated to each asset class for one's investment objectives, age and occupation. Techniques to beat the market tend to weaken the more they are used.
Very little information is given as to when an asset class is overpriced or underpriced and how to determine this. A computer programmer would do well to not invest heavily in tech stocks as tech stocks will likely start to drop a few months before he or she is at risk for being laid off. For example, the negative correlation historically present between the S & P GSCI (a widely cited commodity index first developed by Goldman Sachs) and stocks disappeared in the last quarter of 2008. While I am not knowledgeable on all the alternative investments listed, such as the chapter on "Private Equity (Venture Capital)," those investments I am knowledgeable about I found often to be incompletely or superficially covered or even misleading to a lesser or greater degree. Gibson.
The authors base their conclusions on how the asset class behaves as a whole as if it were an index and how the asset classes are correlated to other asset classes. During panics (such as during the last quarter of 2008) all asset classes tend to go down together and correlations go towards negative one and the historical negative correlations between different asset classes no longer hold. A book that covers the topic of asset allocation in more detail is: by Roger C. It simply is not possible to adequately cover this complex topic in one medium sized book as the authors over confidently imply in their book title:
Structured Investment Products3. Inflation-Protected Securities5. Fixed Annuities6. Covered Calls4. Convertible Bonds8. Stable-Value FundsPart 2.
DSI, KLD.Preferred stock: are now low cost ETFs that cover these areas. Alternatively for the "Flawed", "Bad" & "Ugly" the test portfolios show how to achieve similar effects/goals with less expensive "Good" assets and eliminate most of the gigantic fee drag and many of the disadvantages in the product being replaced.Here's the table of contents.IntroductionPart 1. Commodities3. Equity-Indexed Annuities2. Interestingly global real estate weightings are 60/40 US/International.Inflation Protected Securities: Cover TIPS extensively with an updated and more detailed version of the shifting allocation strategy. The Good1. I really like how this book covers a lot of assets that other books don't touch or look at fairly shallow. This the only PME fund that is an index with sufficient assets ($2.7 billion), trading volume and decent 0.55% ER.
Precious Metals Equities6. Variable AnnuitiesPart 4. High-Yield (Junk) Bonds2. The Ugly1. Socially Responsible Mutual Funds5.
The Flawed1. Real Estate2. Leveraged Buyouts3. Author Larry Swedroe does have an article that covers that subject. Leveraged Funds[/code]One area that is missing is Gold as an investment. Private Equity (Venture) Capital3.
Emerging-Market BondsPart 3. All the other ones in the book are actively managed funds.Conversely there are areas where there too new a funds where none existed before. One nice thing is the illustrative simple test portfolios to show the effects of the assets under discussion and how they can be used. In this case for PME the Market Vectors Gold Miners ETF (GDX) inception date was in May 2006. http://www.indexuniverse.com/sections/research/5100.html.tmpl=component&print=1&page=One issue I've noticed with this book is it appears to be out of date on products that came out after particular chapter(s) were written. In the commodities chapter the book discusses active commodities management through commodity trading advisors.
FYI it appears Hussman Strategic Total Return (HSTRX) uses a shifting TIPS maturity combined with gold mining stock, foreign currency and occasional use of utility stocks with a pricy 0.90% ER.International Equities: Covers everything from developed markets, emerging markets, small and value effects on diversification.Socially Responsible Investing: There are now low cost ETFs that cover these areas. Hedge Funds2. International Equities4. It's far too complicated to cover here, but they are expensive and have an additional 1.7% fund expenses on top of the expense ratio.Real Estate: Covers both US and International Real Estate. Preferred Stocks7. The Bad1.
In the last 6 to 24 months several indexes and funds have appeared that cover this area. PFF, PGF and PGX.
This an excellent guide, but it covers a lot of topics in a superficial way. I think we need to see more in-depth coverage in order to say that the book really lives up to its title.
I suppose if one focuses on those few choices in his "Good" category and shuns the rest, all would be well. "The Only Guide to a Winning Bond Strategy You'll Ever Need," focuses on the fixed income component--the hopefully stable "rock" of many investors' portfolios. This book forms the third of a trilogy that began with "The Only Guide to a Winning Investment Strategy You'll Ever Need," which primarily (though not exclusively) is a treatise on intelligent mutual fund investing--particularly on the equities that drive much of the return investors hope to acquire. But knowing the reasoning behind each choice is valuable, especially if one wishes to save oneself, a friend, or a loved one from being snookered into a truly "Bad" investment, inevitably dressed in attractive garb.The chapter on hedge funds is worth the price of the book, because most people I know, starting with me, imagined these investment "vehicles" to be something other than what they actually are. " This book, with Jared Kizer, completes the coursework, indeed, such as most investors will ever need.While Swedroe touches on these "alternatives" in his two other books, this one provides a detailed treatment and understanding of the whys, why nots, and maybes of 20 popular investment considerations. As always, the info is accessibly presented, thorough, and well-supported with the latest academic research--such support being a particularly important, but often ignored requirement by some other popular investment authors and speakers.I was surprised to find that some of the recommended alternative investments in his "Good" category are actually common asset allocations for those familiar with Swedroe's other work, though they remain fringe investments with mainstream fund managers and other uninformed folk, and are thus properly re-examined here. Swedroe demystifies these with punitive brilliance--rendering such fund managers emperors without clothes, who actually hedge nothing at all.The Swedroe trilogy is essential for any investor, certainly for most folk, but ironically yet more needed by the many expert managers who seem to muck things up for the rest of us in our 401ks and IRAs. Arrogant as his book titles seem pertaining to our needs, if you own these three books on investing, you really can throw most of the other books away.Arty
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