September 22, 2011


The Smartest Portfolio You’ll Ever Own: A Do-It-Yourself Breakthrough Strategy. By Daniel R. Solin. Perigee. $22.

Into the Storm: Violent Tornadoes, Killer Hurricanes, and Death-Defying Adventures in Extreme Weather. By Reed Timmer with Andrew Tilin. New American Library. $15.

     The worst part of Daniel R. Solin’s book is the subtitle: there is nothing “breakthrough” about his strategy. The second-worst part is what he, like other authors of investment books, conveniently omits: does he follow his own advice, and if so, how has his personal portfolio performed over the past several years, decade or more? But just about everything else in The Smartest Portfolio You’ll Ever Own (which hopefully he owns as well, as in “do as I do, not just as I say”) is intelligent, straightforward, and very close to common wisdom. Or would be, if wisdom were common and if people paid attention. Not to keep anyone in suspense: Solin, a senior vice president of Index Fund Advisors, recommends investing in…index funds. And not just any index funds, but well-diversified ones with low expenses, including but not limited to ones from Vanguard and iShares. There is really nothing new here, but Solin’s emphatic presentation of his material – and his insistence on boiling down every short chapter to a nugget of wisdom called “What the Point?” – lead to a punchy presentation that may well get through to people who have ignored longer, denser arguments whose bottom line is the same. What Solin does is demolish a series of investment myths (“the excellent company,” holding individual stocks or bonds, and others), then discuss “the right focus” and show specifically how to apportion your holdings according to your comfort level with risk. He is not the first to do this and will not be the last. But he is knowledgeable enough and entertaining enough to make his lessons go down easily. In “What You Can Really Learn from Dr. Doom,” for example, he details errors by economics professor Nouriel Roubini, then points out that “Roubini is not alone in making bad predictions.” In “The Myth of Skill,” he refers to studies that “are powerful evidence of the lack of skill of actively managed mutual funds (where the fund manager attempts to beat a given benchmark).” In “Taxes and Costs: Stealth Enemies,” he explains the huge gap between before-tax returns (which are what funds report) and after-tax returns (which are what investors receive), and shows how much more efficient index investing is than investing in actively managed funds – and how ETFs (exchange-traded funds) are even more tax-efficient. And in this chapter, he returns to a recurrent theme that, he says, “bears repeating: Avoid all calls from brokers at the firms you decide to use to purchase your ETFs. They will try their best to lead you astray!” Solin is, understandably, a strong advocate of Vanguard funds, which are low-cost, efficient and excellent at tracking the indexes to which they are tied. But he recommends different allocations to these funds – and, separately, to alternative portfolios that he offers to investors with slightly different priorities – based on each person’s risk comfort: low, medium-low, medium, medium-high and high. He also shows, historically, how the various proposed portfolios would have performed, in bad years as well as good. It really is a shame that he doesn’t say which of them, if any, he personally uses. But Solin’s basic advice on how to manage the turbulence of the stock and bond markets (and other investments) is extremely sound, his presentation is both breezy in style and serious in tone, and his overall set of recommendations – emphasizing after-tax returns and diversification based on the different focus of various index funds – is an excellent one for investors with the discipline to follow it and avoid the overwhelming “noise” that unendingly accompanies stock-market reporting and commentary. Alas, Solin must leave it up to investors to find that discipline for themselves.

     The excitement of stock-market investing often runs away with people and their money. The excitement of storm chasing is of a different sort: more dangerous physically, less so financially. Most people will be content to watch stories about violent storms on TV, not needing to experience the heavy weather for themselves – in contrast to investors, who (like it or not) expose themselves to daily Wall Street storms and, if they are not cautious and unemotional along the lines Solin recommends, can quickly find themselves whipsawed by events over which they have no control…and poorer as a result. Of course, Reed Timmer (star of Storm Chasers on the Discovery Channel) has no control over the storms he chases, and he deliberately runs toward rather than away from them – but he makes money doing this (ever since, as he recounts in Into the Storm, he first sold tornado pictures to a TV producer for $500). Timmer’s book is intended for Timmer enthusiasts and storm enthusiasts: it includes a certain amount of science, a certain amount of autobiography, and a fair amount of self-aggrandizement. Timmer, whose enthusiastic and dangerous storm-chasing methods are controversial, has only enough self-awareness to denigrate those who disagree with him: “My hard-charging, predatory style for intercepting storms is very different from the approaches taken by some influential chasers who came before me. I’d argue that my fanatical methods represent an evolution in storm chasing.” Be that as it may, Timmer does a creditable job introducing science, history and science history into his recounting of his personal adventures, although the way he fits elements together can be a little creaky: “The roof, as is usually the case when a big tornado strikes a house square, was the first to go. Credit the Bernoulli effect, named after the eighteenth-century Dutch-Swiss mathematician Daniel Bernoulli. Bernoulli was a master of fluid mechanics, and one of his discoveries (‘Bernoulli’s principle’) helps explain why fluid, when flowing horizontally over a given object’s top surface faster than it flows over its bottom surface, creates a pressure difference – there’s lower pressure on the top surface than the bottom surface.” Timmer fans may wonder by this point what happened to that tornado-hit house. But they will likely stick around for the stories in chapters such as “Blown Back” and “Just the Trouble I Needed,” which Timmer tells entertainingly and with considerable gusto. The eight pages of color photos, including one of the “Dominator” storm-chasing vehicle, will be a big plus for fans as well. Of less interest will be what passes for introspection, as when Timmer seems uncertain, even in retrospect, of his own reactions to a day on which he gets great footage of a tornado but cannot sell it to anyone, because other storm chasers and local TV stations have footage of their own: “That day, part of me cared a lot that I didn’t sell my incredible footage. I needed the money, and badly. …This was a rare day where I just didn’t care to fight. I’d been so amazed by the storm’s many personalities and moments that – destruction of the house aside – I enjoyed filming the storm just for me. Too bad I didn’t return home from that chase with any sales. But I did have lots of memories.” Those interested in Timmer’s memories will find this (+++) book a pleasant enough journey through them, but may be distracted by Timmer’s forays into meteorology and history. Those more interested in the science of storms and in weather phenomena in general may find Timmer’s highly personal narrative intrusive. Into the Storm does not quite work as anything more than a book for storm fans and Timmer fans – but if you are among those, you will not find it disappointing.

1 comment:

  1. I appreciate your review of my book. I do follow my own advice and invest in a risk adjusted portfolio using low cost, passively managed funds. The strategy in my book is "breakthrough" because no other investing book has told investors how to obtain a portfolio consistent with the Fama-French 3 Factor model without using any broker or advisor.