The Smartest Portfolio You'll Ever Own
The wrong way
Before getting into portfolio construction, Dan reviews the way most investors try to build wealth, and names ten specific potholes to steer clear of.
- market timing
- buying individual stocks or bonds
- actively traded mutual funds
- alternative investments
- variable annuities
- equity indexed annuities
- Private equity deals
- principal-protected notes
- currency trading
- commodities trading
The lost decade and other investing myths
Dan dispels several investing myths in his book, including one of my favorites - the myth of the lost decade. He points to attractive returns of portfolios during the period beginning in June 1998 through the end of June 2008. I'm not exactly sure why Dan picked this period before the stock plunge in the second half of 2008, but I've noted why the first ten years of this century wasn't a lost decade.
He also addresses other myths, including my pet peeve of calling the raw S&P 500 index the market. This is done to give the illusion a market guru is beating the market. And Dan doesn't shy away from naming names - Jim Cramer!
Dan and I couldn't be more on the same page than with a statement he made in the book:
DFA versus Vanguard and ETFs is an important debate, but the real issue is active versus passive management.
Indeed, I happen to think both Vanguard and DFA are terrific passive low cost funds. Investors can build successful portfolios in either as long as they keep expenses and emotions low.
Dan's portfolio suggestions are low cost passive approaches to harness the Fama-French 3 factor returns over the long-run. I happen to think that overweighting small cap and value stocks more than a couple of percentages away from the overall market is taking too much risk. Small cap value accounts for only about three percent of the stocks, and I personally wouldn't go beyond about four percentage points which, not so coincidentally, happens to be exactly where my portfolio is today. Keep in mind that this view is an opinion, and the data to support my point is not conclusive, though it might support the possibility that I'm the most argumentative person on the planet.
If you are looking to construct your own portfolio using some of the lessons from Eugene Fama and Ken French, then this book offers you some great implementable suggestions.
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