It could become one of the best-selling, self-published books of all time. The Investment Answer written by Gordon Murray and Daniel Goldie is already number 6 on Amazon's best-seller list.
In a mere 93 pages, it tells everyday investors nearly everything they need to know about investing in the stock and bond markets to beat 95% of Wall Street's best money managers.
Goldie self-published the book in August, 2010 but I didn't hear about it until last week whenRon Lieber mentioned it in his Your Money column in the Saturday, November 27 edition of New York Times. When I checked Amazon this morning I was told it was "temporarily out of stock.â€
What sets this book apart from the gazillion other books on investing is that one of the co-authors, Gordon Murray is dying of a brain tumor and he told Lieber that he wrote it to get the word out to as many everyday investors as he could. And that word is you don't need an MBA or even a money manager to invest well in the stock and bond market.
The basic premise is a simple one and hardly unique: no one can predict the future with any regularity, so why would you want to pay the hefty fees charged by active money managers who rarely beat their respective stock or bond indexes over time? Murray and Goldie encourage you to take a mostly passive investment approach with some rebalancing now and then to keep your investment goals on track.
Interestingly, we made a similar recommendation in February, 2007 when we urged investors not to overlook index funds. In that article I made the point that most of us don't have the time, knowledge or inclination to spend hours a day studying market fluctuations, analyzing economic data or researching a company's growth forecast to decide where to invest our hard-earned money.
I then suggested an alternative to paying hefty fees or commissions to a professional money manager or brokers by investing in Index Funds. You'll not only save a lot of money but they'll do as well or better than most funds actively run by so-called expert money managers.
For those who may not know what an index fund is, they match the performance of a particular market index such as Standard & Poor's Index of 500 stocks. Investing in index funds is known as "passive" investing because you don't really have to do anything. "Active" investing is where you "actively" buy and sell individual stocks hoping to out-perform the market.
While also categorized as passive investing, Murray and Goldie's approach is slightly different. They have a five-step plan.
First, you should decide whether you want to do this on your own or hire a financial advisor. If you decide to use an advisor, they recommend finding someone who earns all of his money from you and not from any of the companies offering the funds he or she is recommending. That way his pay is tied to the performance of your investments.
Second, allocate your assets among stocks and bonds and diversify among large and small capitalized companies in different industries and different investment criteria such as value, growth and income producing securities. Value usually means under-priced, growth indicates it will grow across market cycles and income pays in dividends or with bonds, in yields.
Their third step is something we've also recommended. Divide your investments between foreign and domestic because foreign securities tend to outperform the U.S. market over time.
Fourth, decide whether you want to save money by investing in passively managed mutual funds instead of actively managed funds.
And five, continue to rebalance your portfolio by selling off winners to buy more of the losers because, believe it or not, this will improve your returns over time.
Nothing new, really
Now, none of this advice is news to anyone who has been around the markets for any length of time. What makes this somewhat newsworthy is where the advice is coming from.
Murray is a former bond salesman who worked for Goldman Sachs before moving over to Lehman Brothers and Credit Suisse First Boston where he was a managing director. He told Lieber than nine years ago he had an epiphany about how futile it was to try to predict the market. And when his death sentence arrived in the form of a tumor, Murray knew he had to work quickly to expose one of Wall Street's greatest secrets â”€ active money management is in most cases a waste of money.
According to Lieber, Murray is one the highest-ranking Wall Street veterans to take back much of what he and his colleagues worked for during their careers. He calls the failings of active portfolio management "shocking." Murray also testified before congress about the financial collapse and asks in the Times article "how is it possible that prosecutors had not yet won criminal convictions against anyone in charge at his old firms and their competitors."
As of this writing, Murray was still alive, but he told Lieber that he didn't expect to see his 61st birthday in March.
As for his book, the reader's praises on Amazon have been plentiful. One professor plans on making it required reading for his graduate and undergraduate personal finance classes. He adds that any negative reviews will probably come from Wall Street brokers who earn their living by exploiting our ignorance about investing.
Anyone who feels they don't know enough about investing should probably read this book. Sure beats spending a hundred grand on an MBA, doesn't it?