Bogleheads

[wish2bCFP]

Has anybody read Ben Stein's new book - "Yes, You Can Supercharge Your Portfolio" ? I'd like to know if it's worth buying.
BJ

[Murray Boyd]

Yikes. The table of contents doesn't look promising. Seems like Ben has discovered r-squared stats.

Ye Gods:

[gatorman]

I'm reading it now. He and his co-author have some interesting ideas, although they would for the most part lie outside of the mainstream thought of this group. The book advocates using a core group of funds/etfs and adding stocks/funds/etfs having low correlation, low r^2 and low beta to enable one to reduce one's bond allocation and increase portfolio return. I think the ideas are worth considering, although I am going to have to do a lot more studying before I make any changes to my portfolio.
Gatorman

[wish2bCFP]

Gator,
Thanks for your response. Think I'll visit Amazon now to order.
BJ

[LH]

yeah, adding individual stocks for low correlation seems appealing, but the risk of an individual compnay going to zero is real, versus the risk of US TSM going to zero, Internation TSM going to zero, usually is rightly or wrongly considered effectively zero.

Plus just the academic response is non compensated risk. I guess the counter to that may be that portfoliowise with correlation and rebalancing, an individual stock may achieve compensation??

Again though, individual stocks, unlike broad asset classes, they cannot reliably be depended on to do much of anything in an expected sense can they?

Let us know what you find on the issue. The gambler in me would love to justify individual stocks : )

LH

[curly lambeau]

Ben Stein makes money shilling for the annuity industry and, now, creating films to exploit the gullible and scientifically illiterate masses.

That's compatible with his new book being a masterpiece of financial wisdom, but I seriously doubt that it is.

Whatever his merits, he seems to have zero reservations about profiting from absolute nonsense and malicious misinformation.

[ryuns]

[grok87]

I think the hidden agenda here is to steer people away from broad stock market index funds into the arms of advisers who will do all this R-square stuff for you. Just another attempt to convice people that investing is a complicated endeavor best left to professionals, that one should not attempt on one's own. Utter nonsense of course.

From an academic point of view, the problem is that the correlations are not stable. I think there is some truth to the idea that small cap value stocks as an asset class have lower correlation with the market (probably not true of this recent downturn though). But for any one individual stock, I think there is zero truth to the idea that it would have a predictably stable lower correlation. He's just trying to make something out of random noise.

cheers
grok

[Gregory]

[quote="curly lambeau"]Ben Stein makes money shilling for the annuity industry and, now, creating films to exploit the gullible and scientifically illiterate masses.

That's compatible with his new book being a masterpiece of financial wisdom, but I seriously doubt that it is.

Whatever his merits, he seems to have zero reservations about profiting from absolute nonsense and malicious misinformation.[/quote]
-----------------------------------------------

ma·li·cious adj. Having the nature of or resulting from malice; deliberately harmful; spiteful: malicious gossip.

You've characterized Ben Stein's current investment book advice as deliberately harmful. Deliberate is the key here. Can you back up your contention that his advice is deliberately harmful? (Not that is might be, or theoretically might be, but that it's DELIBERATELY harmful, for that would characterize "malicious.") I look forward to your response, with proof that it's malicious.

Greg
_________________
Pecuniae imperare oportet, non servire.
Fortuna vitrea est; tum cum splendit frangitur. -Syrus

[gatorman]

[4th&Goal]

[gatorman]

[Jack]

[4th&Goal]

[grok87]

[Gregory]

[quote="Jack"][quote="4th&Goal"][quote="curly lambeau"]Ben Stein makes money shilling for the annuity industry and, now, creating films to exploit the gullible and scientifically illiterate masses.
[/quote]
Curly, annuities have an important place in the portfolios of many retired people. If you are unaware of that you have much to learn. Read what respected authors have to say about single premium immediate annuities. Your glib comments are not helpful.[/quote]
Ah, but Ben Stein doesn't recommend immediate annuities. What he pushes are high-commission variable annuities sold by insurance agents. And what Ben Stein doesn't tell you is that he is on the payroll of the insurance company lobbying group for the companies that sells this stuff.

Ben Stein has a history of giving bad financial advice. There is no reason to expect this latest piece of claptrap to be any better.[/quote]
---------------------------------
Jack, reading Stein's book "Yes, You Can Still Retire Comfortably" shows that the section on VA's lists TIAA-CREF, Vanguard and Fidelity as the go-to's for VA's. He writes one should give pushy sales people a polite but firm brush off.

I may have missed the section where, as you put it, "he pushes...high-commission variable annuities sold by insurance agents." Please provide a book with page reference -- I have all of his finance books. A blanket statement that he's a spokesman for the VA industry won't suffice, since his book clearly states one should purchase a low-cost VA. I look forward to your response.

Greg
_________________
Pecuniae imperare oportet, non servire.
Fortuna vitrea est; tum cum splendit frangitur. -Syrus

[grok87]

[Gregory]

I guess the article you cite addresses talking to salespeople. In his book his writes about understanding VA's, then brushing off the salespeople in favor of Vanguard, Fidelity and TIAA-CREF.

Greg
_________________
Pecuniae imperare oportet, non servire.
Fortuna vitrea est; tum cum splendit frangitur. -Syrus

[timid investor]

I kinda like him but I don't think I'd be giving any serious considerations to his advice any more than I would p Krugman if he were stupid enough to do so.

[ndchamp]

grok87 said:
He also says: "make the sales person stay on the line until you fully understand it." which appears to endorse buying a variable annuity from a salesperson. This is typical of the bad- yet seemingly good?- advice that Ben offers. Once there is a salesperson in the game selling you a variable annuity you have already "lost". There is no way the average American is going to out-talk a sleazy variable annuity salesperson on the phone. Ben is leading the sheep to slaughter with such talk.

And when you call Vanguard (or Fidelity, or T Rowe) to inquire about any questions you may have, you will be speaking to a.....(horrors)...salesman!
Sorry, I don't buy your sleaze charges.
My questions on IM's were answered politely with NO pressure, by the Vanguard rep. Sorry to disappoint you.

[Boris]

[curly lambeau]

[tetractys]

Ben Stein is a back door salesman. He writes and gives speeches that directly and indirectly support the folks that pay him. It's not always for the benefit of the investor. -- Tet

[4th&Goal]

[grok87]

[ken250]

I've read 2 of Stein & DeMuth's books, "Successful Income Investor" and "Retiring Comfortably", and don't recall coming across recommendations to seek out advisers.

Also, the portfolios they've recommended may not be S&D portfolios but does that make them bad portfolios; afterall, many of the classes/components probably can be found in S&D portfolios.

The second book I mentioned has a wealth of information about retirement income and SWRs, pretty extensive by comparison to what's available.

BTW, I used their Income Portfolio as a template for my portfolio although my stock allocation is double what they suggested since I have about 22 years until retirement. I also hold a broadly diversified balanced fund, which they never suggested doing.

IMO. pretty good books.

[Rodc]

[Phil DeMuth]

I just stumbled on to this thread so I'm late to the party -- it looks like all the cool kids have migrated here from Morningstar.

As co-author of the book, I would be happy to talk about it. The book is about trying to bring Modern Portfolio Theory home to the retail investor.

I posted a couple of follow-up articles on the book at Seeking Alpha. Since I'm new here they won't let me post the links, but if you Google Seeking Alpha and DeMuth you will find them.

In reviewing the thread so far, I just want to say a few things:

1) Historically, Ben Stein's investment recommendations have been superb. No wonder, since he mostly encourages people to buy broad market indexes.
2) He endlessly discloses his affiliation with NAVA.
3) He rarely mentions annuities without adding that they should be bought with a careful eye on fees.
4) Some people are exercised over an (off-topic) movie that hasn't even been released yet. Why not hold fire until you have something to talk about?
5) The retail invester has few better friends than Ben Stein. Economist George Akerlof cited Ben's research in the work that won him the Nobel Prize. Ben did more than anyone to bring down the Drexel junk bond fraud, and also was the one who first exposed Global Crossing. Perhaps this is why he and John Bogle think so highly of each other.

[Bruce]

Thanks Phil,

I have read your and Ben's previous books and enjoyed them and found them to have useful information. I look forward to reading this new one.

I also enjoy Ben's periodic column on the Yahoo finance website.

I have found his perspective to be interesting and useful, and certainly not harmful to the average investor.

I am surprised at the passion in the anti Ben comments posted.
I recommend seeing, "Ferris Bueller's Day Off" (a very funny movie! ) to any diehards before posting any more anti Ben Stein Tirades!

Best regards,
Bruce
_________________
Bruce

"Simplicity is the master key to financial success."

[Random Musings]

Phil Demuth said:

[Helot]

Definitely the strangest investment advice I've ever heard ... ?! Sounds quite perilous and "weird." Someone definitely needs to lock him away.

1. Select a target date for when you want to retire.
2. Calculate how much money you need to accumulate by the time you want to retire
3. Find out about your Social Security benefits.
3. Maximize your use of tax-advantaged plans such as employer retirement plans, individual retirement accounts and annuities.
4. If your employer doesn't have a pension or retirement plan, ask that one be started.
5. Don't touch your savings.
6. Diversify your assets.
7. Ask questions. Get help. Seek the assistance of a professional financial advisor.
8. Start now, set goals.
9. Do a retirement plan and monitor your progress.

[Taylor Larimore]

Hi Phil:
Welcome to the Bogleheads forum.

We look forward to your participation where we try to help individual investors get "a fair shake." (Our mentor, Mr. Bogle's words.)

Best wishes.
Taylor

[Beth]

Began reading him many, many years ago in American Spectator magazine and now follow him in the Sunday NYT. He is an admirable man, patriot [political remark removed by Mod Mel] and financial commentator. I read his and Mr. DeMuth's book about income investing and found it very compatible with DH philosophy (he and DeMuth advise that if you find it too time-consuming or overwhelming to follow their stock-picking advice, simply purchase Vanguard Index Funds and rest easy). In the NYT for months he has expressed outrage about various big money topics that threaten the little guy. He's a class act. He and DeMuth have a certain approach that apparently works very well for them personally and DeMuth's clients. If that's what you want, I think they are trustworthy. They do not appear to me to be snakeoil salesmen. Welcome to the forum Mr. DeMuth. REgards, Beth

[Jack]

[lucky7]

"Yes, You Can Still Retire Comfortably!"
by Ben Stein and Phil DeMuth, excellent book imo. Much in line with DH and the analysis of withdrawal strategies for retirement the best and most comprehensive I have read to date. (Also read, Yes You Can Be Successful Income Investor and would recommend too.) Anyhow, great to see Phil DeMuth posting, welcome!

Bob
_________________
Scotty, beam me up.

[peter71]

Hi All,

Back to the substance of the argument for a minute, I think there are some a priori theoretical reasons to expect that, while hardly "stationary" (constant) negative correlations of stock funds with bonds are nonetheless "stickier" (closer to constant) than those of stock funds with defensive stocks, sector ETF's, etc. Total Bond Market hasn't been spectacular since the end of the book's analysis in 2006, but how would the suggestions for substituting for TBM have done in the last 14 months? Since so many on here already favor TIPS as a substitute for TBM, it might also be fair to ask about comparisons to that . . .

Of course, I'm too cheap to buy the book /and/ too lazy to do the analysis, but just in case anyone's inspired

All best,
Pete

[Phil DeMuth]

I would like to thank everyone for the warm reception.

The book assumes that most people own a collection of cats and dogs and would be extremely well advised to move to a simple indexed portfolio. Full stop. However, we do not think that is the best of all possible solutions. We look at a number of off the shelf pie-chart portfolios -- including one we found at the Boglehead archives! -- and then this is where we go with it (note to forum moderators: I have permission from the publisher to quote this) (Supercharge p.52 et seq.) :


"If we set the books aside, take the dog for a walk, light a Montecristo, and blow a few smoke rings while watching the sun set over the Pacific, what strikes us is that, from one point of view, these portfolios are all really about the same. While they’re a big improvement over the GLOM portfolios [cats and dogs] most folks hold by default, they’re nonetheless all variants of what we might call—for lack of a more elegant term—the GLOB portfolio: the great global glob of stocks.

"These portfolios remind us (and admittedly, we’re reaching here) of those lame, tame rock ’n’ roll covers sung by pretty white boys in the 1950s: They don’t really reach into the deep boogie-woogie soul of Modern Portfolio Theory. As great as they are, what all these portfolios all have in common is that they are significantly underdiversified. They need a shot of rhythm and blues.

"What? Undiversified? With a half-dozen asset classes? Are we crazy?

Don’t Stop!

"So far, we’ve seen that the big idea is to diversify by pitting asset classes against each other: REITs, foreign stocks, small cap stocks, value stocks, and the like. But why stop there? Investors have been offered a free lunch of portfolio diversification, but they’ve settled for a carrot stick on the veranda when they could be inside the banquet hall eating steak.

"Within the thousands of global companies that all these portfolios contain, there are sectors or subgroups that travel (like Linda Ronstadt and the Stone Poneys) to the beat a different drum. These include energy stocks, utilities, technology, commodities, health care, and other market sectors. There are also individual countries where we might benefit from staking out a bigger position. And, heresy of heresies, there are even individual stocks that can diversify the whole lot of them better than any mutual fund can.

"Now, we’re not saying that we have a crystal ball and can identify the top-performing sectors, countries, or stocks going forward. Only Mad Money host Jim Cramer can do that. Just kidding! No one can. Our claim is far more modest. We’re going to examine those sectors, countries, and companies that have the lowest correlations with our other GLOB holdings, and then add these like a drop of vermouth to sex up the cocktail.

"Let’s start with the assets that have the lowest correlation with the S&P 500 Index. This index is going to play a significant role in nearly every portfolio. It broadly accesses the large capitalization stocks of the United States. Because it’s so widely used, it can be accessed cheaply (SPY and IVV both charge a mere 0.10% in expenses annually, for example). We’ll use it as a general proxy for the GLOB portfolio. If you want to use a different index, be our guest. . . .

[Tables here]

Of Names and Things

"Notice that the EAFE index and even the Emerging Markets have fairly high correlations to the S&P 500 index. Here we come to a major fault line running between advocates of capitalization-weighted portfolios and Modern Portfolio Theorists. From an efficient-market, cap-weighted perspective, globalization is essential. From a Modern Portfolio Theory point of view, however, globalization is ineffective. It appears to offer a great deal of diversity to U.S.-based portfolios, but in practice people investing abroad for diversification are kidding themselves if they think that they’re doing much good.

"Think of Plato, who encouraged his followers to look beyond the realm of opinion to the underlying mathematical reality. We’re misled by the names and labels of the funds we own to blithely assume we hold diversified investments, when in fact we only own a bunch of different names of investments. Diversification is a function of the behavior of the constituent parts of our portfolio, and nothing else. We see the sign for the Matterhorn and assume we’re in Switzerland, when in fact we’re only visiting Disneyland. This brings us to a fundamental problem with many portfolios today: pseudo-diversification. It’s far easier for Wall Street to manufacture funds with different names than it is to create funds that are meaningfully different.

"All this gaseous, theory-driven talk about what we should hold in our portfolios leads to suboptimal allocation decisions. Moreover, this loss is invisible, because we never see the dollars that aren’t in our bank accounts because we didn’t diversify more extensively in the first place. Until we take the trouble to analyze our portfolios, we’re in the dark. . . .

"Whenever a high or low correlation is discovered, people will always be able to make up the reasons why it exists—after the fact. Instead of using a theory to make a prediction about what we should consider using in our portfolios, we’re generally better off to let the numbers do the talking.

Are Correlations Forever?

"As wonderful as it is to find assets with low correlations to each other, remember that these relationships aren’t cast in stone. Assets moving in opposite directions for years can change on a dime and start moving in tandem. How are we to deal with this?

"We certainly don’t want to discard the correlations. Doing so will leave us with portfolio simulations that assume zero correlation of the underlying assets, and these in turn would lead us to woefully underestimate our total risk.

"In using this data, we need to assume that highly divergent assets may move more in tandem going forward than they did in the past. That is basic regression to the mean. Even so, we’re better off choosing from a pool of less correlated assets with the assumption that we may need to account for a little more risk, than choosing from a pool of highly correlated assets and hoping that they grow apart. The fact that on a bad day many asset classes will all fall down doesn’t mean we should just forget about correlation and go to the beach. To the contrary, it means that we need to seek out every drop of low correlation that we can. And if your fortunes depend on what the stock market does over any given one-day time period, you probably shouldn’t be invested in stocks at all."

* * *

I apologize for the lengthy quotation but I wanted to give a sense of where we are coming from in this book that may be different from the standard investing boilerplate.

That said, there's a lot in the book that any Boglehead would love, like this: "For most investors, the quest to beat the market will be like mounting an expedition to find the abominable snowman: potentially profitable, but more likely to end in costly disappointment."

[peter71]

Hi Phil,

Thanks for the free excerpts! If you had to sum up the message of the book though would you say it's "MPT for the masses," "MPT without bonds (or at least with fewer bonds) for the masses" or neither?

All best,
Pete

[Jack]

[unclemick]

Norwegian widow, 1948, RR9, SW Washington.



Glad you guys got it. Keep up the good work!

34 individual stocks - current yield ballpark 4% = 15% of portfolio.

Target Retirement 2015 - current yield 3.11% = 85% of portfolio.

Faux annuity = non cola pension + SS = about 40% of retirement income.

I have no problem with personal sin theorywise - pursuing both an income(inc. div and interest) and MPT (5% variable of previous yrs balance).

Without poking thru the list in detail - since 1989 my stocks have changed via merger/spin off etc thru the years and I understand that the number of stocks required to track an index is still an interesting academic debate.

Not a book reader - but I enjoy reading when Ben has an article on Yahoo finance.

heh heh heh - I still consider individual stock picking a hormonal imbalance - a disease I plan to embrace a long long time. .

[4th&Goal]

[Helot]

[Jack]

Well, you have an author who creates an account here for the first time just to promote his book. Taylor, Mel, Rick, Larry and the other authors around here would never be so rude as to just drop into a forum to sell books.

Then to pump up his credibility he makes a bogus claim that "George Akerlof cited Ben's research in the work that won him the Nobel Prize" even though Stein didn't start writing about finance until 15 years after Akerlof wrote his Nobel papers. Perhaps he used a time machine. That alone should cause you to question his credibility.

Next, he invokes Saint Bogle's name as if he has endorsed Stein's book. He hasn't.

Then he tops it off with a "movie trailer" excerpt that has everything except the classic eighth-grade book report summary "to find out how it ends you'll have to read the book."

The thing about Stein is that every once in a while he writes perfectly sensible stuff that sounds just like Bogle. But then he goes off pushing variable annuities as a paid shill. Or he writes a book titled "Yes, You Can Time the Market!" -- with an exclamation point -- that is just a rehash of the rolling average PE stuff that got Hocus banned. With Ben Stein you just never know whether you are reading Dr. Jeckle or Mr. Hyde. That's what makes him dangerous to your portfolio.

[grok87]

[Taylor Larimore]

Quote:

Well, you have an author who creates an account here for the first time just to promote his book.

Sorry, Jack, but I think you are being unfair.

It was actually BJ who made the first post saying:

Has anybody read Ben Stein's new book - "Yes, You Can Supercharge Your Portfolio" ? I'd like to know if it's worth buying.

I can't see anything wrong with the co-author coming in and telling us about it. I am very appreciative. Mr. DeMuth gave us some quotes but I didn't see any direct marketing pitch. He didn't mention the cost or where it could be purchased. Prehaps I am wrong, but I feel Phil was simply trying to respond to a question.

As a co-author myself, I know how difficult it is to repeat anything from our book without appearing to promote it.

I suggest we can all benefit from Phil's experience and wisdom. Let's all give Mr. DeMuth the benefit of the doubt and welcome him to our forum.

Best wishes.
Taylor

[Jack]

[Phil DeMuth]

[peter71]

Hi Phil,

Thanks and that's interesting. Authors Larry Swedroe (pro) and Rick Ferri (con) have been debating the merits of displacing bonds and/or stocks with highly volatile but (perhaps) reliably negatively correlated commodities on here and based on the word "Supercharge" in the title I was thinking you had /higher/ volatility countercyclical stocks in mind (and an MPT argument could certainly be made there if the correlations were sticky) but perhaps you're more thinking along the lines of lower volatility utilities and other dividend-paying stocks and such . . . ? Anyway, my own interest in this stuff is purely academic (I teach undergrad stats but know little about markets!) so I'm hopeful you'll stick around to discuss things further with some of our other author-practitioners!

All best,
Pete

[krelihan]

Phil,

I read "Supercharge" and found it enjoyable to read/provocative. I even obtained the QPP software and began experimenting with the low volatility/low correlation (low Beta) portfolios you discuss in the Chapter of your book entitled "Farewell to Bonds". As illustrated in the chapter, I was also able to build a small portfolio of individual stocks that allowed my overall portfolio to achieve higher (expected and historical) returns without increasing volatility.

But for me the nagging questions was, as you stated above, the stickiness of recent "low beta" stocks to provide diversification over longer periods. I also wanted to understand which industry/sectors provide more inherent diversification characteristics than others. So I built mini (4-5 stock) portfolios of low beta stocks from eight different industries, and backtested their historical beta (and other characteristics) over the last 15 (and for some industries) 24 year periods (data availability in Yahoo being a key constraint).

I am happy to share details, but the key conclusions were as follows:

1) MLPs (pipelines) and utilities are strong consistent performers with average betas around 0.3 over time

2) Insurance (3rd best), Aerospace/Defense (4th best), and Food/Bev/Packaged household (5th best) behaved reasonably, with portfolio betas of the first two averaging around 0.6 over 24 years with the portfolio beta over any 3 year period never exceeding 1.0.

3) Drug manufacturers, medical equipment, personal products (cosmetics) and especially banks were poor performers. The average beta of banks was around 100% with a portfolio beta approaching 200% in some periods.

There were also generally good and bad years across sectors. For example, the average beta of all these sectors was around 1.0 in the early to mid 80's. The turn of the century (99-02) was extremly low at 0.21.

Happy to share more details, however, for me there are a couple important takeaways:

A) The last three year period of data is truly only a snapshot. You need to look at (significantly) longer periods to get a sense of longer-term diversification benefit.

B) The fundamentals of some industries lend themselves better to providing consistent diversification versus others. MLPs and utilities tend to be local monopolies with consistent cash flows and stable business models. Hence their consistent low beta performance.

C) Overall, low beta stock diversification works better in some periods than others. An investor should not be surprised if his/her "low beta" portfolio "unsticks" in unison, particularly in sectors such as drugs and banks.

For me, the analysis provides further evidence that MLPs represent a compelling asset class for any portfolio (despite their tax hassles). I also found the QPP software to be a worthwhile tool that provided a lot of other insights I won't enumerate in this post. I'll end with the advice that one must be EXTREMELY careful when substituting bonds/mutual funds with low beta stocks -- advice Phil that you and Ben state in "Supercharge", but needs to be elaborated/reiterated.

Thanks Phil for an interesting read and a provocative topic!

Best regards,

Kevin

[Gekko]

"Just buy the indexes..."

March 2008

'Don't try to beat the market'

Actor and economist Ben Stein says the average investor shouldn't try to outsmart Wall Street by buying 'the right' stock.

http://money.cnn.com/video/#/v....s.moneymag