It’s been said many investors profited from the Great Depression. What, on the surface, was a horrible period made many people wealthy in the long run and also advanced the theory of investing. After all, Benjamin Graham wrote the classic book “Security Analysis” in 1934. I think the same can be said from the “Great Recession” that we are currently experiencing. Money is made when everyone is heading towards the exits, not when everyone else is buying. The past two years have opened up some great opportunities to invest and might be some of the best ones we’ll see in our lifetime. Change can be good, if you know what to look for. Ron Insana of CNBC fame, and x-hedge fund manager decided to offer his guidance on the subject. Mr. Insana’s book is called ”How to Make a Fortune from the Biggest Bailout in U.S. History”. If you are an investor junkie like me (sorry I couldn’t resist), you know who Ron is, and you have seen his familiar face on CNBC for many years.
The book is a quick read and is slightly under 200 pages. Ron quickly dives into where we’ve been with a quick history lesson. He then adds a dash of some rudimentary investor psychology. Ron then allocates most of the book to discuss what opportunities he thinks exist in the future. Ron states you should invest in these areas:
- Stocks – with a mention of financials and some blue chip stocks
- Real estate – via home ownership, home builders and REITs
- Bonds – government TIPs, municipal bonds and some junk bonds
Whether you agree or disagree with the areas is a matter of opinion,and it is fine to disagree. Some of his ideas to invest aren’t bad in and of themselves. The concern I have is some of the content might be outdated in the six plus months when the book was finished. With such timely information, Ron may have been better suited of pushing this out electronically as he was writing it. Another option, there are also many traditional financial magazines this content may have been better suited for. What may have been a great area to invest in when he wrote the book, say, for example, financials, could be considered priced high at the moment this blog post is written.
The other concern I have is some of the generalized statements mentioned in the first two chapters. He mentions:
While I believe it always pays to study the past, a quicker way to profit, in this market, is simply follow the pros . . . in the present.
While there is some truth to that statement, my question is, what professionals do you follow? Which ones do you NOT follow? If you are looking for professionals to aid in your investing, why not invest in them directly, ala a Bill Gross from PIMCO mutual funds? If you believe in Warren Buffet, and his investing methodology, should you not just buy Berkshire Hathaway (BRK.B)? Buying direct, so to speak, requires much less thought process and is easy to implement. Instead Ron goes the sexier route and advises to pick stocks and mutual funds that the professionals are picking. Again not necessarily a bad investment strategy, but he doesn’t offer enough details to properly mirror an expert. Included in the book is some basic market psychology, and he does have some correct general assertions like:
Every investment is fraught with risk, although the riskiest time to invest, to be quite honest, is when investors are most complacent about the dangers of investing.
Ron does get into some specifics of sectors, and even specific stocks he’s invested in, in the past year. He does present some good ideas and valid arguments why they should be purchased. He also discusses some advanced investing options that the average investor may not be able to easily take advantage of.
With its timeliness, I’m not sure if this should be in book form, and not in a multi-part Barron’s article. Having the lag of six to eight months from writing till publication, we have a crystal ball to see how some of Ron’s predictions have worked out so far. This can be a good or bad thing. Ron mentions in his book about Sam Zell and his Equity Residential REIT (EQR):
According to recent published reports, despite the troubles in real estate, EQR’s properties are 94 percent occupied and rents have been quite stable. The dividend yield on EQR is above 8.5 percent return on your investment annually[.....] The company has indicated it has no plans or reason to cut its payout – it has never done so since it came to market.
Whoops! Since this statement has been written, EQR’s dividend has been reduced to 4.05 percent. So far, not a great pick. It’s my opinion that REITs on the whole are not a good investment yet, and Ron may have jumped the gun on this one. I believe more headwinds exist in the next year or so, and mainly for commercial real estate. Though he is correct on this statement about REITS:
I say that the yield, or more precisely the dividend yield, should not be too generous because, often, an extraordinary dividend yield could be a sign of trouble.
He should have taken his own advice, and applied it to Equity Residential. His assumption is correct, and it applies today to REITs even in the traditionally “safe” range of 7 – 9 percent.
All is not lost with his book. He does discuss home purchases with the quote:
A home is not necessarily an investment, but it is the biggest single purchase you will ever make. And there is never a good or a bad time to buy. There are better or worse times to buy, based on market cycles…,this is among the best times in modern history to start building equity that you’ll have for your golden years.
He is clear that the primary residence is not a piggy bank, and I applaud the honesty with which he treats the subject. He states it should be looked at as an asset that more than likely will rise in future years. Obviously purchasing a primary home is very location specific and a personal decision. What might be a great time to buy in say, Dallas, might not make sense yet in New York City. Bottom line you buy a house to live in with the prospects it should increase in value over time.
Ron’s book, while not bad, may have been better suited in some financial magazine or online publication. Some of his content contained very timely investment ideas. What may have been a great opportunity eight months ago, may not exist today. He does have some interesting ideas, and the book can be perused for areas to invest into.
Disclosure: Book courtesy of TLC Book Tours.