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Book Review: Money – Master the Game

I don’t usually review books, but when a book about money hits #1 on Amazon then it’s worth taking a look.  Money – Master the Game by Tony Robbins is a 600 page book about money that purports to provide the reader with the tools and understandings to become financially independent by following 7 simple steps.  This is a pretty bold topic for Robbins to cover considering that it’s not his area of expertise.  There’s a lot to like about the book, but I came away from the book feeling conflicted.

First, I am excited that someone of Tony’s stature and reach is taking this topic seriously because the general public is so badly misinformed about the topic of money that any little bit of added education is a positive.   The more we can turn the spotlight on this topic the more informed we’ll all get.  So, before I point out some criticisms of the book I should note that the mere fact that Robbins is writing this book is a good thing.  He’s putting the spotlight on an extremely important topic.  At the same time, “money” really isn’t a “game” and people like myself who are professionals in this industry think that it’s pretty important to not only take this stuff seriously, but get the details right in a fully transparent manner.  So let’s explore the text a bit more:

  • The first step in achieving financial success is getting in the game.  Robbins is making a hugely important point here.  Most Americans don’t even own stocks or bonds so the decision to invest in the first place is the most important one.  Robbins and his motivational style get the reader excited about getting involved in the markets and making smart decisions with your money.  So bravo for step 1.


  • Robbins cites the importance of investing in yourself.  Regular readers know that I think this is the most important investment you’ll ever make.  So again, Robbins makes a crucially important point here that everyone should digest.


  • Robbins stresses the importance of becoming an “insider” and steers the reader towards many of his own companies or companies he’s partnered with.  This left me conflicted and feeling as though I was reading a commercial for a few firms that Robbins may or may not have a financial relationship with.  I wish he’d spent less time promoting certain firms and more time providing unbiased and objective advice.


  • He regularly demonizes high fees, but goes on to recommend working with firms like Lifetime Income and Stronghold Financial.  I called Lifetime Income to inquire about their products and they referred me to one of their California partners who informed me that their fee structure starts at 1.5% and is often higher depending on the product.  So, the book promotes a low fee approach, but specifically recommends working with companies who will then outsource you to high fee firms.  This is a contradiction that is difficult to reconcile and seriously undermines the credibility of the text.


  • The book is filled with contradictory strategic investment commentary.  Robbins stresses the importance of using passive index funds, but also explains the importance of asymmetric returns and active strategies.  He interviews supposed “insiders” who have totally contradictory approaches (stock traders, activists and indexers) while putting many high fee hedge fund managers on a pedestal.  He even cites his own market timing calls over the years as if that adds any value to the text without mentioning that he has made some very publicly horrible stock market calls (see here for instance).  You come away thinking that these high fee active managers are geniuses, but then you’re told at points that high fee active managers are useless.  Again, the commentary seemed to contradict itself consistently.


  • He does discuss one specific investment allocation approach in great detail.  He holds the Ray Dalio “All Weather” strategy up as if it’s some sort of genius asset allocation, but as I previously noted, the Tony Robbins “All Weather” is not really Dalio’s All Weather approach.  In fact, it is nothing more than a cookie cutter bond heavy asset allocation.  Robbins refers to it as a “never-before-revealed” strategy, but the All Weather strategy has been well documented and is even replicated by many fund companies.  But the Tony Robbins portfolio, which Dalio himself says is vastly oversimplified is just a bond heavy allocation that performed well over the 30 year period when bonds were in a huge bull market.  Granted, you could do worse than this approach, but the way Robbins presents the strategy makes you think that Dalio has offered up some holy grail for investing or a secret that he has never disclosed.  But that’s not really the case at all.


  • Robbins promotes structured notes, annuities and market linked CD’s all through the book stressing all the “guarantees” in the products.  Well, you pay for those guarantees. There is no free lunch here.  So you get this endless back and forth about these high fee products combined with an endless message about how high fees are bad.  And as I mentioned before, when I called Lifetime Income to inquire about an indexed annuity I was promptly referred to a high fee advisor.


  • At one point he goes on about the dangers of the national debt in the USA.  It’s not the first time he’s done this.  I wrote a post that was critical of this video he produced in 2012 talking about how the USA was on the verge of some fiscal crisis.  Unfortunately, this is the problem with someone who’s an expert in something else who suddenly tries to conquer a huge topic like money.  You have a tendency to oversimplify and misunderstand macroeconomic concepts.  People who say the US government is bankrupt or running out of money lack the very most basic understanding of macroeconomics.  I’ve been writing papers, books and posts about this topic for years trying to better educate people about the solvency risk of the US government.  But the message clearly isn’t getting out to “insiders” like Tony Robbins.


  •  There are more minor issues with the text that only bother a nerd like me.  For instance, he doesn’t ever define money or talk about where it comes from.  I just find it odd to write a book about money without defining what money is or describing the system in which money exists.  He also stresses the idea of saving, but makes the classic macro fallacy of composition by misunderstanding that aggregate saving cannot lead to more saving.  Things like this make me seriously wonder if Robbins really has a good grasp on these topics.

I’m being hypercritical, but this is a very important topic and Robbins is influencing a lot of people.  And while he certainly moves the ball in the right direction I still think the book comes up a bit short.  I hate to sound negative because I am certain that Tony has good intentions, but in order to understand money we need to have a really honest discussion about it.  After all, that’s what money really is in a modern monetary system – credit, from the latin word credere meaning to “believe”.  Unfortunately, for me, the contradictions on fees, products, gurus, strategies and basic misunderstandings just don’t add up and reduce the credibility of many of the core concepts.

Louis CK on Risk Management

By Ben Carlson, A Wealth of Common Sense

“I never viewed money as being ‘my money.’ I always saw it as ‘the money’.  It’s a resource. If it pools up around me then it needs to be flushed back out into the system.” – Louis CK

The following comes from an episode of Louis CK’s brilliant TV show, Louie, as part of one of the short stand-up routines he intermittently mixes into the show. I found that it instantly clicked with me from the perspective of risk management in the different stages of the market cycles:

You try to keep your kids safe. Like, if my kids get in a car with me, I make them buckle up. I make a big deal out of it; I’m not even starting this car until you buckle your seat belts.

But if we get in a taxi, I’m like, ‘Just…it’s fine. Taxis are magic, nobody dies. Just get in, just go.’

I’m not digging in the seat for a belt. There’s no way I am blindly digging into the hepatitis and severed toes so that you can have a seat belt.

The genius of Louis CK — it’s funny, because it’s true. Has anyone actually ever worn a seat belt in a cab?

Using seat belts in his car symbolizes prudent investor behavior. The seat belt is risk management — discipline, patience, diversification, level-headedness and a plan of attack. You don’t expect things to go wrong at all times but you buckle up every time just in case.

On the other hand, his taxi strategy is what can happen during a bull market. Everyone starts to roll the dice by riding with no seat belt on. Conservative behavior is no longer at the forefront of investor’s minds. Everyone else is making money in certain areas of the market, so what’s the point of diversification, asset allocation or risk management?

After the near-10% correction in mid-October and subsequent snap-back rally to new highs I’ve heard many investors talking about the fact the market always comes back. Why worry? The market comes back every time? Nothing to see here. With stocks once again at all-time highs this is, of course, a true statement. The market has always come back. Every single time, in fact.

But that doesn’t mean there won’t be times where the market goes down much further than it did last month. There will be bear markets that last a long time before stocks fully recover from losses. This is an important reminder at times like this when it seems so easy. Investors are never as smart as they feel during a bull market or as dumb as they feel during a bear market.

It’s been a pretty spectacular 50% gain since the beginning of 2013 that basically no one saw coming. It’s amazing how quickly investors can go from being conditioned to only expect further losses following the crash to only expect further gains following the recovery. Eventually we’ll get to a point in the cycle when everyone starts feeling pretty confident riding in the back of the cab with no seat-belt on. Maybe we’re there already.


Further Reading:
Of course…but maybe: Financial advice from Louis CK
What stage of the bull market are we in?

The USA is Literally Falling Apart….

Good segment on 60 Minutes here exploring the very serious problem of America’s failing infrastructure.  Last week I noted that an infrastructure plan should be one of our “no-brainer” policy ideas.  If you want to see just how huge a problem this is then watch the 60 Minutes segment.  It’s frighteningly important that we start to deal with this problem in a big way. Unfortunately, myths about the USA being bankrupt or on the verge of a high inflation continue to keep us from implementing the necessary fixes….Not to mention the fact that our leading policy theorists seem to all think that the Fed is enacting this massively “stimulative” policy via QE so that leaves no room for fiscal policy.  It’s all misleading, hurting economic performance and making the country an unsafe place.

Source: 60 Minutes

Investing and the Intertemporal Conundrum

I went to see Interstellar last night.  I won’t ruin it for you, but if you’re in to things like time travel, intergalactic travel and space ships then you should probably go see it.  One of the central themes of the movie is relative time discrepancy.  Due to gravitational anomalies time in the movie is a relative unknown.

Naturally, this got me thinking about how this relates to money and investing.  Money, after all, is essentially a way of trading our time so we can obtain access to other needs and wants within the economy.  Investing in financial assets is a way of trading money now to obtain more money in the future.  Money and time aren’t just related.  They are two sides of the same coin.

Therefore, time is a key element in our investing lives.  But it’s also a relative unknown.  In my book I call this the “intertemporal conundrum” – the problem of time in a portfolio.   That is, we have our own relative time discrepancies in our financial lives.  The majority of academic models that discuss investing use a linear model of the financial world and apply financial asset allocations based on this linear thinking.  This is the essence of the rationale for “buy and hold” investing.  That is, in a linear system with a long enough time horizon stocks will have a more predictable and linear output.  That is intuitively obvious and factually true.  Of course, this model of the world assumes that it applies to our portfolios in a practical sense when, in reality, it doesn’t since our financial lives are actually a series of events and not the start and stop model that many use for planning.  Interestingly, day traders do the opposite.  They try to trade their way to the future thereby playing a game of low probabilities and high frictions generally resulting in financial ruin.

So what’s the problem here?  Well, our lives aren’t these clean linear experiences.  Our lives are a dynamic series of events (graduations, marriages, children, emergencies, retirement, elderly care, etc).  And since our savings portfolios are comprised of the repositories from which we decipher our ability to make choices about future spending then this repository can’t be all that dynamic.  It has to be somewhat stable.  The logic behind this is very simple.  If our investing timelines exist on a relatively short period (maybe 30-40 years?) and our earnings and spending needs are dynamic over that period then why would we apply a model of the world that implies that we can actually hold certain asset classes for the entirety of that time period?  More importantly, it begs the question whether anyone actually WANTS to hold that asset for the entirety of this investing period.  As Keynes said, in the long-run we are all dead and I don’t know about you, but I don’t work all day hoping to die with a casket full of unspent money.

And this is the danger of the ideas espoused by advocates of “the long-term” or the “short-term”.  These models try to distort time and often apply approaches that result in a highly impractical approach to portfolio management.  There has to be something in the middle.  Something more balanced that accounts for the dynamism of the financial system and our financial lives.  Anything else is impractical and defies the reality of the way our portfolios relate to our actual financial time frames.

Avoiding The Recency Bias in Foreign Stock Markets

By Ben Carlson, A Wealth of Common Sense

“International diversification might not protect you from terrible days, months, or even years, but over longer horizons (which should be more important to investors) where underlying economic growth matters more to returns than short-lived panics, it protects you quite well.” – Cliff Asness

I’m probably belaboring the point on global diversification, but I think it makes sense to revisit these types of important topics to offset the recency bias of assuming the future will play out exactly like the recent past.

Markets are in a constant state of change and above all else, they are cyclical. See the rolling three year outperformance of the S&P 500 over the MSCI EAFE since 1970 for proof:


Any time that line dips below 0% that means foreign stocks were outperforming on a total return basis over the previous three years. This shows that U.S. stocks are outperforming international stocks by more than 50% over the last three years.

The over- and underperformance can get to extreme levels (yes, that’s over 250% of outperformance for international stocks in the late-1980s) for both U.S. and international markets, but there were also some fairly quick reversals as well.

Looking at the annual returns by decade for each shows how out of sync the developed markets can become over longer periods:


Globalization was supposed to increase the correlation between the different stock markets around the world, but it just doesn’t seem to be happening quite yet. We are still seeing periods of divergent performance.

It very well may turn out that having a larger exposure to U.S. stocks will continue to be the right move for the next few years. These trends can last longer than many think. But even if a long-term cycle of outperformance continues, over shorter time frames the results can still prove to be uneven. Take a look at the winning percentage of annual returns by decade for the EAFE and S&P 500:


While foreign stocks slaughtered U.S. stocks in the 70s and 80s, they only outperformed six out of every ten years. Even when U.S. stocks came back with a vengeance in the 1990s, foreign stocks outperformed three out of the ten years, which abruptly reversed over the following decade.

This type of back and forth leadership is actually a good thing for a diversified portfolio because it allows an investor to rebalance from the relatively strong market to the relatively weak market. Even those decades with severe underperformance allow investors to take advantage of shorter-term outperformance by the laggards in any given year.

A balanced portfolio is always going to have an asset class or two that’s out of sync with the winner(s) in the portfolio. That’s the trade-off for managing risk. The mistake most investors make is abandoning diversification right before they need it the most. Unfortunately, the markets don’t run on a set schedule to tell us when those regime changes will take place.

Further reading:
Global diversification: Accepting good enough to avoid terrible
How diversification works

Now for the stuff I’ve been reading lately:

  • Investment lessons from the poker table (Vitaliy Katsenelson)
  • Investor behavior > Investment behavior (Irrelevant Investor)
  • Charley Ellis: Risk matters (Wealthfront)
  • The wall of worry, illustrated (Bason)
  • Charlie Munger’s advice to Bob Rodriguez 30 years ago (Valuewalk)
  • Vanguard’s impressive performance record (Reformed Broker)
  • A perfect example of the behavior gap at work (Abnormal Returns)
  • Markets are one big cycle of long-term stability followed by short-term instability (Crossing Wall Street)
  • Not everyone sucks at investing (Philosophical Economics)
  • There’s no such thing as an intermediate-term investor (Brian Lund)
  • Happiness is somewhere between having too much and having too little (Prag Cap)
  • What if you only invested in the 5 best performing country stock markets from the previous year? (Novel Investor)
  • Barry Ritholtz on Tony Robbins’ skills as a financial guru (Big Picture)
  • How your Shazam app is deciding the music industry (Atlantic)

Deep Thoughts from Howard Marks

I just wanted to pass on this great talk from Howard Marks at the CFA Institute.  He touched on a variety of different topics and many that I fully agree with:

  • Risk and reward are not necessarily correlated.  After all, if riskier assets could always be counted on to generate higher returns then they wouldn’t be riskier.  Therefore, volatility can’t be “risk”.  This is why so many academic models of the financial markets end up leading us astray.  Instead, Marks says that risk means there is a high probability of more uncertain outcomes.  You might have seen the chart below from Marks depicting this concept which basically shows that the distribution of uncertain outcomes increases as you take more risk.  This is a vast improvement on the idea of the efficient frontier which simply implies that more risk will generate more return which often leads people to think that they’ll do better simply by owning stocks “for the long-run” or something like that.


  • Marks notes that making predictions is incredibly difficult.  Instead, it’s better to focus on ways in which we can improve our probabilities of good outcomes.  Many times in the financial markets we’re better off knowing what we don’t know.
  • We’re all going to be wrong a significant amount.  One of the keys is ensuring that we don’t make significant mistakes.
  • You have to learn second level thinking which involves thinking differently and better.

I don’t agree with everything Marks says, but there’s a lot of good thinking here so give it a listen if you have some time.

3 No-Brainer Policies Our Government Won’t Implement

I catch a lot of flak for trying to remain politically agnostic.  Which is deserved I guess.  But when I talk about money and finance I generally try to remain operational in nature.  That is, I try my best to speak objectively from what I know about the world and not what I want that world to look like.  Well, I’ll deviate from that approach for this post, but let me be very clear that these are simply my personal opinions based on my understandings and someone who understands the world through the understandings that I generally espouse (see here) could come to very different conclusions.

That said, here are three things I think are absolute no-brainer policy changes.  But they’re also three things that will almost certainly not happen because the political environment is too messy to actually get policymakers to act:

1)  The government should implement a substantial infrastructure investment program.  It’s well known that the USA’s infrastructure is falling apart.  Our roads are old, our bridges are falling down and the substantial investments we made in past decades are depreciating rapidly.  If the USA were run like a smart corporation it would reinvest in these projects and bring them up to modern standards.  Of course, the US government has the luxury of not being a for-profit entity.  And since the USA is the world’s reserve currency with no debt denominated in a foreign currency it has the luxury of being able to spend without having to worry about foreign creditors declaring it bankrupt.  And with interest rates at record lows it only makes that much more sense that we would borrow the funds to implement these projects.  After all, the US government can sell bonds at 0% today.  The market is basically begging the government to issue more debt.

Why it won’t happen – politicians, pundits and economists are mostly convinced that the USA is bankrupt (which it most certainly isn’t).  Nevermind that this can’t operationally happen.  The US government’s balance sheet is nothing like a household’s balance sheet.  But the misinformation on this topic is so vast that any project that adds to the national debt will be sold as some “burden” on future generations or something that will potentially bankrupt the country.

2)  The government should pass broad middle class tax cuts.  The middle class can’t seem to catch a break.  The recent recovery has been uneven in a way that is most unusual.  And the median earners in this country just aren’t seeing the benefits that many other groups are.  A substantial middle class tax cut would reduce the balance sheet burden that many middle income earners continue to experience and help to drive more spending from what should be the engine of the economy.

Why it won’t happen – See above.  We are bankrupt, inflation is coming, the dollar will collapse, [insert failed prediction about negative impact of government debt here].

3)  Raise taxes on secondary market “investments”.  I have to apologize first to myself for this (because this would be a personal tax hike) and also to all of the people I work with who tend to be high net worth asset holders.  

As I’ve explained before there is really no sense in taxing secondary market “investments” favorably because secondary market “investing” is not really “investing” at all.  This idea exists largely because of the myth that secondary markets are where we make “investments”.  Of course, primary market investments are incredibly important and we should encourage primary market investment as that drives funding towards innovative endeavors.  But secondary market transactions are mostly just reallocations of saving between private parties that have no impact on whether firms make real investments in the future.  When most people “invest” in the stock market they’re really just allocating their savings.  The corporation doesn’t obtain money and really doesn’t care who owns the shares on the secondary market.  But because most people think of this as “investing” they think that this deserves special tax treatment because investment is so crucial to the prosperity of the country.  Unfortunately, the low taxes on dividends and capital gains often drives firms NOT to invest because they can return cash to their shareholders in a more tax friendly manner.  This policy of taxing secondary markets favorably doesn’t make much sense at an operational level, but it persists primarily because it helps the wealthy keep more from their primary sources of income.

Why it won’t happen – raising taxes on the wealthy asset holders in this country would be a wildly unpopular move and since most politicians receive huge funding from the wealthy this move would almost certainly never happen.

The Difference Between an Investment Firm and a Marketing Firm

By Ben Carlson, A Wealth of Common Sense

I’m doing some research for a side project and came across an absolute gem from Jason Zweig that appeared in John Bogle’s book Common Sense on Mutual Funds. Here’s Zweig’s take on the difference between a marketing firm and an investment firm from an industry conference in 1997:

Today, the question that you must decide as we face the future is crystal-clear: Are you primarily a marketing firm, or are you primarily an investment firm? You can be mostly one, or you can be mostly the other, but you cannot be both in equal measure.

How do a marketing firm and an investment firm differ? Let us count the ways:

  • The marketing firm has a mad scientists’ lab to “incubate” new funds and kill them if they don’t work. The investment firm does not.
  • The marketing firm charges a flat management fee, no matter how large its funds grow, and it keeps its expenses unacceptably high. The investment firm does not.
  • The marketing firm refuses to close its funds to new investors no matter how large and unwieldy they get. The investment firm does not.
  • The marketing firm hypes the track records of its tiniest funds, even though it knows their returns will shrink as the funds grow. The investment firm does not.
  • The marketing firm creates new funds because they will sell, rather than because they are good investments. The investment firm does not.
  • The marketing firm promotes its bond funds on their yield, it flashes “NUMBER ONE” for some time period in all its stock fund ads, and it uses mountain charts as steep as the Alps in all its promotional material. The investment firm does none of these things.
  • The marketing firm pays its portfolio managers on the basis not just of their investment performance but also the assets and cash flow of the funds. The investment firm does not.
  • The marketing firm is eager for its existing customers to pay any price, and bear any burden, so that an infinite number of new customers can be rounded up through the so-called mutual fund supermarkets. The in­vestment firm sets limits.
  • The marketing firm does little or nothing to warn its clients that markets do not always go up, that past performance is almost meaningless, and that the markets are riskiest precisely when they seem to be the safest. The investment firm tells its customers these things over and over and over again.
  • The marketing firm simply wants to “git while the gittin’ is good.” The investment firm asks, “What would happen to every aspect of our operations if the markets fell by 67 percent tomorrow, and what would we do about it? What plans do we need in place to survive it?”

Thus, you must choose. You can be mostly a marketing firm, or you can be mostly an investment firm. But you cannot serve both masters at the same time. Whatever you give to the one priority, you must take away from the other.

The fund industry is a fiduciary business; I recognize that that’s a two-part term. Yes, you are fiduciaries; and yes, you also are businesses that seek to make and maximize profits. And that’s as it should be. In the long run, however, you cannot survive as a business unless you are a fiduciary emphatically first.

In the short term, it pays off to be primarily a marketing firm, not an investment firm. But in the long term, that’s no way to build a great business.

This is perfect. And it’s not something you’ll hear from many people in the investment industry. Bogle goes on to say that Zweig’s point was mostly lost on the attendees because they were largely mutual funds advertisers.

Most investors will be immediately drawn to the marketing firms because people typically gravitate towards certainty, confidence and the latest fads. The choice is obvious who you should be looking to partner with over the long-term (the only period that matters).

Common Sense on Mutual Funds

Further Reading:
Unfortunate Realities of the Investment Business
The Secret Sauce of the Investment Business