Updated on 04.25.10

Review: The Little Book of Bulletproof Investing

Trent Hamm

Every Sunday, The Simple Dollar reviews a personal finance book or other book of interest.

bulletThe Little Book of Bulletproof Investing by Ben Stein and Phil DeMuth is the most recent entry in the Wiley Little Books series and probably the most entertaining one, too. The first thing you’ll pick up from the book is a good deal of humor: while they treat the subject seriously, they don’t treat it as Serious Business. This actually makes the book a rather enjoyable read.

The Little Book of Bulletproof Investing focuses, unsurprisingly, on a conservative investment philosophy that doesn’t focus on earning a mint, but does focus on earning a steady return and not facing giant losses when the market dips. They focus heavily on diversification and steady investing with a very long-term focus without any real concern for short term dips and bubbles.

In other words, it’s a philosophy I like.

One | The Nut Behind the Wheel: Behavioral Finance in One Lesson
We trust our emotions so often in day to day life that it seems completely natural that we trust them when it comes to our finances. Yet, when we do rely on our emotions to help us decide what to do with our money, we usually wind up in trouble. We buy when we’re confident (usually a bad time). We sell when we’re afraid (almost always a bad time). The one lesson worth learning is that we need to remove our emotions from our financial decisions and take them entirely based on the numbers.

Two | Wall Street Therapy: For Good and for Evil
The best course of action is to have a plan. Know the reasons why you’re investing. What are you investing for? If you can’t answer that with anything beyond, “To, uh, get rich,” you don’t have a plan. Start with your goals first. If your goals are long term, invest for the long term. If your goals are short term, invest for the short term. Don’t let all of the investment talk out there confuse you, either – much of that talk is directed towards day traders, institutional investors, and all sorts of people who are investing for different reasons and with different levels of acceptable risk than you.

Three | How Not to Invest: Kids, Don’t Try This at Home
Slow, steady, and boring wins the race. You can’t beat the stock market by stock picking. You can’t beat the stock market with timing, either. Instead, your focus should be in diversification, so that you do reasonably well when others are doing well but don’t completely fall apart when a bubble pops (like the tech bubble or the housing bubble).

Four | How to Invest: It’s Not as Fun as It Used to Be
Simplify. Diversify. Minimize expenses. Buy and hold. That’s really what the whole solution to investing for most people boils down to – and it’s not all that glamorous. People often imagine investing as being something like day trading or the movie Wall Street when it’s actually more akin to putting money in a savings account. It’s all about patience.

Five | The Holy Grail of Investing: Having Your Cake and Eating It, Too
The best way to invest over a very long period is to simply own a tiny slice of every investment in the world. This is, in effect, an investment in human ingenuity, which is something that is constantly moving forward without cease. Of course, no fund really offers this as an investment, so we have to approximate as best we can. Their suggestion largely revolves around owning a big handful of very broad index funds that, together, cover almost everything.

Six | Bulletproofing Your Investments: A Recipe for Setting Up Your Tangent Portfolios
The “Tangent Portfolio” that they discuss is basically what’s discussed in the previous chapter – a very diversified investment portfolio. They offer several different options depending on how much risk you want and encourage people who want less risk and more stability to buy government bonds (i.e., treasury notes) to supplement things, because they view such treasuries as the most stable investment there is.

Seven | Pulling the Trigger: Practicing Portfolio Management at Home for Fun and Profit
The thing is, given all of the tools available on the internet, a person really doesn’t need an “account manager” to manage all of their stuff for them. Almost everyone can just do it themselves with a bit of reading and thinking and an internet connection. We all have access to a plethora of brokerages and investment purveyors, all competing for us with very low prices. We can assemble things ourselves and just pick and choose what we need.

Eight | Become the CEO of You, Inc.: Get Wise, Get Smart, Get (Further) Educated
The best thing you can do for maintaining a financially successful future is to take care of yourself. Learn as much as you can as often as you can. Eat healthy and avoid substances that can alter your rational frame of mind. When you go to school, don’t view it as “party time” – view it as just as important as the other parts of your life.

Nine | Human Capital 411: Your Personal Human Potential Movement
At the same time, human capital is valuable. This basically means to be a good person and put effort into relating to others in a positive fashion, as those relationships will do nothing but help you. This often means steadier earnings and greater earning potential, which does nothing but improve your investment opportunities and returns.

Ten | Save ‘Til You Drop: Topping off Your Piggy Bank
Counterbalanced with earning more is spending less. Get control over your spending impulses. Don’t buy stuff you don’t need unless you can easily afford it. Look for ways to change your life routine that doesn’t affect your quality of life but does result in less spending.

Eleven | House of Blues: Welcome to the Neighborhood of Poverty
Don’t buy a home unless you can truly afford it (i.e., not making yourself “house poor”), but when you can afford it, you should buy. Of course, one big exception to this is if you move frequently, because all of the associated costs and fees with buying and selling homes over and over due to the whims of your career and other such things will eat up any gains you might get from your home. Also, never buy into a “hot” housing market, and never be afraid to be the richest person in a neighborhood, as it’s far better to be there than to be the poorest person in a rich neighborhood.

Twelve | Can You Still Retire Comfortably?: Retirement Was Overrated, Anyway
Want to know how to avoid retirement concerns? Don’t retire. Instead, invest your energy into finding the things that you love doing anyway and how to make an income from them. When you find that, you won’t want to retire and retirement savings will msotly just allow you to take more career risks later on and merely insure your very final years of life.

Thirteen | The End Game: “If Something Cannot Go on Forever, It Will Stop”
The book ends with some very sane estate planning advice. The most important thing you can do if you want to pass on an estate is to start passing it on when you’re still alive. Start healthy 529s for your grandchildren and give large gifts to your children now. This way, you can be sure your estate will be small when you pass on and they won’t have to deal with estate tax issues. Also, fully document where all of your money is and how to access all of it and make sure that document is accessible to the people you would leave behind.

Is The Little Book of Bulletproof Investing Worth Reading?
Does this book break a lot of new ground when it comes to investing topics? No. Does it provide a very entertaining read while also providing a good foundation in conservative long-term investing principles? Yes.

If someone came to me and simply said, “Hey, I’m going to start investing in my 401(k) and maybe with a little bit of extra money I just came into, but I don’t know the first thing about it. All I know is that I don’t want to lose half my money by investing the wrong way,” this is the book I’d probably give them. It’s entertaining, concise, and gets the principles across.

It’s not a thorough, detailed investing guide, but, quite honestly, a book probably shouldn’t be that because the actual mechanics of investing and the specific things to consider investing in change regularly. This book serves as a starting point to get the basic ideas across, but you’ll have to take the next steps yourself.

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  1. Rob says:

    Ben Stein has always been one of the odd ducks in my financial reading- I rarely agree with his specifics, but I like the gist of what he’s saying and I enjoy the way he says it.
    This books, even with DeMuths additions, was about the same for me. I would never invest in the suggested Tangent portfolios, but everything leading up to them was worth the time I put in.

    It’s a library book, not a purchase book for me….but a good one.

  2. littlepitcher says:

    Where were you all when I was, indeed, the poorest property owner in a well-to-do neighborhood and was afflicted by house-flipping sharks who had my employment blacklisted to force a distress or back-tax sale?

    Do what the man says on this one, seriously.

  3. Andrew says:

    I hoped that Ben Stein learned something from the heavy losses he took back in 2008, but according to the review of this book, it seems he is preaching the same kind of investing philosophy that has forced him to now do free credit score commercials. “Economists” like Stein preach the Random Walk theory because they are failed investors. Consistently beating the markets can be done, and you don’t have to daytrade or live the “Wall Street” lifestyle to do it. However, these types of books will not get you there.

  4. Andrew says:

    And just so it doesn’t seem like I’m criticizing without providing anything constructive, here are three of my favorite books on investing/trading that I believe provide some timeless advice. If you want to take control of your own investing instead of paying a broker high fees or having to watch your account fall apart in a bear market, then please read these books. If you still think that Ben Stein’s method is better, than at least you made an attempt to see over the other side of the fence.

    Jack Schwager-Market Wizards (Learn from some of the most profitable portfolio managers and traders of all time)

    Marty Zweig-Winning on Wall Street (Good mix of fundamental and technical analysis from one of the most respected analysts ever)

    Stan Weinstein-Secrets for Profiting in Bull and Bear Markets (The best book on technical analysis I have found. Only teaches you what you need to know)

  5. MelodyO says:

    I wonder about his advice on being the “richest owner in a poor neighbourhood”. I’ve read many times that it’s better to have the poorest house in an expensive neighbourhood because that way your property values are much more likely to rise than in a bad neighbourhood (no matter how nice your individual home may be). That makes better sense to me, unless you can’t afford to buy a house otherwise.

  6. thomas adair says:

    Traders are taught that the Holy Grail to Investing doesn’t exist. Real people were taught that all the planet’s move about the earth, don’t go to far out into the ocean(you’ll fall off the earth), on and on……….

    When one looks outside the box(inventor), goes against the group(thinks for self), said they found(developed) something that is supposed to be impossible(airplanes), they were once killed. Now these people are called bad names and delegated to be unheard, and ignored group.

    The ultimate business solution. The ability to cut the cost of any business expense, or just plain invest.

    I developed multiple arbitrages that enable me to trade(not invest) in the finacial markets, without risk(The Holy Grail to Investing), or arbitrage that anyone can do. Over 30% a year.

    Thomas Adair

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