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moneysense.ca, 7/09/09
Book Review: Enough Bull
![[Front Cover of Enough Bull by David Trahair]](http://www.canadiancapitalist.com/images/books/enough_bull.jpg)
Enough Bull: How to Retire well without the stock market, mutual funds, or even an investment advisor is David Trahair’s follow-up to Smoke and Mirrors (see series of posts on Smoke and Mirrors Myths). As you probably surmised from the title, the author recommends readers to get off the stock market roller coaster altogether and take refuge in the safety afforded by GICs. Mr. Trahair suggests a six-point action plan for investors stung by the stock market declines of 2008:
- Avoid Personal Financial Disasters.
- You Don’t Need the Stock Market or Mutual Funds.
- Buy a Home and Pay Off the Mortgage.
- Reducing Expenses Doesn’t Have to Be Painful.
- Forget RRSPs Until Your Debt is Paid Off.
- Ask Yourself if You Really Need an Investment Advisor.
It is hard to quarrel with most of these suggestions — after all, paying down the mortgage, investing conservatively, lowering investing costs, avoiding leverage etc. are staple topics on this blog. However, in making the case for investing exclusively in GICs, Mr. Trahair repeats the mistakes in his earlier book and cherry picks the numbers to show equity investing in a poor light. He looks at returns in carefully selected time periods and cites the performance of Apple Inc. (AAPL) between December 2007 and January 2009 during which the share price fell 55%. Funny he should mention AAPL because in the prior 2 years, the stock price increased 160%. The stock is also up 80% since January 2009 price cited in the book. He also repeats the error of completely ignoring the return from stocks in the form of dividends. Mr. Trahair says that in the 25-year period ending in 2008, the TSX Composite index returned 5.2%, which is simply incorrect. Assuming reinvested dividends, the TSX Composite actually returned 7.85%.
It is true that it is hard for investors to succeed while paying sky-high mutual fund fees. It is also not very easy or pleasant to watch stocks plunge dramatically. But the rational response is to own low-cost alternatives such as index mutual funds or broad-market ETFs and to allocate a healthy portion to fixed income — not give up on the stock market altogether.
The softcover book is published by Wiley and lists for $19.95. You can read the book’s introduction on Dravid Trahair’s website.
moneysense.ca, 7/09/09
My ideas about the authors six points:
1. Avoid Personal Financial Disasters. – Agree. Controlling the various risks in life make a lot of sense.
2. You Don’t Need the Stock Market or Mutual Funds. – For most people, investing the stock market makes sense due to dividends and earning growth. At this age, it is true that you might not need mutual funds; ETFs usually would serve you better.
3. Buy a Home and Pay Off the Mortgage. Most cases yes. In Toronto and Vancouver, there might be a housing bubble and home ownership from the height of the bubble can be dangerous.
4. Reducing Expenses Doesn’t Have to Be Painful. That is really true. In Canada, retentions department is your friend.
5. Forget RRSPs Until Your Debt is Paid Off. – Most of the time, it is true. IRR of paying off debt can be higher and more predictable than IRR of various financial instruments. Recently, things have been different especially if you have variable rate mortgage at prime minus something or secured LOC at prime rate.
6. Ask Yourself if You Really Need an Investment Advisor. – Interesting point. Dr William Bernstein says most people do need financial advisors. The irony of ironies is that the method that the author suggests: investing only in GICs usually comes with financial advise in Canada. Financial advisors can act as brokers to get you the best rate for a certain kind of GIC and there is commission embedded within the GIC for the financial advisor. I saw the rates posted at some financial advisor locations and they were as good or better than what is available through the discount brokerage. The discount brokerage is usually not very discounted in terms of GICs. Investment advisors at full service brokerage may be a good place to get term life, critical illness, and disability insurance as well.
I think everything is situation and everyone has to do their own cost benefit analysis. A lot of things listed are true in most cases, but there might be occasional exceptions.
I think a point that the author misses is “Keep Things Simple and Transparent”. That is more important than anything no matter which way you invest: GICs, collars, tactical asset allocation, or buy and hold index funds.
I agree that his examples about the stock market is very misleading. AAPL was an outstanding stock if you used a combination of fundamental and technical analysis. If you bought AAPL in 2003 for 15 dollars a share, AAPL is worth 170 dollars a share right now. There was a 2:1 split in 2005 as well. Your cost per share is only 7.5 dollars after the split. Calculating the return of AAPL from 2003 to the present is about 2150%. Even though, I index most of my portfolio, I am still occasionally buying individual stocks using Growth at a Reasonable Price, hoping to catch the next AAPL or Priceline (Cost Adjusted Price per share in 2003: $10 and Present Price: $150).
Smoke and Mirrors was the first “personal finance” book I read. I really enjoyed it because it confirmed what I had already thought – that you don’t need 70%+ of your income in retirement.
You’re right about avoiding the stock market – it’s not a very rational choice.
Speaking of retirement books – has anyone read “why swim with the sharks: an unconventional guide to early retirement” by Salomaa? Published in 2005, it explains ‘7 retirement myths’ (e.g. 70% rule) the financial industry would want people to believe, and offers some examples of real life numbers. A bit simplified but does offer an different view point…
@Henry: AAPL is my big fish that got away. I was looking at the stock in 2003. $15 per share and the company had $13 in cash! And they had just released the iPod and iTunes. As you point out, it is trading at $340 today (adjusting for the split).
@Mike: I think DT made the same point in Smoke and Mirrors and cited the same wrong numbers. I think he should know better than using incorrect returns data. I’m fine with suggesting that investors won’t be much further ahead than GICs if they pay fees of more than 2.5% — after all, we write about it all the time but using incorrect data is sloppy in my opinion and simply hurts DT’s credibility.
@MM: Yes, I’ve read that book and I even reviewed it here:
http://www.canadiancapitalist.com/book-review-why-swim-with-the-sharks/
thanks CC, it’s good to read you and other reader’s take on the book as well, as I only happened to find it in the library..
@CC: Wow, I never knew AAPL had $13 cash when it was trading @ $15 a share. AAPL @ $15 wasn’t only a GARP stock at that price and AAPL @ $15 should have qualified as a solid value stock by Seth Klarman’s standard.
I remember at that time I was very interested in both AAPL @ $15 and AMD @ $4 a share. I didn’t have access to a discount brokerage account. Opportunity of a lifetime that is gone. I feel I will never find another AAPL, but I cross my fingers.
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This book is on my toronto public library hold list – looking forward to reading it.
Mr. Trahair comments of not needing a financial advisor reminds me of a person who got dumped by his girlfriend and declares all women are bad. He talks about his experience investing in labour sponsored funds and losing his money! Since he claims he is a CA he should know that getting extra taxes back from the government means more risk (read no free lunch).
He does not talk about risk management (insurance) which is like building a house with no doors! The part about investing in GIC’s shows he does not understand inflation or taxes which eat away at the returns. His first book which generally tells people that one should just buy term is like saying one should rent (forever) instead of buying a house.
There is another book out by a Globe and Mail reporter who makes the same mistakes as this book. I believe he has “financial facelift” in Saturday’s Globe. Anyway I am waiting for a plumber to come out with the next book.
[...] 24th, 2009 · No Comments In a recent discussion with the Globe and Mail, Enough Bull (read my review here) author David Trahair once again made a case for investing exclusively in GICs. Unfortunately, I [...]
Great post, as i am having less information about this type of books, so it will help me a lot.
GICs?? David Trahair must have absolutely no concept about how money actually works. With GICs, all one does is LOSE money after inflation and taxes on growth set in. GIC’s allow banks to take your hard earned money, leverage it, take it to pro money managers who earn 12-18% and give us poor middle income earners our 3% which is of course TAXED at our marginal tax rate. Bans use our money to get richer and richer. Shame on you David Trahair for writing this book.