Preface

I wrote this book because two pernicious trends I had been witnessing both in my business and private lives, year in and year out for many years, had recently become even worse. On the one hand, I saw individuals I knew—and institutions, too—throwing money away on expensive investment advisors and money managers. On the other hand, I experienced intimately those same advisors and money managers, polishing and repolishing, testing, and refining their sales pitches—and I knew they made no sense. All that mattered to these “investment professionals” was that their sales pitches sounded good.

In the last few years, these phenomena and my experience of them have only worsened. The expensive investment advisors and money managers have become even more expensive. And the massively unproductive transfer of wealth from ordinary lower-middle-income, middle-income, and upper-middle-income investors to the incredibly wealthy has not only continued unabated but accelerated until it has become a torrent.

This book is needed to counteract the finely tuned sales pitches and ad campaigns that keep what I call “the Big Investment Lie” in business. But this book alone is not enough. It must precipitate echo upon echo, news stories and media coverage, until it becomes widely known that most professional investment help, no matter how seemingly respectable, is in truth hazardous to your financial health. This fact should be as widely known as the now well-known fact that cigarette smoking is hazardous to your physical health.

The book is written for the general educated reader, with perhaps at least a little rudimentary knowledge of investments. Though the book assumes an elementary understanding of words like stocks, bonds, assets, securities, and rate of return on investment, it also provides a glossary where the definitions of those terms can be found. The book is written for readers with a general interest in investments or a need to know about investments to provide for their financial future or the future of funds that they oversee.

My book is intended both for small investors and for wealthy investors who qualify to invest in hedge funds. It is both for individual investors and for institutional investors—that is, those who oversee pension funds and endowments. And it is even for those who only have retirement funds through their corporate pension funds, who may not realize how much of those funds are squandered wastefully on expensive investment services.

Readers will receive from this book very important, practical information. First, they’ll find out that professional investment help is a good deal worse than useless. Second, they’ll find out that in spite of the apparent complexity imposed on investing by the investment profession, the most beneficial investment strategy is in fact quite simple.

Following the introduction, the book is organized into three parts and a conclusion. The first part shows how much professional investment advice and management costs (far more than you may imagine). The second part shows why this professional advice and management is virtually worthless and how Nobel Prize–winning theories show that an investment strategy skirting the professionals entirely is the best policy. The third part shows how professional advice and management are sold to you. In this part you will also see how hedge funds are sold to the wealthy and how conventional money management and hedge fund management are sold to institutional investors (with the costs paid by pensioners and stockholders of for-profit corporations, and by donors to nonprofits). Finally, the book concludes by showing that by adhering to simple investment principles and by plugging into their portfolios—in appropriate proportions—highly refined but ultralow-cost, readily available, sophisticated “chip”-like investment modules, investors can optimize the growth of their wealth.

I would like to thank my superb editor and publisher, Steve Piersanti of Berrett-Koehler (BK), for taking my project on and guiding me through numerous revisions. I would also like to thank BK’s managing editor, Jeevan Sivasubramaniam, for shepherding the book through production to publication, and my marketing coordinator, Ian Bach, for overseeing the team that handles everything having to do with marketing strategy, as well as Kristen Frantz, BK’s Vice President of Sales and Marketing. I would like to thank my agent, Craig Wiley, for finding so excellent a publisher and for offering astute comments and assistance when needed, and I would like to thank Clifford May for introducing me to Craig. And I would like to offer a hearty thank-you to the four outside reviewers retained by BK—Charlie Dorris, Ed Winslow, E. B., and Johann Klaasen—for reading carefully through the manuscript and offering crucially helpful comments—particularly to Charlie Dorris, who read two versions of the manuscript at different times.

I would like to thank Jim Sample and Bill Kleh for reading through early drafts and offering invaluable comments. And I would like to offer a special thanks to Mark Rubinstein, who read the manuscript carefully for technical accuracy and terminology. I incorporated as best I could their incisive comments and corrections. Any remaining errors or inaccuracies must remain the fault of the author alone.

Last, but far from least, are a few personal thank-yous. First, to my late cousin, Robert Edesess, who figures prominently in Chapter 2 but died in a tragic airplane accident a few months before the publication of this book. I am sorry he did not survive to see it in its published form. I would like to thank especially Maria de Graça Moreira and her wonderful family, Ana Rita and Gui, for providing the delightful company and warm environment that any author needs to keep going through thick and thin. And I would like to thank one of the world’s best landlords, the engaging and entertaining Antonio Luis Pedro Baptista.