Background: Came across this book by Gary Marks. Picked this up because I saw that the Foreward was written by John Mauldin, and I like the weekly newsletters that John Mauldin puts out.
- The nice thing about this book is that it puts out its main point very early on =) Basically, the book defines the “End Game” as the point where individuals and their families no longer have to be concerned about money (e.g. enough principal invested safely for your after-tax income to match or exceed your annual expenses on an ongoing basis). Once you have accumulated enough wealth for you and your family to stop, you should stop putting your wealth at risk. Stop risk-taking with investments of any kind, walk away from the investing game and spend the rest of your life doing something else.
- To summarize the main point, you want to succeed at your own personal life. Once you have accumulated enough wealth, switch to choosing only risk-averse investments and spend your time enjoying life.
- How to hedge your investments
- You have a full position in a bubble period, you don’t know whether the market will continue to go up or tank. Do you sell all and hope to buy in the crash? or do you continue to hold and hope for more speculative gains? Neither. Sell half position – “win some” either way.
- Diversify the ideas, asset classes and strategies.
- Always have sell stops in mind before you make an investment.
- Don’t be afraid to pay your taxes.
- Real estate investment is bad: tenant problems, lost monthly income when tents leave, lost monthly rent when tenants don’t pay you, hassle of possible evictions, repairs on the house, property tax, property insurance, liability insurance, being responsible for a second and third mortgage to a bank. Not the way you want to spend your time.
- A family office is an office dedicated to the investments of a multi-generational family (i.e. continuation of legacy wealth). A chief advisor to a family office once said, only 3-5% of the assets maximum are in the stock market. The rest are in extremely conservative hedge funds, hedged accounts, real estate bought and overseen by a development corporation that the family owns (develop from raw land, hence not dependent on price of real estate rising).
- How to invest
- If you have net worth of less than $1.5 million, you should perform dollar cost averaging (in periods of 6 months to a year) on a few broad indexes, or a basket of ETFs (e.g. S&P500 Index, Wilshire 5000 index, some international index, Russell 2000 index, QQQQ, Wilshire REIT index). Make sure you are well diversified in sectors and capitalization sizes.
- For people with net worth more than $1.5 million, find a group of hedged funds of funds with consistent levels of good performance net of their fees, and net of your taxes, including tolerable performances under strained market conditions. You want to do growth-oriented, risk-averse, passive investing. Minimum of 3 funds of funds that correlate as little as possible.
- At the Appendix of the book, Gary gives a nice Fund of Funds questionnaire that an investor can use to ask the General Partner of a fund of funds.