The Informed Investor: A Hype-Free Guide to Constructing a Sound Financial Portfolio

by Frank Armstrong III

Book Overview

"Most people are scared stiff by investment risk. But what most people don't know is that the biggest risk is simply investor behavior. Irrational and fearful, investors routinely chase after... This description may be from another edition of this product.

• Format: Paperback
• Language: English
• ISBN: 0814472508
• ISBN13: 9780814472507
• Release Date: February 2008
• Publisher: AMACOM/American Management Association
• Length: 298 Pages
• Weight: 1.10 lbs.
• Dimensions: 0.9" x 6.7" x 8.5"
• Age Range: 17 years and up
• Grade Range: Grade 12 and higher

Customer Reviews

The best approach to stock market investment

I have read literally hundreds of books on investing and have been an invester since 1982. The approach described in this book (and also The Intelligent Asset Allocator, by William Bernstein) is the most practical, sensible, way of investing I have found. It shows why market timing doesn't work, stock picking doesn't work, but asset allocation does. One of the great things about this approach is that once you're invested, there's almost nothing to do! Stop worrying, relax and know you're ideally invested for the long haul. Also, see Armstrong's website at www.investorsolutions.com.

Sound, successful, long-term investing

How does the disclaimer go, "Past performance is not necessarily a predictor of future returns?" If that is the case, how is an investor supposed to decide on any investment strategy? They all are based on "past performance." The key is to base your decisions on peer reviewed published research from the most respected financial scholars in the field. Frank Armstrong does just that in his book, "The Informed Investor." In a relaxed conversational narrative, he presents a simple yet academically sound approach to investing. He offers evidence that dismisses the notion that stock picking is a skill and contends that stock-pickers add only additional costs, increased risk and lower returns when compared to appropriate indexes. Mr. Armstrong introduces the Nobel Prize winning concept of Modern Portfolio Theory, and how it is used to construct a portfolio that minimizes risk for a given level of return. He advocates controlling costs at every turn, including the use of low expense index mutual funds whenever possible and suggests ways to minimize the tax consequences of investing. In the end you won't be left holding a basket of theory with no place to lay it all out. He answers the questions necessary to put together an investment plan. "How much do I need to accumulate if I need this much to live on in retirement? What assets and in what mix should I put in my portfolio? How do I raise or lower the risk in my portfolio and how might that affect return? How do I choose specific mutual funds? Who should I use for the custodian of my portfolio? How and when do I rebalance my portfolio? How much cash should I have as a minimum? How much can I safely withdraw after retirement and not run out in 20 to 30 years?" From market timing to Motley Fool, it has taken me 15 years of reading and investing to understand that the approach of Frank Armstrong is the one I should have entrusted my financial future to all along. I have been following his advice for three to four years, through earlier publications, and have not been disappointed. Now, it's nice to have that advice in a single, clearly written book.

Read this before you invest in the market

This excellent book is highly commended to anyone who is truly serious about investing. The author is a south Florida financial planner and frequent columnist on money matters. With clear and convincing data to support him, Mr. Armstrong debunks many of the myths Wall Street pushes on the investing public. Mr. Armstrong demonstrates the futility of trying to "beat the market", whether through stock picking and market timing or by following mutual funds that have shown high levels of performance in the past. After showing that market gurus, fund managers, (and need we say it) equity analysts, have feet of clay, the author makes a convincing case for trying to meet, rather than beat, the market. Thus, Mr. Armstrong advocates investing in a diversified basket of index funds. Although he recommends utilizing fee-only financial planners (such as himself), he gives sound advice and strategies for building one's own portfolio without outside help. His chapter on investing during retirement is particularly insightful. Whether or not one ultimately agrees with Armstrong's point of view, this is a book which deserves attention.

A born again informed investor

I have been a practicing orthopedic surgeon for the last 45 years. As you might expect, colleagues who are overly confident, high-risk takers surround me. In my years at the surgeon's lunch table, I have listened to a multitude of schemes; systems; sure things known only to a select few; or guaranteed ways to become a millionaire by forty. Physicians, especially surgeons, are a target audience for financial salesmanship because they are high risk takers; quick decision makers; have excess income to invest; they need a large pot of capital to retire because the day they quit work there is no more business to bring in money; and finally because they have gone to school for such a long time they believe that they are well educated in all fields. In 1989 I returned to the University of Oregon to study for an MBA. I have always loved going to school. During my years in school, two events came together that would became my epiphany for handling any investments in the future. The first was a course in corporate finance; the second was Frank Armstrong and the monthly writing he was publishing online for AOL. The textbook: Principals of Corporate Finance Third edition, authored by Richard Brealey and Stewart Myers; published by McGrawHill had a page with two unlabeled charts (Pg. 283). Both charts looked the same, yet the legend indicated that one was the Standard & Poor's Index for a 5-year period; the other recorded the results a weekly coin-toss for 5 years with a .25% drift to the positive. The reader was left to decide which was which. The chapter listed several sources for the statistical concepts illustrated by the two charts. I found the two listed below to be fascinating. 1.Theorie de La Speculation, Gauthier-Villars, Paris, 1900. Reprinted in English The Random Character of Stock Market Prices, M.I.T. Press, Cambridge, Mass 1964 2.The Analysis of Economic Time-Series, Part I. Prices, Journal of the Royal Statistical Society 1953 At the same time I read the articles Mr. Armstrong was publishing on-line. These essays would become the basis of his book The Informed Investor. His writing was a delight to read. Frank's articles were witty, full of allegories, and his explanations of a rather complex statistical theory were understandable. Even if you do not enjoy reading books about investing, or market theory, The Informed Investor is fun to read because of the metaphors and imagery. You will recognize people you know who will fit perfectly with Franks descriptions of various investing personalities. Personally, the biggest change The Informed Investor has brought to me is a lowering of my anxiety level. I no longer have to take Zantacs very time I look at the stock quotes. I no longer take part, or become upset, with the daily rehashing of the latest stock market tips. During the discussions at the surgeons' lunch table I now have a big smile and truly enjoy the conversation for just its entertainment value.

A Way Through the Minefield

Woody Allen once famously described an Investment Advisor as the guy "who invests your money until it's all gone." In the aftermath of the last market bubble, the implosion of Enron, and the "revelation" that all-too-many of the on-media advisers and brokerages had other things in mind than the needs of their gullible audiences, the joke now seems a trifle hollow. So what hope remains for the nervous (and probably bruised) investor? How can he cut through the jungle of advice and advertising?He could do a lot worse than begin by picking up Frank Armstrong's book. This is a take-you-by-the-hand tour of the world of equities and bonds, but really offers something more important: a way to _think_ intelligently about the risks and the rewards (and, indeed, the necessity) of investing for personal security.So you think you can pick a hot market-beating mutual fund? Or assemble a basket of high-rising stocks? Hop out of the market ahead of the next melt-down or jump early on the next bull? There are plenty of funds advertising just that, and no shortage of newsletters or pay-up-front gurus promising to guide you. Or just listen for free to their cousins on TV or radio.Welcome to the wonderful world of financial [investing]! As its consumers will too soon realize, all the excitement's in the expectation and the hangover can be fierce. Armstrong is an excellent antidote to wean you away from the dangers of the marketplace. He replaces the hype with easily-digested facts and statistics to bolster his advice that you eschew individual stocks and managed mutual funds. He urges you instead to assemble a portfolio of market-following index funds to match your need and comfort level. At the core of his portfolio plam is the concept of maximizing the (statistical) chance of market rewards whilst minimizing the necessary risk. This strategy of asset allocation involves the careful choice of a portfolio of market-specific index funds designed to tame the swings and dips of individual markets.Armstrong can list some impressive allies for his approach, and no individual investor trying to protect or nourish a nest egg can afford not to listen. After reading his book you'll be in a position to decide which camp you'd really be happiest in -- the heady world of "managed" investing (after all, you _could_ beat the odds that have dealt out such widespread disappointments)-- or following the sober and less exciting "passive" approach. While Armstrong does suggest appropriate portfolio models to meet various needs, he doesn't spell out in detail the various individual funds you'll need to use. He does offer a sample equities portfolio that would involve choosing nine separate index funds (or Exchange Traded Funds) to properly allocate among the various markets and sectors, but it'll be up to you (or your advisor) to find the actual funds to make up the portfolio. This will take some research, but should not be beyond the reach of anyone who's absorbed the