Editorial Reviews
From Publishers Weekly
Musings on the creation, preservation and use of wealth devolve into rambling in this personal finance guide from a seasoned Wall Street investor and inventor of the Lipper Averages for mutual funds. In his search for the eternal truths of creating wealth, Lipper addresses the needs of only the very wealthiest Americans, suggesting that investors hire a supermanager to watch over their regular advisers if they have more than three. Focusing on the emotional and psychological aspects of wealth management, Lipper broods upon the reasons why people invest, wealth psychology and the various investment personalities (absolute, confident, uncertain, relative, fiduciary, bored, guilty). In a book marked by a paucity of practical suggestions, readers will likely notice—and be dismayed by—the lack of research to support the author’s claims. While Lipper competently addresses the responsibilities of great wealth—including handling charitable donations and coming to grips with one’s own mortality through decisions regarding wills, trusts and heirs, the long-winded slog to get there is not worth the haul. (Sept.)
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Review
From the “New York Times”
THE appeal of “Money Wise” (St. Martin’s Press, $27.95), by A. Michael Lipper, doesn’t come from his investment picks. He doesn’t offer any.
It certainly is not provided by Mr. Lipper’s counsel on which asset classes to buy. His position is this: It all depends.
And after reading the book, you may not come away with new insights about how to select someone to help you manage your money, or about how to invest in general.
When it comes to advisers, Mr. Lipper says, “I look for managers who can carefully rotate their portfolio weightings and selections over multiple periods.” As for where to put your money: “Never invest in something because it is fashionable.”
You have probably heard views like that for years. So what makes this book by the founder of Lipper Analytical Services — now Lipper, a division of Reuters, which provides information on mutual fund performance — so worthwhile?
It’s the unusual path he has chosen to follow. These days, most investment books are trying to make the not-so-rich rich, with titles like “The Automatic Guide to Making Money in the Coming Crash” (my concoction). But Mr. Lipper has taken a different approach, by not aiming at people who are trying to become wealthy. He has written this book, with the help of Douglas R. Sease, a former editor at The Wall Street Journal, for those who are already well off and want to stay that way.
Such people are likely to find his straightforward and often unconventional advice extremely appealing. And so, too, might the rest of us, who can take advantage of at least some of the strategies that Mr. Lipper offers.
Consider the approach he suggests for one of themost fundamental components of financial planning: figuring out your net worth.
Typically, as part of this exercise, you are told to make a conservative guess of what your house would sell for today, deduct the mortgages against it, and add the difference to the asset side of your personal ledger.
The problem with that, Mr. Lipper argues, is twofold: Few people can count on converting their house into cash quickly, so whatever equity they have is far from a liquid asset, especially these days. More to the point, if you sell your house you still need a place to live (unless, of course, it is a second home). That expense — a liability on the balance sheet — is usually not included in the statement of net worth.
Not only do people overestimate their assets, Mr. Lipper argues, but they also underestimate their liabilities.
“Do you intend to fund education expenses for your children, or grandchildren?” Mr. Lipper asks. “Is your health going to be perfect until you suddenly drop dead? Do you intend to travel, eat in fine restaurants, and engage in other lifestyle indulgences after you retire? They’re all liabilities on your personal balance sheet, and many of them are, like some of your assets, difficult to estimate. Yet it is important that you make the effort because your estimate of your liabilities drives the way in which you arrange your assets.”
Other conventional wisdom when it comes to wealth is also misleading, he says.
Yes, of course, you want to invest in good companies with strong fundamentals, but Mr. Lipper says that “one of the rules that I try to follow is not to make a serious investment if I cannot find someone who has been in the same room with theprincipals of the company under consideration and seen them under some pressure.”
Mr. Lipper spends a great deal of time urging investors to be truly honest with themselves as they think both about their financial futures and their abilities.
Three quick examples make the point:
-”I know most people talk about cutting back on expenses when they retire, but they seldom make significant reductions.” His advice is to figure that once you quit work, you will continue to spend as you do now, and to plan accordingly.
-”Most investors at one time or another in their lifetime try their hand at trading stocks or other financial instruments. If you pay attention to nothing else I have written, pay attention to this: Don’t trade with a lot of money.” You are not likely to be good at trading, he says, no matter how smart you think you are.
-”The biggest mistake that I see people of wealth making is having a single-minded focus on investment returns with no thought about their spending patterns. At the end of the day, expense control plays a larger role in the success of a financial program than the entire array of specific investments.” His point is that you can certainly offset lower returns in the market, by living on less.
HIS thoughts even extend to raising children.
“If your child really wants an advanced degree in poetry,” he says, “consider that you might want to use the assets that would pay for the degree to instead set up a trust to help pay the cost of living until the child is economically independent.”
One last point also makes the book stand out: his focus on constantly asking what kind of financial legacy you wish to leave.
Competent estateattorneys can create your will and establish the necessary trusts, but it is up to you to decide whom or what you want to benefit.
The result of all this is a book that may help you preserve whatever money you have and think carefully about what you want to do with it.
–Paul R. Brown
From The Seeker
After many years of discussion with family, friends and colleagues, A. Michael Lipper, CFA, has written a book, “Money Wise: How to Create, Grow, and Preserve Your Wealth” (September 2008, St. Martin’s Press) with former “Wall Street Journal” Money and Markets Editor Douglas Sease. The book is a delight to read not only for what it tells you about investing per se but because it’s a witty tome about life’s lessons. By the way, these lessons apply to investing, too.
Many clients of wealth managers will know the Lipper name, attached as it is to many mutual fund indices and fund performance statistics, often with the phrase, “according to Lipper.” Reuters bought Lipper’s data company, Lipper Analytical Services, Inc. in 1998, now known as Lipper, Inc. As president of Lipper Advisory Services, Inc., and Lipper Consulting Services, Inc., Mike Lipper continues to engage in his philanthropic endeavors, to manage money for a select group of wealthy individuals and institutional investors, and to consult with financial companies.
Lipper is a member of the Board of Trustees of the California Institute of Technology (Caltech), which manages the Jet Propulsion Laboratory. In the book, he talks about what he’s learned in the course of getting to know the physicists and professors there, and the parallels between physics and investing.
He sat down with “Wealth Manager’”s Editor in Chief, Kate McBride, at his home in New Jersey in early June. [Full disclosure: The writer has known Mike Lipper for the better part of two decades, and worked for him for many years.]
In the book, you talk about science and the uncertainty of life, about change, and this ties in with your work with Caltech and the physicists there. How do you draw some of the parallels between physics and investing?
It has to do with probability and certainty. In physics you hope to discover or use a law that is totally repeatable and that anyplace in the world, somebody else can repeat it and get the same result not only today but forever. We know now [that] some of the past scientific laws weren’t forever, but you’re looking for [the ability to reproduce results] 100 percent of the time.
In investing, a good investor wins, in terms of dollar impact, something more than 50 percent of the time. A professional should win 60 percent and a great investor 67 percent-two-thirds of the time. You can look at Buffett, Soros, Neff, Peter Lynch. When you talk with any of them privately, they talk about the fish that got away, so while searching for investment truths we have to learn to deal with investment odds. The odds on totally replicating the past [are not good]; it’s the ability to absorb error that is the way to stay in the game long enough for when things come right. The big tragedy of declines is that people sell out and say, “Never again,” and they miss the upsides, and historically, in this country the upsides have been bigger than the downsides.
What got you interested in doing the work that you’re doing with Caltech in the first place?
Like with almost everything in my life, it was accidental-I had heard of the school but really didn’t know it. A neighbor and good friend is a graduate, bachelor’s, master’s and doctorate and invited [my wife] and I to attend what they call Caltech Associates Dinners where they bring in professors to talk about what they’re doing, and we were fascinated-[it's] a whole different world than what I was used to-even though I was at one point an electronics analyst. This stuff was way above anything that I knew anything about, and I was impressed. I can go in there and learn something from very smart people-a lot of what I’ve learned is not immediately applicable. It’s a different point of view; that they are the manager of the Jet Propulsion Lab opens up the concept of space and how a tiny error here on earth means that you miss a planet by zillions.
The stuff they’re doing in neuroeconomics is fascinating. The theory is that they can identify the portions of the brain that make decisions-and quite probably economic decisions. Whether those are investment decisions, more work’s got to be done. They have a game theory group-fascinating work. Bottom line, [they're] just a bunch of very bright people, and it happened at the right time in my life.
Are you applying anything that you’ve learned there to your own firm or investments?
Yes and no. Yes in the sense that a good investment program would have significant investments in the progress ofsc
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