I do enjoy reading financial books and have been doing so for the last 30 years. (Yes, sad I know!) Behavioural finance, finance through history, heavyweight technical, crashes through history and 'how to' books. From simple to complex, there are many really, really good ones out there. So I was quite looking forward to reading "The Barefoot Investor" to see if the barefoot dude had anything new to say, particularly in light of the many barefoot disciples in social media.
It is good that he has written something to try to motivate people. And the shoeless man is clearly a great marketer (I will explain at the end). The book is pitched at young people with limited financial resources or experience and is written in a very casual style. Very anti money, anti jargon (although normal terms are just replaced with barefoot jargon), anti bank, anti broker, anti fund managers and anti professionals. Yep, it's a conspiracy out there!
The book is a mix between good, somewhat contradictory and frankly disappointing. Most of the advice is good, although it is just based on some simple fundamentals. Pay down debt (cut up credit card), have a savings buffer (mojo! in BF speak). A simple budget and a simple plan. He doesn’t attempt to explain complex issues or educate the reader in the differences between investment styles, benefits or risks. Instead of dealing with nuanced issues, he provides just a nice simple answer. EASY. Same thing for everyone. And then bags anyone that may come to a different conclusion. Usually because it a conspiracy or those high fallutin' finance professionals plotting against the innocent public. Which is a shame really because it detracts from the rest of the book.
There is a saying that 'there is always a simple answer to a complex problem - the trouble is that it is usually wrong'.
Let me give an example. He makes the case for using index funds (good), but then instead of discussing their risks and limitations of where they don't work, he just goes on to recommend a specific super fund because it is the cheapest in the world.
So leaving aside the argument that finding the cheapest surgeon, suit, car, house or lawyer may not be the best way to make a decision, something isn't quite right on two points.
- Index fund running costs are very low because they just replicate a share index say the ASX 200. They simply own all the stocks and no analyst is trying to work out which companies to buy or sell. There is low turnover and low costs. That's why we use them for many clients as PART of a portfolio). They save costs through their scale - bigger is more economical. And most basic super funds would use the big index managers. So far, so good. The specific fund recommended however has an advertised running cost of almost nil. How do they do it since the most efficient, huge wholesale index funds in the world have a running cost of seven times what the BF dude says? The costs are coming from somewhere - I would guess some creative accounting or price transferring. Maybe the return is slightly different to the underlying assets? Either way it simply doesn't stack up.
- After making the case for just using index funds, he then recommends direct shares option as well in the said super fund. Why on earth, after basing your whole argument on costs and your belief that teams of stock analyst don’t add value, would you then contradict this and also recommend individual shares? Surely this isn’t suitable for someone just learning about investing and trying to get organised?
It didn’t make sense until I looked at his website. This is where he is really smart. The book is simple for a reason. Be part of the BF community and get the blog! The website has useful tips and motivational stuff! CAPITALS AND EXCLAMATION MARKS!!And then you join up and become a member to get his share "recommondations"....
According to his website, it is trusted by 10,000 plus. Let's assume he is a bit out with his numbers. Say about 5,000 subscribers at the stated $397 per year.
Thats $2 million dollars per year for giving the same general advice to everyone! More than enough to buy some shoes one would think.
So is it, as he modestly states "the only finance book you'll ever need"? Well, only if you want to be kept in the dark about other choices and don't want to learn from other more experienced professionals who aren't flogging their 'opinion' in a newsletter. You can read the book in a few short hours, but then you should read a few other books which are balanced, informative and well written with a bit more depth to build on your basic barefoot knowledge.
- Making Money Made Simple - Noel Whittaker
- Making Money - Paul Clitheroe
- How Much is Enough? Money, time , happiness - Arun Abey and Andrew Ford
- The Wealthy Barber - Same casual tone, similar idea to the BF date nights, but uses haircuts instead (and was written in 1988).
And then decide if you really are a barefoot disciple.