“Another Bank to Fail: Gone Fishin’ Portfolio?” Oxford Club

Alexander Green at the Oxford Club has been sending out a series of emails touting not an investment newsletter, but his own recently published book: The Gone Fishin’ Portfolio. I’ve heard from a lot of you that this is of interest, though I haven’t read the book, so I thought I’d take a gander at the email.

The interesting thing is perhaps not that he has this book that advocates what I assume is a fairly conservative asset allocation and dividend reinvestment portfolio (that’s what comes to mind if you’re goin’ fishin’ — certainly no active trading and not a lot of individual stock holdings, at least not small or vulnerable stocks). No, what’s interesting is the ad that’s wrapped around this push for you to buy the book.

You see, the subject line of the ad doesn’t promise you yet another investing book that will slowly get you rich — it promises that there is another bank to fail after Lehman Brothers.

And so far, that prediction — or at least, the specific company they must be referring to — has been quite wrong, this is one of the banks that we can be pretty sure now will not fail, even if Green’s “blockbuster” revelations in his book shake them to their foundations (for which I’ll not hold my breath).

This is how the ad teases this point:

“Score Huge on This Wall Street Bank’s ‘Darkest Secret’

“After eight long years, a deep insider from Wall Street’s biggest investment bank is “blowing the
whistle” on their deepest, darkest secret… It’s an event that could put this bank out of business… while making you $105,187 richer… starting five days from now…

“In fact, not only could it bring down this bank… it could affect the bottom line at more than 12 similar institutions when this news hits the mainstream.

And trust me… they deserve what’s coming.

He goes on to provide a few specifics about this bank, though in truth the tease, as I’ve said, is not really about this bank, it’s about Alexander Green’s forthcoming book:

“But here’s the good news…

“After eight years of putting together his case, a former insider from this bank – with $1.7 trillion in client assets and offices in 40 countries around the world – is finally “blowing the whistle.” And once this intelligence hits the streets…

“The age of Wall Street soaking “regular investors” and getting rich will finally come to an end.”

So what is this bank with $1.7 trillino in assets, and offices in 40 countries? A bank that used to count among its employees one Alexander Green?

Merrill Lynch (MER)

Sound familiar? Yes, far from being out of business — though that was a reasonable guess, perhaps, last week — it is now tied to one of the strongest banks still standing, Bank of America. I don’t know if Bank of America will end up being a good investment, but they certainly set themselves up nicely if the economy ever starts to turn — they’ve now got the largest consumer bank, the largest mortgage lender, and the largest brokerage firm under their umbrella. Phew.

And MER is not going out of business anytime soon — the shares were up 20% on Tuesday, though they’re essentially just tracking with Bank of America stock now that the deal has been made with BAC as the currency for the acquisition. So betting against MER won’t do you much good at this point, unless you’re convinced that BAC will fall before the deal closes, or that the deal won’t close.

And as far as this being a “victory” for all the folks who get misled by financial advisers and suckered into buying high-cost mutual funds? Well, the army of brokers at Merrill Lynch now has millions of new customers to sell to, and everyone with a sizeable Bank of America bank account will probably be getting a little ring on the phone from one of the herd.

As for the Gone Fishin’ Portfolio book — maybe I’ll read it when it comes along, but I’m guessing it’s not going to revolutionize the world. If you want simple investing that isn’t swayed too much by what the market’s doing, read Warren Buffett’s annual letters, Joel Greenblatt’s Little Book that Beats the Market, Philip Fisher’s Common Stocks for Uncommon Profits, or one of dozens of other excellent investing books. Better yet, read them all, and reading Alexander Green’s book probably wouldn’t be all that painful, either — information is power, and I have no qualms with someone selling me a $20 book if I learn something. A $2,000 subscription, however, is another matter entirely.
             ——————–
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Learn more and download your free 10-page “Safe Banks” report now.

The author will always disclose any direct long or short equity, debt or option position in any stocks written about as of the day of publication, and will not trade in any stocks mentioned for three days (72 hours) after publication. Full disclaimer is at the bottom of the page.

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“One Company Dominates the Future” Oxford Club

“Slow Volcano” — collected Geothermal writeups

“Secret Discovery in Utah Puts OPEC On Notice” Oxford Club

“This $3 Utah Company Could ‘Bring Down’ OPEC”

Weekend Gumshoe Catchup: Geothermal, Skin Cancer, and more

1. Stock Gumshoe, I love you. (I find this hard enough to say to my partner)….

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   Jay Reply:
   September 17th, 2008 at 8:57 pm

   I second that. Gumshoe, I love you too. If you were a woman, I’d stick it to ya.

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   Posted by Jean O'Hanlon | September 17, 2008, 6:33 am

2. It’s clear the things to short these days are companies “too big to fail” that the Fed has a compelling reason to nationalize, leaving equity investors wiped out. Any ideas after AIG?

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   Posted by Albert Galick | September 17, 2008, 6:53 am

3. I got that e-mail advert and googled the Gone Fishing Portfolio and found a version of it in one of his webpages:

   The Gone Fishin’ Portfolio

   Vanguard Total Stock Market Index (VTSMX) – 15%
   Vanguard Small-Cap Index (NAESX) – 15%
   Vanguard European Stock Index (VEURX) – 10%
   Vanguard Pacific Stock Index (VPACX) – 10%
   Vanguard Emerging Markets Index (VEIEX) – 10%
   Vanguard Short-term Bond Index (VFSTX) – 10%
   Vanguard High-Yield Corporates Fund (VWEHX) – 10%
   Vanguard Inflation-Protected Securities Fund (VIPSX) – 10%
   Vanguard REIT Index (VGSIX) – 5%
   Vanguard Precious Metals Fund (VGPMX) – 5%

   The text said that it need not necessarily be all Vanguard funds (I suppose you can substitute ETFs that cover the right sector). So for giggles I set up a portfolio on Smartmoney and will see how it tracks. I’d like to find some “free” site where I could backtest it.

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   Chris Reply:
   September 17th, 2008 at 9:11 am

   Green began tracking this portfolio in the Oxford Club newsletter in April 2003. Listed below are the prices at of the funds at the time of recommendation:

   Vanguard Total Stock Market Index (VTSMX): 19.69
   Vanguard Small-Cap Index (NAESX): 15.12
   Vanguard European Stock Index (VEURX): 15.01
   Vanguard Pacific Stock Index (VPACX): 5.66
   Vanguard Emerging Markets Index (VEIEX): 7.34
   Vanguard Short-term Bond Index (VFSTX): 10.80
   Vanguard High-Yield Corporates Fund (VWEHX): 6.01
   Vanguard Inflation-Protected Securities Fund (VIPSX): 12.02
   Vanguard REIT Index (VGSIX): 11.92

   Instead of Vanguard Precious Metals Fund (VGPMX) Green uses American Century Global Gold (BGEIX) in the portfolio in the newsletter: 7.59

   As of the prices of the funds listed in the September 15, 2008 newsletter (I’m too lazy to look up the most recent prices), and given the percentage allocations listed above, this portfolio would have yielded a total return of 77.91% since inception in April 2003. That’s an 11.12% CAGR.

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   david roper Reply:
   September 17th, 2008 at 9:16 am

   No need to. I set up a model portfolio on April 13th 2008 with “imaginary money” – $402,000 – divided as it stated. Yesterday it lost $12,000 with only one Fund with a gain. Overall it’s worth $348,000 now.
   Of course, Funds pay dividends and reinvest to buy more shares at the lower price, but I have no way to set that model up. Hope this helps.

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   Yvon Lemieux Reply:
   September 17th, 2008 at 9:56 am

   Try this url. I like the alerts and reports.
   http://www.stockpickr.com
   Hope to see the 2 portfolios RTF and Vanguard.
   Let us know the names that you choose.
   Have fun.

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   Posted by Tom Corbi | September 17, 2008, 7:31 am

4. I bought the Gone Fishin book. Essentially he advocates setting up your portfolio as described above by Tom Corbi. It is probably a decent allocation, one that has done OK. Lately, though, I have been reading “Hot Commodities” by Jim Rogers, and I am coming around a little in my thinking to a point where I try to view my investing activities as trying to preserve PURCHASING POWER rather than simply make money. For example, if you believe that future inflation will likely be driven by oil prices, and a weak dollar, then you should invest some funds as directly in those assets as possible. If you are correct, you have maintained your purchasing power. The problem with most mutual funds and financial planners is that they all compare themselves to an index. Funds and managers that have lost 6 or 7 percent this year are touting how they are beating the SP 500 — what??? That’s like the Cincinnatti Reds crowing about how they are kicking ass on the Pirates in baseball this year – NEITHER team is doing well. This is why most people will fail in their 401K plans. “Just keep dollar cost averaging”.

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   david roper Reply:
   September 17th, 2008 at 9:21 am

   I think most people when questioned on what they own for retirement will simply say “a 401k plan” as if that indicates the contents and quality. I say they have no idea what’s in it, ie. their own company stock or a bunch of Vanguard Funds.

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   Posted by Bruce | September 17, 2008, 8:10 am

5. I think Gone Fishin has great advice for people who are too busy to keep track of their investments, and just want to put them on autopilot & let them grow. You really can’t argue that holding a diversified portfolio of low-cost (Vanguard) funds is a bad idea if you want a lower-risk, lower-volatility investment path.

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   Posted by Dave | September 17, 2008, 9:22 am

6. On a later page in that book is a table of ETFs matched to the equivalent mutual funds. I personally prefer ETF’s. The book in general preaches the commonsense approaches needed to arrange one’s life in a decent manner. Eliminating credit card debt, paying off the mortgage on a house suitable for the rest of one’s life, otherwise doing rational financial things and then using the suggested mutual funds as a very personal retirement funding vehicle in an IRA or 401K, or whatever. All I have to do is listen to Suze Orman or Dave Ramsey for a couple of minutes to think that most people- not just Americans- have lost all touch with ‘rational?’ Maybe that book will help some of them.

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   andrew hotchkies Reply:
   September 17th, 2008 at 1:55 pm

   what would be the equivalent etfs?

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   bob zimmerman Reply:
   September 22nd, 2008 at 7:48 am

   I am always puzzled by the advice to ‘pay off’ the home mortgage. It is the best tax shelter avilable to the man on the street.

   These days it is possible to have your investment grow over 7% in a tax sheltered account and still participate in the stock market. Yes, there are fees, and yes it is an annuity account. Would it not be great if Vanguard would let you aggressively and give you a 7% guarantee? Would anyone care to pay a fee?

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   farley 5 Reply:
   September 22nd, 2008 at 9:31 am

   I am also puzzzled. Most folks are at 28% Federal and 5% state. (Yes, some states do not have taxes). A 6% loan after the tax deduction equals a net 4%. Not a tough nut to crack in a “normal” market. Add to that the real return on your downpayment for the house and home mortgage looks good.

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   M Toleno Reply:
   August 16th, 2009 at 1:09 pm

   If you’re in a 9.3% state tax bracket and the 25% federal tax bracket and you pay (as most do) 7.65% on all dollars for FICA, your overall marginal tax rate is 41.95%.

   Assuming you have enough to itemize to begin with: If your mortgage is 6%, and you pay an extra $100 in principal, over one year you would reduce your state & federal tax deduction (no deduction for FICA) by $6.00, which would cost you $2.06 in tax savings ($6.00 x 34.3%). Keep that $2.06 figure in mind.

   On the plus side, over the course of a year, you would save $6.00 in interest. In order to have $6.00 extra in your pocket, you would need to earn $10.34 ($6.00 / (1 – 0.4195)).

   So, you gain $10.34 but lose $2.06, for a net gain of $8.28. So by paying down principal, you are getting the equivalent of an 8.28% before-tax return, even considering the impact of lost tax deductions.

   I don’t know any investment that will give me a rock-solid, 100% guaranteed 8.28% before-tax return in any market. That’s why I’m paying off my mortgage as fast as I can. (But we’re also maxing Roth IRAs and almost maxing 401(k) contributions.)

   Posted by Wayne | September 17, 2008, 9:42 am

7. How much loss, (on paper or have sold shares of 401K’s and are sitting on the sidelines) Before they’re not too busy? 200,000 down to 120,000, 200,000 now worth 78,000? I think people will get more involved in there pension or retirement accounts. Gone Fishin is good for a guide only. Dollar cost averaging and Autopilot growth may be a thing of the past.
   Thanks for all you do Gumshoe.

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   Posted by Brian | September 17, 2008, 9:50 am

8. Yep, Alex set up this “Gone Fishing Portfolio” on 04/03 with 9 Vanguard Funds & the American Century Gold Fund. Until this year, this grouping of funds wasn’t losing money if memory serves me correctly.

   It’s a catchy phrase to say “why worry, go fishing,” but as Fannie, Freddie, LEH & AIG have discovered, to name just a few, there is no such thing as a “what, me worry” fix in today’s financial mkts.

   If any of you have heard Alex live, in person or otherwise, you’d know that the Oxford Club’s mktg dept. is over-hyping his efforts by allowing their copywriters too much latitude.

   I too have not read the book, but I’ve read elsewhere that Alex is no MER fan after working for them for years.

   *** As an aside, for the BoA to have undertaken so much more additional risky debt after taking on Countrywide Mrtg. earlier makes me wonder, did the Feds promise, in writing, to backstop their efforts in the future if the “bleep hits the fan” as a result of these deals?

   As I’m writing this I see that gold is up more than $50. & the Russian stock market is closed for the 2nd day in a row, not your normal Mon. to Fri. activity. Of course crude oil is spiking & the dollar is falling, anybody going out to the neighborhood fishing hole today?

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   Posted by SageNot | September 17, 2008, 10:02 am

9. Great comments folks, thanks — and thanks for the details on Alex’s “Gone Fishin’” Portfolio. I don’t think Merrill Lynch will lose much business from these “revelations,” but there is certainly room in all of our lives for more fiscal sanity.

   And as a former university librarian, I can’t argue against reading a common sense book, even though I’m sure there are both better and worse books available … given the positive comments I’ve heard, I may have to give this one a gander.

   There are lots of folks who have almost no grounding in this kind of information, and some of them stop by here on occasion. If you’ve got another favorite resource or book to help build a body of knowledge or calm a skittish investor, feel free to share.

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   theaccusersgift Reply:
   September 17th, 2008 at 11:36 pm

   http://www.amazon.com/Live-Without-Outliving-Your-Money/dp/0470226501/ref=pd_bbs_sr_1?ie=UTF8&s=books&qid=1221712510&sr=8-1

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   Posted by StockGumshoe | September 17, 2008, 11:21 am

10. Great comments all. I believe that everyone must be diligent in watching their money – after all no one else is going to do it for you. In the “Old Days” there were lots of defined benefit pensions – the difference was that the companies doing the investing had pretty conservative standards with regard to the investments they made – and for the most part it worked. Now, it is OUR money and OUR responsibility and the guarantees are gone.

    Brokers who handle 401 plans LOVE people who pay no attention to their investments. Remember that they are getting 1/4 percent “trailer commissions” on most of the funds for doing nothing.

    Please read “The Four Pillars of Investment Success” – it is a great book. He does go into Asset Allocation.

    My best learning experience about the brokerage industry came some years ago in a job interview, when the branch manager looked me straight in the eye and said “I don’t know what you think this job is, but I will tell you – it is a SALES job, pure and simple. You can forget any notion that you will be researching investments or anything like that – it is a SALES job.” (That interview was at a firm that is very much in the news lately…starts with “M”).

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    Posted by Bruce | September 17, 2008, 3:08 pm

11. I hate Merrill Lynch – how they came to be so highly regarded is a mystery to me. Their Focus 1 stocks can’t even beat Cramer for crying out loud. Sadly, my 401k is sponsored by MER and our fund choices are severely limited and underwhelming.

    Anyhow, Gumshoe – we love you

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    Posted by KRL | September 17, 2008, 4:30 pm

12. Hi Gumshoe, the back text on deep red background is nearly impossible to read. Can you put it back to the way it was? Thanks for your great work!!

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    StockGumshoe Reply:
    September 17th, 2008 at 4:46 pm

    Oops! Sorry.

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    StockGumshoe Reply:
    September 17th, 2008 at 6:03 pm

    This appears to happen only on Internet Explorer 6, maybe even only in Windows 2000 — I can’t test either one very well, please let me know if it’s still happening.

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    Posted by Sloaf | September 17, 2008, 4:37 pm

13. Even though I don’t invest and look away, and my IRA is self directed but my 401k has a good very conservative selection of about 20 funds (all look like the present overall trend. Another looks away method is Paul Farrel’s Lazy Portfolios http://www.marketwatch.com/news/story/lazy-portfolios-can-whip-coming/story.aspx?guid={C65FFB56-F168-427E-A22A-492D5F1EEB86}&dist=msr_1
    might be useful for those so inclined.

    MER ? does it still exist. Current MS & GS puts are doing real well.

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    Posted by DHarouff | September 17, 2008, 5:36 pm

14. [...] a couple of opinions on Green’s investment strategy out in the market place: Daily Wealth, and Stock Gumshoe. We’d love to hear your thoughts as [...]

    Posted by Don’t Worry, Go Fishin’ « | October 9, 2008, 8:10 am