I’m joyed to be writing what is only my second book review on Dividend Monk.
The reason I don’t write many book reviews is, the investment strategies that I follow and showcase are rather straightforward, and there’s little reason to ever reinvent this wheel. But Andrew Hallam is a fellow blogger (and on my personal blogroll), and I’ve read his articles for a while now, so I knew his book would be a very worthwhile read, and was waiting to get a copy and write a review. I had the opportunity to get a book before, but I waited, and therefore I just sat around and waited some more for Amazon to get more in stock. (They had been sold out due to the success of the book.)
So without further delay, here’s a review of Andrew Hallam’s Millionaire Teacher.
Andrew Hallam is an English teacher who became a self-made millionaire in his 30’s. He achieved this by taking his teacher’s salary, frugally saving it, and diligently investing it, year after year, in index equity funds, index bond funds, and some rational individual stock selections. He’s living proof that almost everyone in the developed world can become a millionaire because he led by example.
Andrew’s a smart guy, but he didn’t have to apply some genius stock-picking approach, or take on huge risk to get a huge reward. He merely maintained a balanced portfolio of stocks and bonds, and once in a while he adjusted it to keep it balanced. So for instance, if he had a 65% stock and 35% bond portfolio, and stock prices were rising, he was selling shares while everyone else was buying, and instead was buying bonds to maintain his portfolio balance. Inversely, when stock prices were falling, and everyone was selling stock to buy bonds, he was selling bonds to buy stock at low prices to rebalance his portfolio. It didn’t require market timing, fancy math, or any sort of intellectually rigorous activity; just simple portfolio maintenance and the responsibility to maintain it. It only took him minutes per year. In addition, as a fun side portfolio, he applied fundamental principles of rational individual stock selection. In a noble fashion, he beat the market with his individual selections, but humbly points out that over the long run, it’ll become statistically less and less likely for him to maintain that claim, and that people should index rather than try to beat the market. It’s a rather solid case of wisdom and diligence being a winning combination.
As a teacher, he has witnessed first hand how dismal the financial education is for most students. They learn how to work with quadratic equations, and learn the difference between eukaryotic and prokaryotic cells, but they don’t learn to manage their own money. Recalling my own education, I can literally say that not a single teacher taught me a single thing about investing, valuing a company, corporate structure, or stock indices, except for the simple chapter in a mathematics class regarding the power of compound interest. That was it. Andrew has sought to correct this by educating teachers, educating family members, giving talks, blogging, and now, writing a successful book.
The book is organized as a series of his “Nine Rules of Wealth”.
The book is excellent, as I expected.
-The organization of the book is well thought-out. He covers the basics, makes arguments, reinforces those arguments, but never becomes tiring or overly repetitive. This is in contrast to the famous book, The Millionaire Next Door, which contains a similar message, but after 50 pages of that book, the reader is like “OK I get it already! You don’t have to say the same thing ten times!” Andrew avoids that problem by providing enough reinforcement of his ideas without tiring them out.
-His set of arguments for index funds over actively managed funds is flawless. He really puts the nail in the coffin of actively managed funds. Not only does he make extremely effective arguments backed up by statistics, history, and reasoning, he even counters the expected counterarguments made by people who wish to sell you those funds anyway. His devastating arguments against the enormous self-serving financial services industry should be clear to any rational mind.
-His final section on individual stock selection uses intelligent principles, and covers a lot of the investment basics. In a few parts of the book, he covers topics of how corporations work, why shares go up in value, differences in company value, and more.
-He gives a definition of “wealthy” that I very much agree with. It’s very straightforward, and in my opinion it’s also accurate. Perhaps just as importantly, it’s reasonably attainable on a regular income with diligent saving/investing habits.
-Andrew is a Canadian teacher that currently lives and teaches in Singapore. So he’s sensitive to global differences, and takes an international approach. There’s a whole section devoted to international indexing. So it doesn’t matter what country you’re from; the truths in this book remain valid.
-The 184 page book is an elegant read. Remember, this isn’t a financial guru writing a book; it’s a self-made millionaire English teacher. It can be read in a weekend, is easily accessible to a multitude of different types of readers, and the nine rules break it up into easily read chunks. He artfully blends personal stories, humor, facts, and images to create a rather effortless reading experience.
-I found myself being unable to put the book down, and finished reading much earlier than I had planned. “Well, I’ll read one more of these rules for now…”, I kept telling myself, until I had read through all of them. It’s not because the book is overly short; it’s because it flows elegantly, and gives the information needed without providing any distracting extras. Andrew’s investment approach is simple, as any effective investment approach should be.
Any good review includes some constructive criticism. In this case, it’s not criticism of what he said, or of his arguments; it’s an observation of what he didn’t say, and what most people don’t say.
At one point, when Andrew is explaining how a corporation works (his reminder to readers that indexes are built on real companies, and are not just little lines on a graph that go up and down), he uses the following example: He discusses Willy Wonka starting a public company to raise more capital, talks about the shareholder relationship, talks about growth and dividends, and says that the board of directors is voted in by the shareholders.
All of this is true, and yet with index funds, that’s not what really happens in practice. With index funds, shareholders don’t vote for the board of directors. Instead, they own hundreds or thousands of companies, and can’t pay attention to what those boards are doing. Index investors give their right to vote to the owner of the fund. When Vanguard, for instance, votes on behalf of the millions of investors that gave up their right to vote by buying their index funds, Vanguard sets a very low bar for whether they will vote for a given board member, and they abstain from voting with regard to 94% of shareholder proposals that are related to corporate or social policy.
One can’t really blame Vanguard; they have fiduciary duty to their customers to promote good returns, and they can’t predict how millions of would-be shareholders would want to vote their shares. So they largely stay neutral and abstain from much of the process. I think pointing out the loss of shareholding voting that comes with index funds (as well as actively managed funds), would have been a fair addition in the book.
I believe responsible portfolio management includes treating shares as an owner would, and voting accordingly with regards to board member elections, management compensation, and review of shareholder proposals. It’s the one area where my investing philosophy seems to differ from the book.
Millionaire Teacher is an excellent, easy-to-read book. In my opinion, this should be on the reading list for every high school student in the world. In addition, I suggest that everyone who currently invests in actively managed funds should read this, since I couldn’t agree more that index funds in almost every case are far more rational to invest in than actively managed funds. I offered to let a co-worker of mine borrow my copy of the book after he started talking to me about his mutual funds. Andrew’s arguments are solid, the book is a delight to read, and after having seen him blog for a while now, he certainly is a genuine and honest person.
Click below to have a look at the book.
Disclosure: The book image link is an affiliate link to Amazon, and I only use affiliate links for products I highly recommend.