The Missing Billionaires: A Guide to Better Financial Decisions

What an absolutely amazing book. As the authors say "There are millions of books out there telling you what to invest in, but nothing out there telling you how much to invest in any particular investment or all your investments". That was a revelation. I'm so endlessly bored with books / social media / networks / etc telling you to buy stocks or to not buy stocks or to buy particular stocks or to buy gold or oil or bitcoin, etc, etc. It was Amazingly Refreshing to read a book that offered a precise roadmap towards how much to invest in anything or everything with some modeling and mathematical precision behind the suggestions. A must read for anyone who cares about their money!! And a fun read too, not dry at all!!!!

The book never quite answers the question about the missing billionaires. It gives some broad guidelines but is probably too technical and academic for most readers.

I enjoyed this. I read chapters 2-6, 12-14 and 25. I followed that up with reading Risk-Opportunity Analysis by Ralph Vince (Vince's ideas complement chapters 2-6). Then, I re-read the entire book and got a lot more out of it. At the price, I suppose this is a branding book which to me does not detract from its value. Elm apparently manages an ETF that is terrifically simple, based on the some of the ideas here.

This is an important but very frustrating book. Investors should be aware of the ideas presented. The authors provide guidance based on sound statistical principals on how to allocate funds between risky e.g. stocks) and safe (e.g.inflation-protected treasury bonds) investments under different scenarios and point out that mistakes in this area can lead to bad investment outcomes. However, it is written very poorly, making it very frustrating to read and hard to implement. The core of the book is the Merton formula. However, they don't provide the units of the parameters of the formula (percentages or fractions?) and I had to dig around to find it. In some cases, they do plug in numbers but then the result they give (60% as opposed to the real answer of 62.5% stocks) adds to the confusion. In other cases, they give examples (see page 139) and state what the person should do, but don't explain how they calculate it. They don't explain why the CAPE S&P PE ratio is better than the usual one or why they use long term TIPS (as opposed to short term TIPS) as a their safe investment. Or why they yell investors to avoid municipal bonds. They don't offer sound advice on how taxes affect investment strategies. They don't offer advice on how the point in ones career would affect investment allocations until late in the book and then don't give real guidance. I would strongly urge the authors to team up with a third co-author who is good at explaining things and publish a revised book.

A well written, thought provoking book. It is an important contribution to the understanding of managing wealth. Victor Haghani spent a lifetime taking readers through his own interesting path towards a framework for thinking about how to effectively tackle the problem of uncertainty. We can look to the past but live in the present to make our financial choices into an unknown future. But with the book’s help you can better understand and quantify your choices.

An excellent refresher on the concepts and ideas and insights of Financial Economics, and how they have held up over the start of the 21st century. But....the co-author was a partner at LTCM. The 1998 collapse of LTCM, and Alan Greenspan's mobilization of the full force of the Fed to mitigate its collateral damage to the broader economy, set the precedent to the Fed's over-reaction to 9/11, the 2008 Financial Crisis, and the 2020 pandemic. Interest rates remain distorted to this day because of those actions (hundreds of thousands of homeowners locked in 'velvet handcuffs' of 2% mortgages, etc). To be fair, Chapter 8 is dedicated to an (oddly impersonal) post-mortem of what went wrong at LTCM, including Warren Buffett's scathing assessment of the collapse. But LTCM is quite a blemish on a resume. Isn't it?

The coin flipping discussion and relation to the stock market was quite good. I was expecting great things concerning the allocation of capital to investment opportunities. The discussion of the Kelly Criterion left out the reasons for half Kelly betting and did not explore what happens when you over bet. (hint - volatility increases while return falls) It was not clear what utility has to do with investment optimization. Maybe a utility curve of 2 is better than 1 but why? Certainly in the coin flipping example; a utility curve of 1 leads to the fastest growth of capital. The section concerning the 60 / 40 portfolio did not explain why a utility curve of 3 was appropriate here. Sticking to a utility curve of 2 as in the coin flipping example would have lead to the conclusion that 100% or more (leverage) of stocks would be appropriate for a portfolio. Frankly the logic in the book is hard to follow as the authors seem to avoid the conclusions from the formulas. Perhaps because suggesting a 100% allocation to equities would make readers question the logic that follows from the coin flipping example. Eventually the authors get around to laying out their investment prescription which involves dynamically rebalancing a portfolio between stocks and bonds as CAPE changes. This is what Elm does for it's clients so I am not surprised that this would be sold in the book. Market timing doesn't have a good track record and I am sceptical that this historically good approach isn't just a figment of data mining. For a better understanding and frankly more entertaining discussion of the Kelly Criterion, I suggest the book "Fortunes Formula" by William Poundstone. Overall "The Missing Billionaires" while interesting misses the mark.

As an investor I have often struggled with trying to determine the optimal position size for an investment, and "The Missing Billionaires" by Victor Haghani and James White attempts to address the problem using a variety of financial models with some game theory and common sense thrown in the mix. The first model which the author's discuss and which I have been aware of for many years is the Kelly Criterion which derives the optimal size of a bet (K) as the "odds of winning minus the odds of losing." In my experience the benefit of the Kelly Criterion is the intuitive simplicity of recognizing that if one thinks that the probabilities of winning are 100% then one should bet one's entire stake (since 100% - 0% = 100%) and that if one thinks the probabilities of winning are only 50% one should not bet at all (since 50% - 50% = 0%.) Unfortunately, some problems with the Kelly Criterion are that one almost never has 100% confidence in anything or in any bet, and that if they were, there would likely be only pennies to be made in the trade (such as in the last few days of a merger arbitrage situation). Furthermore, the problem with the model is that it scales linearly and that the difference between being 100% confident and only 95% confident is significant enough and should have a non-linear outcome and that if one thought the probabilities of being correct were 70% the model advises an investor to bet 40% of one's stake (70% - 30% = 40%) which in my opinion is insanity and a recipe for poverty. Finally, determining the probabilities of success are obviously more art than science and as any investor will likely relate to, what are sometimes thought to be high probability bets can be impacted by exogenous events and turnout into a loser while a "low probability" bet can sometimes surprise to the upside. A derivative of the Kelly Criterion is the "half Kelly" which actually helps investors arrive at an intuitive and somewhat model-driven correct position size. Simply put, the half Kelly recommends taking the outcome of the Kelly explained above and dividing in half. Thus, in the example above an investment opportunity that is considered to have a 70% probability of being correct would be properly sized with a 20% allocation of one's stake. (70% - 30% = 40%/2 = 20%) The second model which the author discuss is the Merton Share which derives one's optimal total market share exposure (K) by dividing the excess return by risk tolerance (usually detonated as 2) multiplied by the standard deviation squared (or K = U / 2 * standard deviation squared.) Thus, if one thinks the market's excess return is 5.3% and the market has an historical standard deviation of 18% the optimal total allocation of one's wealth to the market should be 81.8% (5.3%/6.5%) The major shortfall I see with the Meron Model is that it is a recommendation for total market allocation but not for individual position sizing, and I'm not clear what the denominator is. In other words is the ~81.8% allocation above of total wealth (including real estate, retirement accounts, and 529s? As far as I know, the authors do not say. Other fascinating topics addressed in the book include the Constant Relative Risk Aversion (CRAA) model which assuming a risk tolerance of 1 (the maximum) reproduces the recommended position size of the Kelly criterion and assuming a risk tolerance of 2 (the mid-point of risk tolerance) comes close to reproducing the position size of the "half Kelly." Regardless of the model, the authors recommend following two principles. One is a constant fractional betting size (very entertainingly explained in the opening coin flipping experiment), and betting somewhere between 10%-20% of one's stake per position. For equity investors this essentially means having 5-10 position although which seems too concentrated for me as I have come to prefer something closer to 12-15 positions each about 6.6%-8.3% of the portfolio.

Very interesting read but more formulas and less concrete advice of how to build the optimal long term portfolio

What every parent should teach their kids before they start their independent adult lives.

Updated and important way to begin thinking through Investing and deciding on Investment Strategy.

"The Missing Billionaires: A Guide to Better Financial Decisions" by John Doe is a refreshing and insightful take on personal finance that stands out in a crowded field. Unlike many financial guides that are heavy on jargon and complex strategies, Doe's book is approachable and engaging, making it an excellent resource for both novice and seasoned readers looking to enhance their financial literacy.

Might not make me rich but will definitely make me less poor