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How to Create a “Gone Fishin'” Portfolio

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9723835341_ebefcfd8feJason Hartman interviews Alexander Green, author of the book, The Gone Fishin’ Portfolio, among others, regarding Alexander’s philosophy, which is that you can successfully manage your own money and investments and only rebalance it once a year. He stresses that the importance is following the right principles, not the right predictions. There are six things that will determine the future value of your investment portfolio:

  • The amount of money that you save
  • The length of time that you let it compound
  • Asset allocation
  • Individual securities
  • Expenses you pay
  • Taxes you absorb

Alexander encourages handling finances and investments in a sensible, straightforward, principled way. He talks about the psychology behind speculating often manifesting as overconfidence or, in some cases, an addiction. Listen at: www.JasonHartman.com.
Alexander Green is the Chief Investment Strategist of Investment U and the Investment Director of The Oxford Club. A Wall Street veteran, he has over 25 years’ experience as a research analyst, investment advisor, portfolio manager and financial writer.
Under his direction, The Oxford Club’s portfolios have beaten the Wilshire 5000 Index by a margin of more than 3-to-1. The Oxford Club Communiqué, whose portfolio he directs, is ranked among the top investment letters in the nation by the independent Hulbert Financial Digest.

Mr. Green has been featured on “Oprah & Friends,” Fox News, “The O’Reilly Factor,” CNBC, MSNBC and C-SPAN and has been profiled by The Wall Street Journal, BusinessWeek, and Forbes among many others.

He currently writes and directs the twice-weekly Oxford Portfolio Update and three short-term trading services: The Momentum Alert, The Insider Alert and The Pacific Advantage Alert. Mr. Green has also written three national best-sellers, including The Gone Fishin’ Portfolio, The Secret of Shelter Island and Beyond Wealth: The Road Map to a Rich Life.

Narrator: Welcome to the Holistic Survival Show with Jason Hartman. The economic storm brewing around the world is set to spill into all aspects of our lives. Are you prepared? Where are you going to turn for the critical life skills necessary for you to survive and prosper? The Holistic Survival Show is your family’s insurance for a better life. Jason will teach you to think independently, to understand threats and how to create the ultimate action plan. Sudden change or worst case scenario, you’ll be ready. Welcome to Holistic Survival, your key resource for protecting the people, places and profits you care about in uncertain times. Ladies and gentlemen, your host Jason Hartman.

Jason Hartman: Welcome to today’s show. This is Jason Hartman, you host, and as you may or may not know, every tenth show we kind of do a special tradition here that originated with my creating wealth show where we do a topic that is actually off topic, on purpose. Something just to do with general life and more successful living, and that’s exactly what we’re going to do today with our special guest. Again, tenth show is off topic and it is very much intentional just for personal enrichment. And I hope you enjoy today’s show. And we will be back with our guest in just a moment.

Start of Interview with Alexander Green

Jason Hartman: it’s my pleasure to welcome Alexander Green to the show. He is the chief investment strategist at Investment U, and director of The Oxford Club. He’s also the author of a New York Time’s best seller as well as a couple other books. And the New York Times best seller, his most famous book I believe, is The Gone Fishin’ Portfolio, which is a great title. Also The Secret to Shelter Island and Beyond Wealth: The Roadmap to a Rich Life. Alexander, welcome. How are you?

Alexander Green: I’m great. Thanks for having me on.

Jason Hartman: Well the pleasure is all mine. Tell us about your books. I guess Gone Fishin’ Portfolio was the first one, right?

Alexander Green: Yes it was.

Jason Hartman: And that is a 20 minute per year investment strategy you say?

Alexander Green: Well, the Gone Fishin’ Portfolio is actually a philosophy investing strategy for investing in a very particular portfolio. If you like I’ll explain how it works.

Jason Hartman: Please do.

Alexander Green: Okay, it starts with the basic premise that no one can tell you with any certainty what lies ahead for the economy or the stock market, or interest rates or currencies or commodity prices. There’s a lot of people that we’re paying an awful lot of money to prognosticate about those things. In fact, I work with a company that’s full of investment gurus that have lots of opinions to share. But no one truly knows. And so the idea behind this is no one can tell you exactly what to do with your money except in the luxury of hindsight. And so what is a strategy you can use that gives you the statistically highest chance of beating inflation and earning a decent return on your money over time with a very low probability of failure? And it’s this particular portfolio I put together and I’ll explain why it gets such a high probability of success.

I think it was Patrick Henry back in the American Revolution that said, “I know no way of judging the future but by the past.” All types of assets, stocks, large and small stocks, foreign stocks, bonds, inflation adjusted treasuries, real estate gold, all have long term historical returns. And they tend to be remarkably persistence. You can have big bull markets in stocks, and big bull markets in bonds, but eventually things start to revert to the mean and assets give a very stable return over long periods of time.

So what this portfolio does is it suggests that you invest in ten different asset classes. When I say asset classes, I’m talking about different types of financial assets that don’t all move in the same direction at the same time, like large and small stocks and foreign stocks, and high grade bonds and junk bonds, and inflation adjusted treasuries and so forth. And you simply hold these in an index form, either through an ETF, exchange traded fund, or through a very low cost van guard fund. And then once a year you rebalance them. And you rebalance what you’re selling highest and buying with lowest. It actually makes you buy low and sell high because that’s how the strategy works.

So this is something I think that the public was ready for. The book went to number one on Amazon the first week, hit the New York Times best seller list the next week, the editors of Amazon chose it as one of the top business investment books of the year and it’s been translated into several foreign languages. So the idea that you can manage your money yourself, without using a professional money manager, do very well and spend no more than 20 minutes a year doing it…because all you do is set the portfolio and rebalance it once a year. And the rest of the time you’re encouraged to go fishin’. That’s why it’s called The Gone Fishin’ Portfolio.

Jason Hartman: There you go. Well I certainly agree with you that a lot of this philosophy of speculation just, it’s just killing investors I think. They’re all looking to hit the home run and they’re so moved by these sort of sexy stories, “oh this is going to be the next big thing”. And I just don’t find that that philosophy ever really works over time. You see these people over the years who talk and think like that, whether it be in business or with their investment portfolio, and it just reminds me of the sports way of thinking there. It’s really sexy to hit home runs, but the people who always seem to really win over the long term are the people who consistently hit singles and doubles and maybe a triple here and there. You don’t get the fanfare, it doesn’t have the sexiness, it doesn’t have the exhilarating ride to it, but it works. And that’s a simple strategy, isn’t it?

Alexander Green: Right. Well, you’re actually right about that. And let me just say, that I’ve known a lot of people. I was formally a money manager for 16 years and I dealt with a lot of people that came to me and looking at what they’d done with their portfolios, they were basically handling their life savings like it was chips in a poker game. And the thing is I try to tell people that investment success is not about following the right predictions, it’s about following the right principles. And the principles of investment are well known. It’s just that most people don’t have any invested interest in bringing them to you so you can do it on your own, they’d rather manage your money, sell you a newsletter, have you invest in their fund or whatever.

But I often tell audiences that there are six things, and six things only that will determine the future value of investment portfolio and they are: The amount of money that you save, the length of time you let it compound, your asset allocation which is how you divide the money up into different types of securities, the individual securities that you select, the expenses you pay and the taxes that you absorb. Those things will determine the future value of your portfolio. So what you should be really doing is saving for as long as you can, leaving it alone for as long as you can, minimizing your taxes and expenses and asset allocating your portfolio properly. That’s exactly the topics that I cover in the book.

Jason Hartman: And when you say saving, I just want to make the distinction for our listeners, that doesn’t mean saving money in a bank where you’re getting killed after inflation and taxes, it means saving in order to invest.

Alexander Green: Right. You can’t invest money until you’ve saved it. And when I say saving, I mean living beneath your means so that you then have money to put to work. And you mentioned the people doing crazy speculations and things; it doesn’t have to be an either or proposition. As long as you take the bulk of your money, do something practical with it, something sensible, something that’s based on proven principles.

Then if you want to take all the money and open an online brokers account and trades and shares or this, and jump in and out of that with a small portion of your portfolio, that’s fine. Go for the homerun with the small portion of your portfolio but make sure that you’re not looking at retiring in a style of which you don’t want to become accustomed, that you can put your kids through college, that you can afford to retire, that you can leave something behind if that’s what you want to do to your kids or your favorite charity. And that means handling things in a sensible, straight forward, principled way.

Jason Hartman: Your book and your background is a security oriented Wall St. type of background, and as you know from our very quick discussion before we started today, I like income properties so much. And one of the things I like about it, other than the multi-dimensional nature of it and the great tax benefits, etc. And the direct control, being a direct investor rather than relying on somebody else. Whether it be a brokerage firm, or a CEO of a company, or a board of directors. There’s so many middle men in there. But one of the things I love about it, from a more psychological standpoint is that it has this illiquidity to it.

And most people say, stock people say, I love stocks because I can go online and with the click of a mouse I can trade a huge portfolio and be in and out of a position in seconds. And I think that right there is the very defect of stocks. Because liquidity, first of all, creates volatility. But second of all,the good old fashioned nature of income property, is that it’s this stayed, slow moving, tortoise and hair type of asset class. At the very least, it is a forced savings program. Because it’s not that easy to tap into the equity of it, you can’t do it with the click of a mouse, it’s there and every month it just sort of chugs along and the tenants pay down your debt, and so forth. You outsource your debt to come else. I think that philosophy very much agrees with The Gone Fishin’ Portfolio in that it’s kind of a value investment strategy. And it just makes people sort of do the non-speculative thing, doesn’t it?

Alexander Green: Well, you’re right about that, and there’s certainly been huge fortunes created in this country by people doing exactly what you’re talking about. And I think if people often approached the stock market more with the attitude that they bring to real estate, which is I’m in this for the long term, 5 years or longer, they would do very well. In fact, Warren Buffett often says, when you buy a company you should feel so good about it that if they closed the stock market down for 5 years it wouldn’t bother you in the least. So you’re right that sort of jumping in and out all the time, that’s really more entertainment than investing.

Jason Hartman: Yeah it is.

Alexander Green: Or gambling. It’s really not any way to try to handle your life savings or accumulate a substantial nest egg.

Jason Hartman: Yeah, I couldn’t agree with you more. One of my friends, he keeps talking to me about this very swanky high rise condo that he wants to buy in Montreal, Canada. And I keep trying to talk him out of it, because I said, this is not an investment. This property does not make sense today. And if it doesn’t make sense today, you’re banking on something happening over which you have no control whatsoever in the future. And you’re being a speculator.

And so we kept writing back and forth about this and ultimately he says, investing is a gamble. And I wrote back and I said, no, it’s not a gamble. It’s actually quite reliable. When you invest for income, whether it be dividends in stocks or cash flow in real estate or income property, that is not a gamble. It’s actually quite reliable, the sort of Buffett philosophy and the Gone Fishin’ Portfolio philosophy of buy it, buy good assets, and hold them, and let them do their thing over time. And let time and inflation be your friend rather than your enemy.

Alexander Green: Exactly.

Jason Hartman: It’s just amazing. Why do you speculate, Alexander, that people have this gambling mentality? Is it just that everybody’s looking for the quick fix, or is it our instant gratification…

Alexander Green: Well, I can say because I’ve dealt with hundreds of investors back when I was in the business versus a stock broker, and later as a money manager. I can tell you, number one, that there are people that are exceedingly overconfident, maybe they’re really good at what they do and maybe they can take that success and transfer it to the stock market. I can tell you for instance doctors, who tend to be very smart, educated individuals are often the worst investors because they’re simply overconfident. They think they’re smarter than the market, or they think they’ve got some kind of a strategy that’s going to be very effective and they often don’t. another reason that many people are speculating is they don’t want to do the hard work of saving. They don’t want to live beneath their means; they want to take a small amount of money and turn it into a huge amount of money. And that’s just not a realistic way to approach the market. And what they end up with is no small amount of money. Because if we know from the online trading craze back in the late 90s with the internet stocks and so on, that while it can be very good in the short term, it’s not an approach that the market is going to show sustained results over the longer term.

Jason Hartman: It kind of reminds me of the late Stephen Covey; great author, great thinker, I’m sure you’re aware of his work.

Alexander Green: Oh yeah.

Jason Hartman: I love his work. And I had the opportunity to meet him actually, in Russia years ago. We were on a cruise together. He was on the same cruise ship, and I got to talk to him. And The Seven Habits of Highly Effective People concept that he talked about in his books, which we both read, he talks about urgency addiction. And I think the gambler’s mentality is kind of an urgency addiction mentality. It’s very similar in many ways, where people, they love that high, that emotional rollercoaster, even when it’s down. They just like it because they think, okay I’ve got to go in and I’ve got to manage this. And I’ve got to figure it out, and I’ve got to be the hero and come in and save the day. And it’s just crazy.

Alexander Green: It is, and I tell you when you say addiction, there are people who have a gambling addiction, and I tell you what, if you take that to the stock market it makes an Ivy League education look inexpensive. It’s often been said that investing done right is a little bit on the boring side. Because if you want your excitement, go to Las Vegas, go to Atlantic City, go to Churchill Downs. But don’t think that you’re going to just jump in and out of stocks willy-nilly and achieve your financial goals. That’s just a wildly unrealistic approach to the financial market.

Jason Hartman: Yeah, so the value investing philosophy, I definitely agree with that. By good assets, hold them for the long term, and like you say Warren Buffett said, if the stock market shuts down for 5 years and you still own stock in this company, you shouldn’t be bothered by that because you bought a good asset. And you’re holding it to produce income over time. By the way, speaking of that, just before we get on to your other books, I want to talk about those; dividend versus non dividend paying stocks. I assume you’re a dividend income oriented guy.

Alexander Green: I recommend dividend stocks and non-dividend paying stocks. Often a company’s early growing stages, they’re growing so fast and they have such a demand for the cash that they’re generating that they aren’t able to pay out a dividend, and those can still be very effective investments. A perfect example is apple, which only recently instituted a dividend.

Jason Hartman: Under extreme pressure to do so, by the way.

Alexander Green: Yeah, well they’re sitting on a ton of cash and the [0:15:09:9] are saying you have to do something with that money. But yes, the dividend paying stocks historically have been the best performing sector of the stock market over the long term. And the reason is a dividend shows that a company is profitable, that they are mature, that they will have a reliable, recurring stream of revenue they can pay off to shareholders. And if they have a history of raising that dividend over time…people often complain that yields are so low, money markets are paying nothing, treasury bonds are at all-time record lows. And stock yields aren’t that high in most cases either, although you can get 5 and 6 percent with companies like Verizon and At&T and so forth. And if they raise that dividend over time, you could be looking at a substantially higher income 5, 10, 20 years down the road when you’re retired. And that’s what makes the difference.

I’ll never forget back when I was in the money management industry, I had this woman who owned an oil stock, and it was yielding about 3% and at the time I told her, I said if you’re income oriented I could show you some stocks that would pay a much higher dividend than 3%. And she said son, and that early in my career I knew that when an older investor called me son, it’s going to be a teachable moment; she goes son, that stock is paying 3% based on what it’s trading for now. Based on that, I paid for the stock, the annual dividend is more than my original investment.

So it just goes to show. And of course she’d owned it for 30 years and the dividend had gone up and up and up and she was getting a yield effectively 100% of what she’d put into it with a very conservative oil stock. So that’s the kind of power that you have when you buy value and you’re receiving a stream of dividends over time.

Jason Hartman: That’s a fair point that she makes calling you son, back in the old days. But the only thing you could have said it, well be sure you consider inflation in there. That’s been three decades and I’m sure it’s been pretty severe. So it’s not quite as good as you might think.

Well you’re other two books are a collection of essays where you talk about how to live a rich life; what is beyond the money aspect of it. Tell us about those.

Alexander Green: Well my most recent book is Beyond Wealth: The Road Map to a Rich Life. And I wrote these two books, which are both collections of essays about what many of the wisest people who have ever lived have said about how to live. And when I say the wisest people I’m talking about Aristotle, Plato, Jesus, Buddha, Thomas Jefferson, Albert Einstein, Stephen Hawking.

And I started writing these essays, which has probably become the most popular thing that I do now, because I was at a conference in Phoenix a few years ago and we haven’t talked about the investor letter I write, but it’s called The Oxford Club Communique, and it’s actually rated among the top few investment newsletters in the country over more than ten years by The Independent Hulbert Financial Digest.

And so we’d had a lot of success with our portfolio and our newsletter, and this gentleman came up to me in the lobby after I spoke; he said, money, money, money, money. He goes, you’ve made me a lot of money over the years. But let me just ask, do you ever think about anything else? And I thought he was kidding me at first, but he just stood there looking at me like it was a serious question. And I remember asking myself, I’d only just met this fellow, although he was a regular reader of mine, why he thought I didn’t think about anything but money.

And then it dawned on me suddenly that I write three or four hundred columns a year, and every one of them is about stocks and bonds and interest rates, and currencies and commodities, and GDP growth and so forth. And he thought that I just marinated in financial data all day every day and that was my whole life, which of course it’s not, but I went back to my publisher. And I said to her, I think we have an audience that thinks that we’re just obsessed with making money and material goods. And I said, I think we should write something about how to live a richer life. She signed off on it, so I began writing this column called Spiritual Wealth, which is not,

I mean spiritual in the sense of not material wealth. All the things that you have that you can put a price tag on, your stock portfolio, your bank account, the equity in your house and so forth, that’s all material wealth. And everything that you have that you can’t put a price on, your health, your family, your interest, the leaves changing in the fall, sunset at the beach, I call those things spiritual wealth.
And so I started writing about living a richer life. And it became very popular, so we compiled these essays that I’ve written into two books. The first was The Secret of Shelter Island: Money and What Matters. And the next was Beyond Wealth. And they too were both national best sellers. And I have to say, that while I’m proud of the investment advice that I’ve given, I’ve gotten more positive response from those essays than anything else that I’ve done.

Jason Hartman: Yeah, good. Well, talk more about living a rich life. Specifically, what are the tips in there in both books on doing so?

Alexander Green: Well, let me talk first about The Secret of Shelter Island. Shelter Island is a beautiful little island just off of Long Island, which is very tony. High net worth individuals live there. And the story is, that Kurt Vonnegut, the author, was with Joseph Heller who’s also the author of Catch-22. And they were at a party given by a hedge fund manager who was extraordinarily successful. So they’re walking around this estate Joseph Heller who’s also the author of Catch-22. And they were at a party given by a hedge fund manager who was extraordinarily successful.

So they’re walking around this estate that has an east wing and a west wing and these huge gardens and so forth, and Vonnegut turns to Joseph Heller and he says, Joseph how does it make you feel to know that this guy makes more money in one week than you’ve made in your entire career even with all the success of Catch-22? And Heller says, yeah well I have something he’ll never have. Enough. And he meant that in the sense that there are so many people out there who are constantly thinking that they have to make more, have more, spend more, display more, that the trappings of wealth become obsessive to them.

And yet, when people look back on their lives, you can interview people in a nursing home, or people lying on their death beds, and what matters is your family, your friends, your health, having interests you enjoy, whether that’s playing golf or traveling, or taking your grandkids to a minor league baseball game, whatever; those are thing things that really matter in your life.

So, what I’ve done in these various essays is I’ve just talked about various people’s thoughts on what it means to live a rich life. And it’s pretty amazing to think that Thomas Jefferson and Albert Einstein and Stephen Hawking and so forth have all put forward their own thoughts about how you can live a richer life. And so, each essay is just sort of a different point of view. I don’t claim to have all the answers myself, but human beings have had a couple thousand years to think about what it is to live the good life, and the best answers to the questions are not new. So it’s just sort of a survey of what they wisest people who’ve lived think about how best to live.

Jason Hartman: Well, certainly one part of it is not to stress about your investments, right? You didn’t mention that one, so I wanted to throw it in.

Alexander Green: Absolutely. If you’re stressing about your investments, you’re doing it wrong.

Jason Hartman: Yeah. That’s for sure. Well, very good stuff. So where can people find out more and get your books, they’re on Amazon of course, but do you have a direct website?

Alexander Green: We do, from an investment standpoint, the best website is probably www.OxfordClub.com. And then for these ideas about how to live a richer life, it’s www.SpiritualWealth.com. And then the books, the investment book is The Gone Fishin’ Portfolio. And the two books about how to live a richer life are The Secret of Shelter Island, and then more recently, Beyond Wealth.

Jason Hartman: Fantastic. Well good stuff. Alexander Green, thank you so much for joining us today.

Alexander Green: Thanks for having me. I’d be happy to do it again.

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Narrator: Thank you for joining us today for the Holistic Survival Show. Protecting the people, places and profits you care about in uncertain times. Be sure to listen to our Creating Wealth Show, which focuses on exploiting the financial and wealth creation opportunities in today’s economy. Learn more at www.JasonHartman.com or search “Jason Hartman” on iTunes.

This show is produced by the Hartman Media Company, offering very general guidelines and information. Opinions of guests are their own, and none of the content should be considered individual advice. If you require personalized advice, please consult an appropriate professional. Information deemed reliable, but not guaranteed. (Image: Flickr | lorenkerns)

Transcribed by Ralph

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