Review: Millionaire Teacher

November 3, 2011

It’s hard not to respect Andrew Hallam. I first learned about him in the pages of MoneySense, where he described how his investment club (made up of fellow teachers) had beaten the S&P 500 year after year. Hallam eventually amassed a portfolio worth more than a million bucks on a decidedly modest salary.

But that’s not why I respect him. Most people in his shoes would have written a book with a title like, How to Get Stinking Rich Now! Secrets From a Stock-Picking Savant. Not Hallam. Instead, he set about encouraging people to live frugally, save money, and invest in index funds, often buying boxes of John Bogle’s books and handing them out to his colleagues.

Now he’s written his own book with a similar message. Millionaire Teacher presents Hallam’s nine rules of financial success. Rule 1 is the one most investment books ignore: your personal savings rate—not your investment choices—is the most important factor in determining your wealth. The road to riches, he explains, is usually mundane: live within your means, avoid the pitfalls of easy credit and overconsumption, invest your surplus and the rest will look after itself.

In this respect, the book strikes a perfect balance when compared with other popular titles. David Bach’s The Automatic Millionaire trivializes wealth building by making it sound like something you can do by simply cutting out your $5 morning latte. At the other end of the spectrum is Thomas Stanley and William Danko’s The Millionaire Next Door, which profiles a lot of rich people that strike me us humourless, sanctimonious and selfish. Hallam doesn’t gloss over the sacrifices you need to make, but he’s no miser, either: his generosity, wit and contentment with life pervade the writing.

Lessons learned

Rule 4 tackles the behavioural mistakes we all make as investors: we’re overconfident, we don’t learn from history, and we make portfolio decisions based on emotion. (You can read an excerpt of this chapter in MoneySense.) One of the reasons Hallam has been so successful is that he’s followed Warren Buffett’s famous advice about being greedy when others are fearful: he bravely rebalanced his portfolio by selling bonds and buying stocks after 9/11, and again 2008. His example should give other investors the confidence to do the same.

In subsequent chapters, Hallam describes the process of building a portfolio of index funds or ETFs (using real investors as case studies) and lays bare the techniques that financial advisors use to sell their services. I wasn’t surprised to read his story about visiting a Canadian bank with his mother to try to buy index funds. After the saleswoman realized Hallam knew far more about investing than she did, she admitted that the bank instructed her never to mention index funds to potential clients. For approximately 7,894 similar stories, see this post.

For those who can’t resist

The final rule in the book is called “The 10% Stock-Picking Solution…If You Really Can’t Help Yourself.” Here Hallam explains that most investors simply cannot resist stock picking, and he goes on to describe many of the techniques he used during his decade of superstardom.

My first reaction was that this chapter undermined the message of the previous eight, and I wrote to Hallam to say so. Here’s how he replied:

“From my experience, few men can avoid stock picking. How many of the people reading our blogs have fully indexed accounts? I would wager that only a small percentage do. It’s an inherent (especially male) quality to develop the urge to buy a few stocks. Knowing that, I wanted to set a few guidelines to follow, while suggesting that stock pickers, even following my strategy, will very likely lose to the indexes when doing it.”

It’s that kind of experience and wisdom that makes Millionaire Teacher such an outstanding book. It’s easy to find excellent books about investing, but it’s rare to read an author who so clearly understands how people think and act in their financial lives. This one is going on my list of recommend reads.

{ 25 comments… read them below or add one }

Superior John November 3, 2011 at 6:33 pm

Thank you for highlighting this book. Now I’ll have 2 to purchase when I tire kick a bookstore. The reasons why stocks are picked are the same reasons why people purchase lottery tickets, drive fast at times, what the heck even cheer for the Leafs. To be straight and rigorous all the time equates to boring. Kudos to Hallam for adding that chapter. Thanks Dan for all your great posts!!!!

Andrew Hallam November 4, 2011 at 8:50 am

Many thanks for the great review Dan. I’m really glad you liked the book.

Superior John: Thanks for the kind words. I think you’ll like it!

Cheers,

Andrew

My Own Advisor November 4, 2011 at 9:15 am

Excellent review Dan!

I’m only a few “rules” into Andrew’s book, but love it and I expect I will feel the same with upcoming chapters.

His book is filled with wit, analogies and practical advice, a very rare combination. Best of all, he is not preaching to you. He is simply sharing what he knows, knows very well, and how you can apply it.

Andrew should be very proud of this book, it is outstanding!

Mark

Jon Evan November 4, 2011 at 12:41 pm

Yes, I do want to read this book. I’m pleasantly intrigued by Andrew’s realistic understanding that some need to satisfy an inherent need to speculate (gamble if you wish) to satisfy this (what seems to them) a natural impulse. It isn’t just a male thing. Some humans are farmers and others are hunters/warriors where greater risks are necessary and they require a place to channel this energy!

I’m glad for this realistic outlet which Andrew provides (his 10% sol’n) and is similar to what others have written like Harry Browne for example in what he calls having a ‘variable portfolio’ along side a safer ‘permanent portfolio’ where one can have some fun with a hobby that many enjoy to satisfy these hunter/warrior impulses which then can be cautiously pursued!

Canadian Couch Potato November 4, 2011 at 11:44 pm

It’s funny how many people think the stock-picking advice sounds like the best part of the book. Andrew, I blame you for this. :)

Andrew Hallam November 5, 2011 at 1:44 am

I guess I can accept that Dan.

For the record, my portfolio is 100% indexed (with stock and bond indexes) and even when I held individual stocks, roughly half of my portfolio was indexed.

It’s fun for many people to buy individual stocks, and I understand why people like to do it. But I’m fully indexed to give me the highest statistical chance of long term success.

Investing is about odds. And with a fully indexed account, over my lifetime, my odds of beating the vast majority of stock pickers are extremely high.

And the best part about this is the fact that I don’t have to do any work or research to ensure that my account’s performance is probably going to be in the 95th percentile.

If somebody offered me the option of ensuring that my physical fitness could be in the 95th percentile without doing any work, I’d ask where to sign up right away.

Canadian Couch Potato November 5, 2011 at 8:37 am

All in good fun, guys. I totally understand the need people have to pick stocks, even if I don’t share it. (I prefer poker.) And I certainly don’t think it’s harmful to indulge that urge at the 10% level. In fact, it may be helpful if it gives people an outlet and encourages them to leave their serious money alone.

Kjab November 5, 2011 at 9:48 am

I went looking for the epub version of this book this morning at Wiley Publishing.
$9.99 in the US and $18.95 in Canada. Not sure why such a discrepancy for an epub.

http://ca.wiley.com/WileyCDA/WileyTitle/productCd-0470830093,descCd-ebook.html
http://www.wiley.com/WileyCDA/WileyTitle/productCd-0470830093,descCd-ebook.html

Canadian Couch Potato November 5, 2011 at 9:53 am

@Kjab: Not sure the reason for that, but for what it’s worth, the paperback is $14 on Amazon, and it’s much more pleasant to read, since there are many charts and tables. I read the book on my Kindle and found the design pretty inelegant. The physical book looks much better.

Doug November 5, 2011 at 11:00 am

Ya but…

Are these the rules that the author followed to amass his wealth?

Seems like a case of ” do as I say, not as I do/did”

I’ll read it and probably give it to my kids. I’m just not sure what my response will be when they say “hold it, is this the advice the author followed to make his million on a teacher’s income?” They’ve never responded particularly well to the “do as I say…” thing.

:(

Doug

Andrew Hallam November 5, 2011 at 2:46 pm

Hi Doug,

I can certainly see how you came to the conclusion that I’m suggesting a method of investing that I never used. In truth, I built my portfolio with roughly 50% in indexes. But today, it’s 100% indexed.

If my portfolio had been fully indexed over the past 21 years, it would be a very similar size to what it is today.

My success didn’t come from picking some lucky hot stocks that paved the way. It came from being frugal from an early age, investing from a young age, keeping investment costs low, and rebalancing between stocks and bonds when the markets significantly dropped or significantly rose. My diligent saving and dispassionate rebalancing made the biggest impact on my money. It doesn’t make for an exciting story, but it makes for a productive one.

Cheers,

Andrew

uptoolate November 9, 2011 at 8:25 pm

Thanks for the great review.

For what it is worth, I thought that the last Rule on the 10% mad money was quite reasonable. As I recall, the Chapter title did add ‘if you must’ or some such caution and really didn’t suggest that stock picking was the way to go. I think almost everyone who ultimately comes to be a true believer in indexing has to experience their own Nortel, Bre-X, Enron, Worldcom, RIM or whatever.

I know that it has repeatedly be stated here and elsewhere regarding the benefits of TD e-funds for small portfolios but a picture or in this case a table is worth a thousand words and I really thought that the illustration of e-funds vs iShares ETFs across portfolio sizes was striking and very instructive in terms of just getting in there with small amounts of money using these low cost TD products. I had been holding off on putting some of my children’s cash to work waiting to go the ETF route but agree that it makes better sense to go with e-funds and get ‘time in the market’ and DCA benefits.

I enjoyed the anecdotes regarding being frugal. Been there, done that, and still have the T-shirt!

Definitely a good book that I knew I had to read when I saw some of the sources of the jacket cover comments. Some serious heavy hitters – though I didn’t see comments from Dan and Preet!

canali January 12, 2012 at 8:02 pm

I’m about to turn 50 and just now getting into investing on my own (have 50k in Telus stock for myRSP -and a pension/been here 15 yrs at Telus but might wish to diversify tought i hear dividend stocks are great and Telus is sure doing well here…but don’t wish to mix all my eggs in one basket)…aside from these books suggested, are there any ‘simulation’ sites where one can ‘buy’ stocks and vicariously build a portfolio and see what happends to it over time (along with a good user friendly site for newbies to build an actual portfolio of bonds, stocks etc)?
I can only invest about $200-300/month aside from my RSP contributions but i’m trying…

Genevieve February 14, 2012 at 2:03 pm

What a great book! Too bad I didn’t know all this 12 years ago when I started investing at 22. I’ve been going the financial advisor route, with all my money in a balanced fund, and I now know I could do much better. I want to run to the closest TD bank and open an account right away! For my kids’ RESP too! I just hope I don’t run into too much pressure from the advisor, as I’ve read in several blogs.

I do wonder one thing though – the only debt we have is our mortgage, and both my husband and I will have full pensions when we retire. In our case, would it be better to pay off the mortgage sooner or invest the money now?

Canadian Couch Potato February 14, 2012 at 2:20 pm

@Genevieve: If you have full pensions when you retire, paying off debt is probably a better priority than RRSP contributions.

Jim Semple March 29, 2012 at 11:26 am

Andrew’s book is silent on the topic of REITs. Is it risky to equate REITs to Bonds, or REIT Index Funds (like XRE) to Bond Funds (like XBB)? Is a portfolio that includes 40% XBB and 10% XRE substantially more risky than a portfolio that includes 50% XBB?

Jim Semple March 29, 2012 at 11:35 am

Given that a dividend tax credit applies to dividends on domestic (Canadian) stocks only, doesn’t a US Stock Market index fund or an International Stock Market index fund have to out perform a Canadian Market index fund in order to produce the same after tax returns to the investor? If that is the case, wouldn’t it be prudent for a Canadian investor to weight his Stock Market index fund more heavily with a Canadian index fund?

Canadian Couch Potato March 29, 2012 at 12:17 pm

@Jim: Thanks for the comments. REITs are technically equities, but they are generally considered a distinct asset class because they don’t behave like stocks or bonds. I haven’t got the data, but I would guess that 40% bonds, 10% REITs and 50% stocks would be less volatile than 50% bonds and 50% stocks.

Yes, you’re correct that in a taxable account, foreign equities would have to outperform Canadian equities in order to produce the same after-tax returns. That’s why asset location is so important: it’s generally preferable to keep foreign equities in tax-sheltered accounts, and if you’re out of room, then move the Canadian equities into the non-registered account first.

Even in a taxable account, some foreign equity is still desirable because of the extreme lack of diversification in Canada, but it is not a mistake to have some home bias here.

Oldie June 11, 2012 at 3:06 am

@Andrew Hallam: This is the first time I have found your unmistakeable identity, so I want to thank you for your eminently clear and readable book, which I traced from a magazine article you wrote that I tore out, maybe a year ago. I bought the Kindle version about 3 weeks ago, which suits my purpose just fine, and the book has changed my life.

I have given it to my wife, who, despite not liking electronic books, has read it eagerly, and understands and accepts all your statements on the futility of Active Management, but for emotional reasons, I think, has difficulty abandoning the financial advisor for my professional association’s financial management wing, which has handled our investments (currently in actively managed funds) for the past 35 years for a fee, and provided us good “free” (you know what I mean) financial and estate counselling over the years. What we do now is going to be a work in progress. I retire next week, and I intend to get my ducks in a row soon, but I need to amass a whole whack of financial knowledge, that I currently don’t have, in a hurry.

One intellectual argument we had was that she claims there is are some inconsistencies in your story. One was that she says you advocate indices but talk about how to choose individual stocks. I believe your explanation holds true and explains things — that you once picked some individual stocks, but always had a 50% core of indexed funds (but now have 100% in indexed funds). And your Rule #9 is absolutely clear: DON’T pick individual stocks, but if you absolutely have to, here’s how.

However, she had a second point which I rebutted, but I would like to hear your own rebuttal. In your Rule #9 you said you had to understand how a company makes money before you could own them, and for that reason would NEVER own Apple stocks. My wife pointed out that if you owned any US stock market index fund, which I’m sure you must, then you own at least partially, some Apple stocks. My rebuttal was that your remarks applied only to individual stocks, which you actually don’t advise one should own anyway.

But I thought about it a little, and wondered, if you really thought owning Apple was such a bad idea, is it possible in theory to own a US equity index stock that has the Apple component stripped from it? Surely there are financial instruments that in effect gives you the reverse effect to owning Apple to the extent of offsetting the Apple exposure inherent in your US Equity index fund. Of course the costs of doing this might be ridiculously high compared to the amount of risk you were trying to offset. But more to the point, even if you thought owning Apple was bad in principal, would any attempt to de-own Apple from your US index portfolio be as unwise as conventional individual stock picking and owning for the same reasons — that fundamentally you do not have clairvoyance, and that any attempt to game the average is doomed to failure in the long run, even if it cost you nothing extra in up front costs?

I’d be interested in hearing your own take on this.

Meanwhile, my compliments and thanks for your excellent advice clearly expounded in your book. My wife has recommended it to our daughter and son, and already my daughter, who is travelling for a year in New Zealand has bought it on Kindle and read it with enthusiasm. She has sent us a long email on her thoughts on reading this book, and her inspiration to continue to save and invest on her return to Canada. I think that this response counts as success for us as parents that we have primed her to take financial prudence so seriously at her young age, and for you to have an investment book that is meaningful and readable to a 27 year old!!

Mike October 18, 2013 at 10:53 pm

Hi there, I read the book and am very eager to start, I’m wondering what exactly I am asking for at the bank, I was offered td Waterhouse? Would this just be the online account I would sign into or is this seperate fro me-series? Any help would be appreciated. Thanks, Mike

Canadian Couch Potato October 18, 2013 at 11:49 pm

@Mike: TD Waterhouse (the online component is now called TD Direct Investing) is the name of the brokerage where you would open your account. You can then purchase the e-Series funds through the brokerage. It is also possible to open a TD Mutual Funds account directly through the bank branch, without opening a TD Waterhouse account. This post may help explain:
http://canadiancouchpotato.com/2010/09/23/more-fun-with-the-e-series-funds/

Mike October 20, 2013 at 2:42 pm

Thanks for the help, I just talked to someone at my nearby td and they said I would be better off with td mutual fund account, they said the short term canadian bond is not available through e series, they also had no argument about my investing choice, just making me wonder if I am asking for the wrong investment. Also wondering what a minimum should be to throw into my portfolio for the first time? Again thanks for the help!

Canadian Couch Potato October 20, 2013 at 3:44 pm

@Mike: If you’re investing less than $50K or so, there is a much simpler solution:
http://canadiancouchpotato.com/2013/09/12/the-one-fund-solution/

Mike October 20, 2013 at 8:41 pm

That looks like exactly what I’m looking for, thanks a lot

Mike October 22, 2013 at 9:57 pm

So I decided to go with e series, however they don’t offer the short term canadian bond, I was offered it at the branch level at a rate of 1.11%, I’m wondering how it was done in the book, I see e series offers they td canadian bond, but it’s record isn’t near that of the Canadian bond, any input?

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