Your Complete Guide to Index Investing with Dan Bortolotti

Review: The Gone Fishin’ Portfolio

2018-06-17T19:58:52+00:00July 12th, 2010|Categories: Indexing Basics, Portfolio Management|Tags: , |21 Comments

Alexander Green retired at age 43 after having made his fortune as an investment adviser, market analyst and portfolio manager. He thinks the efficient markets hypothesis—one of the fundamental ideas behind the Couch Potato strategy—is bunk. “I have serious philosophical differences with those asset-allocators who recommend index funds because they believe it is impossible to beat the market,” Green writes in The Gone Fishin’ Portfolio, first published in 2008 and newly released in paperback. “That’s simply not true. I have beaten the market soundly with my own stock portfolio over the past two decades.”

So what investing strategy does Green recommend for you and me? Indexing, of course. He doesn’t spend any time throwing darts at active management. He simply explains that most people would be better off managing their own money in a simple, low-cost, highly diversified portfolio that requires minimal maintenance.

Green identifies six factors that affect a portfolio’s performance: how much you save, how long your investments compound, your asset allocation, how much your investments return annually, how much you pay in expenses, and how much you lose to taxes. Only one of these is beyond the investor’s control: “No matter how proficient you are as an investor, you cannot control your portfolio’s annual investment returns. Yet this is the factor that so many investors spend their time fretting about.”

Green’s suggested portfolio is entirely made up of Vanguard mutual funds. These are only available in the US, but Canadians could easily build a similar portfolio with ETFs and an extra allocation to Canadian equities. Here’s how it breaks down by asset class:

US broad-market equity 15%
US small-cap equity 15%
European equity 10%
Pacific equity 10%
Emerging markets equity 10%
Short-term bonds 10%
High-yield corporate bonds 10%
Inflation-protected bonds 10%
REITs 5%
Gold mining stocks 5%

The book does an eloquent job of describing how the various asset classes work together to reduce volatility and enhance returns. For example, Green doesn’t advocate holding gold directly, but points out that mining stocks have a low correlation with the S&P 500, making them an excellent diversifier. (Note that gold miners make up a much larger proportion of the TSX, so Canadians could easily drop this part of the portfolio.)

The rest of the book summarizes how important—and how difficult—it is to stay the course with a passive portfolio. When Green explains how to rebalance, he acknowledges that “I can tell you from working with hundreds of investors that most have a strong compulsion to add to those assets that are performing best, not those that are performing the worst.”

What I like most about The Gone Fishin’ Portfolio is that it is refreshingly free of ideology. Green is a stock picker and he’s had great success, but he asks his readers if they really want to spend thousands of hours doing what he does. Why not instead use a strategy that is simple, inexpensive, and proven to beat the vast majority of active managers? “The Gone Fishin’ Portfolio gives you an excellent opportunity to increase your wealth. But it guarantees you more time to devote to the people and pastimes you love.”