The Little Book of Alternative Investments: Reaping Rewards by Daring to be Different

by Ben Stein, Phil DeMuth

Praise For THE LITTLE BOOK OF ALTERNATIVE INVESTMENTS "Ben and Phil have done it again. Another lucid, insightful book, designed to enhance your wealth! In today's stock-addled cult of equities, there is a gaping hole in most investors' portfolios...the whole panoply of alternative investments that can simultaneously help us cut our risk, better hedge our inflation risk, and boost our return. This Little Book is filled with big ideas on how to make these markets and strategies a treasured part of our investing toolkit."
— Robert Arnott , Chairman, Research Affiliates "I have been reading Ben Stein for thirty-five years and Phil DeMuth since he joined up with Ben ten years ago. They do solid work, and this latest is no exception."
— Jim Rogers , author of A Gift to My Children "If anyone can make hedge funds sexy, Stein and DeMuth can, and they've done it with style in this engaging, instructive, and tasteful how-to guide for investing in alternatives. But you should read this Kama Sutra of investment manuals not just for the thrills, but also to learn how to avoid the hazards of promiscuous and unprotected investing."
— Andrew Lo , Professor and Director, MIT Laboratory for Financial Engineering

Q&A with Co-Authors Ben Stein and Phil DeMuth
Co-Author Ben Stein The book discusses the 60/40 portfolio – what are the good and bad sides of it?
The 60/40 stock/bond portfolio has evolved by natural selection to be the default preference for many investors. Since 1976 it has offered about 93 percent of the returns of the entire stock market with only about 65% of the risk. That's a pretty good trade-off. On the other hand, the vast majority of the risk comes from the stock side. It is basically riding the stock market with a shock-absorber from the bonds. This is the impetus to our search for alternatives -- the desire to spread our risks so we don't get jerked around as much.

Why do you say in the book “Luck is a terrible strategy” ?
If you scratch the surface, most investors are terrified. They know the pain of losing money, yet they have to do something with their savings, so they are led by the financial services industry to throw it at whatever has done well lately and then cross their fingers. Wall Street's basic strategy is to post impressive performance numbers by taking on added risks that are not visible until it is too late. This is what lures the suckers into the tent. It works most of the time, because most of the time the market is up. When it collapses, if investors move at all, it is simply to the next guy with a great recent track record. This is not a profitable way to invest.

Co-Author Phil DeMuth Why are you against gold (i.e. If you are a king or pirate, you need a chest of gold. If not, you don’t)
Most assets are supported by underlying earning power. Gold is supported by other people's fascination with gold. This is a circular argument. Gold is extremely difficult to value rationally, which means that its price is wildly susceptible to fanaticism and gold metaphysics. By definition, most people will get most interested precisely when the price is highest and the expected future returns are lowest. That said, we do believe that a small allocation to a broad basket of commodities (including precious metals) can be a useful portfolio diversifier.

Why are hedge funds the ultimate alternative investment?
Hedge funds are the ultimate alternative investment because they set out to be. They set out to 'hedge" or bet against whatever is the prevailing wisdom or trend. Their whole purpose is to go against whatever the general market feeling is: so, if people are loading up on crude oil, they sell crude; if people are going long on real estate, they go short on real estate. If the market generally is optimistic, they short the market.

That is at least what hedge funds are supposed to be. Some are really just managed investment pools, but their goal is to be contrary.

Genres: Finance, Nonfiction, Audiobook

288 pages, Hardcover

First published February 25, 2011

About the author

Benjamin Stein is a multifaceted American figure known for his work as a writer, lawyer, actor, comedian, and commentator on politics and economics. He began his public life as a speechwriter for Presidents Richard Nixon and Gerald Ford, later gaining widespread recognition in the entertainment world for his deadpan comedic style. Stein became a pop culture icon through his role as the monotone economics teacher in Ferris Bueller’s Day Off and as the host of Win Ben Stein’s Money, a game show that earned multiple Emmy Awards. He also played Dr. Arthur Neuman in The Mask and its sequel. A Yale Law School valedictorian, Stein worked as a lawyer for the Federal Trade Commission and taught law and economics at Pepperdine University.
A prolific columnist, Stein has contributed to The American Spectator, Newsmax, The New York Times, and The Wall Street Journal, among others. His books, often co-authored with Phil DeMuth, address financial planning and economic commentary. In 2008, he wrote and starred in Expelled: No Intelligence Allowed, a controversial documentary criticized for promoting intelligent design.
Politically conservative, Stein has defended Nixon's legacy, expressed strong views on U.S. foreign policy, and advocated higher taxes on the wealthy to support military initiatives and reduce national debt. During the 2008 financial crisis, he came under scrutiny for downplaying early warning signs and misjudging the scale of the economic collapse.
Stein has also had an extensive voice acting and television career, appearing in series such as The Wonder Years, Seinfeld, and Family Guy, and voicing characters in The Fairly OddParents, Rugrats, and Animaniacs. His personal life includes a long-standing marriage to entertainment lawyer Alexandra Denman and homes in California, Idaho, and Washington, D.C. Though often polarizing in his opinions, Stein remains a recognizable figure across political, academic, and entertainment domains.

Reviews

[Tim Bishop · Rating 5 out of 5]

This was the best financial book I've ever read. The authors took what could have been a painfully dry subject and, with engaging writing that included clever metaphors relevant to the common man, communicated their thoughts effectively. The primary theme of the book was to balance an investment portfolio using funds that track with the general market while adding a class of investments, hedge funds, that will counteract overall market trends. In the long run, they claim this method performs as well as the general market, but with less volatility in the portfolio. I would highly recommend this book for anyone who wants a better understanding of personal investing.

[Nard Nard · Rating 5 out of 5]

“𝘛𝘩𝘪𝘴 𝘤𝘰𝘮𝘱𝘭𝘦𝘵𝘦𝘭𝘺 𝘰𝘷𝘦𝘳𝘭𝘰𝘰𝘬𝘴 𝘵𝘩𝘦 𝘴𝘦𝘭𝘧𝘭𝘦𝘴𝘴, 𝘢𝘭𝘵𝘳𝘶𝘪𝘴𝘵𝘪𝘤 𝘴𝘪𝘥𝘦 𝘰𝘧 𝘩𝘶𝘮𝘢𝘯 𝘯𝘢𝘵𝘶𝘳𝘦. 𝘓𝘰𝘰𝘬 𝘢𝘵 𝘎𝘢𝘯𝘥𝘩𝘪. 𝘓𝘰𝘰𝘬 𝘢𝘵 𝘚𝘵. 𝘍𝘳𝘢𝘯𝘤𝘪𝘴. 𝘞𝘩𝘰’𝘴 𝘵𝘰 𝘴𝘢𝘺 𝘵𝘩𝘢𝘵, 𝘣𝘦𝘩𝘪𝘯𝘥 𝘵𝘩𝘦 𝘴𝘦𝘤𝘶𝘳𝘪𝘵𝘺 𝘨𝘢𝘵𝘦𝘴 𝘢𝘵 𝘩𝘪𝘴 𝘎𝘳𝘦𝘦𝘯𝘸𝘪𝘤𝘩 𝘤𝘰𝘮𝘱𝘰𝘶𝘯𝘥, 𝘺𝘰𝘶𝘳 𝘩𝘦𝘥𝘨𝘦 𝘧𝘶𝘯𝘥 𝘮𝘢𝘯𝘢𝘨𝘦𝘳 𝘪𝘴𝘯’𝘵 𝘸𝘢𝘯𝘥𝘦𝘳𝘪𝘯𝘨 𝘯𝘢𝘬𝘦𝘥 𝘵𝘩𝘳𝘰𝘶𝘨𝘩 𝘵𝘩𝘦 𝘨𝘢𝘳𝘥𝘦𝘯 𝘱𝘳𝘦𝘢𝘤𝘩𝘪𝘯𝘨 𝘱𝘦𝘢𝘤𝘦 𝘢𝘯𝘥 𝘭𝘰𝘷𝘦 𝘵𝘰 𝘵𝘩𝘦 𝘣𝘪𝘳𝘥𝘴 𝘢𝘯𝘥 𝘴𝘲𝘶𝘪𝘳𝘳𝘦𝘭𝘴?“

It was great fun reading this book. Alternative investments are rather obscure and may seem complicated or confusing to some. However, as Ben and Phil have proved in this book, they really aren't the strange form of dark magic they are thought of as. Their witty jokes and easy-to-understand explanations made this book extremely informative and one of the best investment books I have read in a while. It is well worth reading and I would recommend this book to anybody looking to deepen their knowledge on this topic or investing in general.

[Jacob · Rating 3 out of 5]

This book offers a surface description of potential investing alternatives (commodities, REITs, and hedge funds as well as describing several they don't recommend) together with specific recommendations for funds the authors like. The central idea of focusing an investing portfolio to reduce risk while keeping a reasonable gain is a decent one, particularly if you're similar in age to the authors.

The recommendations for hedge funds in specific areas come thick at the end, making it hard as a direct read. In addition, there are a lot of jokes, and some uncomfortable metaphors comparing investing to sex.

[Jay French · Rating 3 out of 5]

Stein and DeMuth start this volume with the understanding that the reader is willing to invest in non-traditional assets. By non-traditional, we aren’t talking stocks and bonds and cash interest-bearing investments. We are talking commodities, collectibles, gold, real estate, and other investments that have lower correlations to the market, the thought being that investing in multiple asset classes that have low return correlation is a way to have a higher return for a given level of risk. Most of the book takes these assets and combines them using hedge funds as examples of investments to handle this complexity. The authors include a large list of hedge funds and other investments, with short descriptions and short bits of financial advice. I believe that the kind of advice you would get often changes over time, as investment funds change styles, rules, ownership, expenses, and returns. This advice was probably good when written, but aging rapidly. Is it worth it to read the book given the age of the advice? I think the beginning, which describes the benefits and issues with different investment asset classes, is still good, but the second half could be skimmed unless you want to hear lists of various types of “styles”. I found the second half interesting, but overwhelming on audio. If you want to think through these investments, I’d recommend the paper book over the audio. If you want a lay of the land, listening to the audio of the first half would cover your needs.

[Dzung Vuong · Rating 3 out of 5]

Good review of current investment vehicles before he promotes hedge funds.
He did not describe BDC Business Development Companies and MLP Master Limited Partnership.

[Russell Yarnell · Rating 4 out of 5]

This book does a great job of introducing ideas and products available. It provides a primer on when or where these financial products are useful. It then explains why you don't want too much of these in your portfolio. It also examines hedge funds that typically the wealthy mention. The returns on these are not well published and there is suggestion that investing in a hedge fund may be more of a signal that people use to indicate their wealth rather than achieve great returns.

[Walter Weston · Rating 3 out of 5]

Not a bad book. Seemed like a commercial for hedge funds...

[Eric · Rating 4 out of 5]

Pretty accessible and with good level of detail. Great introduction

[Robert · Rating 1 out of 5]

This book is a very cursory introduction to alternative investments. While it does explain the main categories of alternatives and the basics of their implementation, it leaves out a lot of detail. For example, there is no discussion of the risk/return characteristics of individual alternative assets, historical performance (e.g. how/why have they failed in the past), or guidance on how to evaluate specific strategies. There is a limited discussion on how to integrate alternatives into a portfolio, but it is mostly focuses on the summary statistics. You also have to suffer through the authors’ grossly sexualized writing about investing throughout the book (just one example: there is a chapter sub-heading “Finding Your Portfolio’s G-Spot”). At the end of this book, the authors advise to not invest in anything you do not understand. That is good advice, but unfortunately you will not understand alternatives after reading this book. For an actually useful overview of alternatives, read Alternative Investments: A Primer for Investment Professionals.

[Gregory · Rating 3 out of 5]

Good roundup of a few alternative investments that can add diversity to your portfolio. As always once a book like this is written with specific investments named that information will have changed by the time the book is published but this book did give me enough education that I can speak with a financial adviser on how I might use some of these strategies and not be held completely to mutual funds or individual stocks.

[Natalie · Rating 3 out of 5]

While not agreeing with Ben Stein's politics or social views, I did find this book to be a useful overview of alternative investment strategies. The writing proved to be straightforward, concise, and even amusing.

[Karen Hensley · Rating 5 out of 5]

Very readable book and thanks for tackling such a bewildering subject for "the rest of us".