What do you think?
Rate this book
Investing at Level 3
James B. Cloonan is the founder and chairman of AAII, a nonprofit organization providing support, education and information to individuals who manage their own investments or who wish to more closely oversee their advisers.
In "Investing at Level3," Cloonan goes against virtually all the beliefs of current theory and practice, showing that: (a) It is very possible to exceed the average market returns, (b) Volatility is not an appropriate measure of risk for the long-term investor, and (c) Much of asset allocation and diversification is not a 'free lunch' and is overdone at great expense.
In "Investing at Level3," Cloonan goes against virtually all the beliefs of current theory and practice, showing that: (a) It is very possible to exceed the average market returns, (b) Volatility is not an appropriate measure of risk for the long-term investor, and (c) Much of asset allocation and diversification is not a 'free lunch' and is overdone at great expense.
- GenresFinanceNonfiction
319 pages, Hardcover
Published January 1, 2016
5 people are currently reading
75 people want to read
Ratings & Reviews
Friends & Following
Create a free account to discover what your friends think of this book!
Community Reviews
Displaying 1 - 13 of 13 reviews
February 23, 2020
When I first started to invest in equities I began to read Ed Yardeni's posts (his book was reviewed earlier this year) and I joined the American Association of Individual Investors. Both were helpful in getting me to think about effective strategies.
Cloonan wrote this book as a sort of final chapter of his career which began with the founding of AAII. He makes a couple of arguments which the traditional investing community would find puzzling. First, he suggests that most investors should be mostly invested in 100% in equities - that is qualified a bit because he suggests at some point one should hold something close to four years of spending in a liquid investment - but even with that he suggests that using traditional age related strategies is fool hardy (one strategy I heard early on was to take 100 and subtract your age and the remainder would suggest how much of your portfolio should be invested in equities- what utter nonsense!). He dumps on what is referred to as Modern Portfolio Theory (which assembles a portfolio by allegedly balancing risk tolerances with expected returns - which is an extension of the argument for diversification) and shows how silly much of it is.
He then suggests a set of strategies which will implement his plan - obviously he believes that anyone can be successful at this strategy but in the end of the book he presents a passive strategy, using indexed funds as the investment vehicle, or slightly more aggressive strategies depending on the level of involvement one wants to have.
He presents some interesting data on the long term returns of equities and argues that there have been only three deep dives in equities in the last 100 years (1929, 1972 and 2008) so you should not plan for the big dumps because they do not happen often. The returns can be substantial - without transaction costs the annualized rate of return on an equal weighted portfolio of Wilshire 5000 stocks would be 17.4% - by anyone's accounting (even though such a portfolio would be hard to construct) that is a substantial return.
In addition to the book - Cloonan set up a website with lots of useful information AND the AAII website is also very useful for discovering information about all sorts of investing. If this book is so useful why did I ding it by one star? It is for the simple reason that the book is only available in hard bound. When the book was first being offered I wrote to AAII and asked if I could either get an Email for Cloonan or could have them send him a question and they gave me a lame excuse that Dr Cloonan is retired. AAII pioneered technological approaches to investing - when computerized investing started they were one of the first services to offer all of their stuff online. Their databases are wonderful. But when you write either AAII or his JBC email on the Level 3 site - you get a response that sends you back to the non-responsive AAII email.
The book is full of good stuff- it would be even better if there were a Kindle or iBooks version!
Cloonan wrote this book as a sort of final chapter of his career which began with the founding of AAII. He makes a couple of arguments which the traditional investing community would find puzzling. First, he suggests that most investors should be mostly invested in 100% in equities - that is qualified a bit because he suggests at some point one should hold something close to four years of spending in a liquid investment - but even with that he suggests that using traditional age related strategies is fool hardy (one strategy I heard early on was to take 100 and subtract your age and the remainder would suggest how much of your portfolio should be invested in equities- what utter nonsense!). He dumps on what is referred to as Modern Portfolio Theory (which assembles a portfolio by allegedly balancing risk tolerances with expected returns - which is an extension of the argument for diversification) and shows how silly much of it is.
He then suggests a set of strategies which will implement his plan - obviously he believes that anyone can be successful at this strategy but in the end of the book he presents a passive strategy, using indexed funds as the investment vehicle, or slightly more aggressive strategies depending on the level of involvement one wants to have.
He presents some interesting data on the long term returns of equities and argues that there have been only three deep dives in equities in the last 100 years (1929, 1972 and 2008) so you should not plan for the big dumps because they do not happen often. The returns can be substantial - without transaction costs the annualized rate of return on an equal weighted portfolio of Wilshire 5000 stocks would be 17.4% - by anyone's accounting (even though such a portfolio would be hard to construct) that is a substantial return.
In addition to the book - Cloonan set up a website with lots of useful information AND the AAII website is also very useful for discovering information about all sorts of investing. If this book is so useful why did I ding it by one star? It is for the simple reason that the book is only available in hard bound. When the book was first being offered I wrote to AAII and asked if I could either get an Email for Cloonan or could have them send him a question and they gave me a lame excuse that Dr Cloonan is retired. AAII pioneered technological approaches to investing - when computerized investing started they were one of the first services to offer all of their stuff online. Their databases are wonderful. But when you write either AAII or his JBC email on the Level 3 site - you get a response that sends you back to the non-responsive AAII email.
The book is full of good stuff- it would be even better if there were a Kindle or iBooks version!
March 16, 2017
Overall it was disappointing, poorly organized and written. Those with a financial degree will feel the points made by the book are obvious, and likely annoyed by the pompous author. Those without a financial degree will either feel bored or dangerously empowered with little useful knowledge. I felt the book was really just a promo for the AAII Shadow Portfolio. Beware the 3 star "reviews" that just mentioned that the book is available at AAII, these reviews falsely inflate the overall book rating.
July 13, 2018
Cloonan's view of how we should look at risk as a long term investor made sense to me. I remained invested in the stock market through the dips/recessions of 1987, 2000 and 2008 mainly because they took me by surprise and I felt I had no alternative but to ride things out. Cloonan has now put that in perspective for me so that - in future - I believe I will be more comfortable during downturns. His view of 3 or 4 year "recovery" periods needs to be refined/defined based on the individual.
April 5, 2022
I didn’t really learn anything new from reading this. Much of what is said in this book I have gleaned from other and perhaps more wiser individuals
It does a good job exposing both common myths and the determined arrogance of investment academics
It does a good job exposing both common myths and the determined arrogance of investment academics
February 2, 2024
Went 100 pages before calling it. Not very substantial. Surface level and mostly general statements. Chapter 7 starts with “Rule 1 develop a good strategy.” Well no duh. Then rule 2? “Stick with that strategy “ no duh again……
September 28, 2017
A good primer for investors. Interesting strategy for selecting stocks. Wish I could have read it years ago.
January 19, 2018
Read pages 21 and 22 for more advice than you really need.
April 4, 2022
Straightforward, concrete, implementable plan for maximizing returns and taking the emotion out of long-term investing. Minimal jargon - easy for non-finance people to understand.
December 13, 2016
Cloonan explains his approach to investing really well and makes a great case for it. The basic concepts important to investing in equities are explained well, and the references give you the tools you need to go further if needed. Highly recommended.
The key element in Level 3 investing is risk and how you deal with it. Cloonan's main point is that you need to understand your time frame for investing, because that determines your risk. If you won't need the money for 30 years, it really doesn't matter whether the Great Recession comes along again, because the stock market fully recovered from that in something like 5 years after the crash. He also points out disparities in recovery time for small-cap stocks and equal-weight indices (lower recovery time, therefore less risk). He shows how to move just the money you need in that kind of time frame into less risky investments rather than running scared and buying annuities or other "risk free" investments for your entire portfolio, thus giving up half the returns you could have made (paying for portfolio insurance when you don't need it, is the way he puts it). You thus won't need to take money out of return-producing investments unless the market is performing above expectations, as the "safe" funds provide a buffer while you wait for the market returns to come back. He also made the point in earlier communications outside the book that this time frame analysis should include estate analysis if you intend to leave money to your heirs--that lessens the risk on that money, which has a time frame beyond your lifetime and into that of the heirs, so you don't want to "keep it safe", you want to maximize returns. At least, your heirs probably do :).
The key element in Level 3 investing is risk and how you deal with it. Cloonan's main point is that you need to understand your time frame for investing, because that determines your risk. If you won't need the money for 30 years, it really doesn't matter whether the Great Recession comes along again, because the stock market fully recovered from that in something like 5 years after the crash. He also points out disparities in recovery time for small-cap stocks and equal-weight indices (lower recovery time, therefore less risk). He shows how to move just the money you need in that kind of time frame into less risky investments rather than running scared and buying annuities or other "risk free" investments for your entire portfolio, thus giving up half the returns you could have made (paying for portfolio insurance when you don't need it, is the way he puts it). You thus won't need to take money out of return-producing investments unless the market is performing above expectations, as the "safe" funds provide a buffer while you wait for the market returns to come back. He also made the point in earlier communications outside the book that this time frame analysis should include estate analysis if you intend to leave money to your heirs--that lessens the risk on that money, which has a time frame beyond your lifetime and into that of the heirs, so you don't want to "keep it safe", you want to maximize returns. At least, your heirs probably do :).
December 5, 2016
This book is (at least for now) available only through the AAII (American Association of Individual Investors) website; http://www.aaii.com/level3
Investors generally fall into two categories:
• Level 1, which is unorganized investing driven by impulse and emotion.
• And Level 2, which represents the investing strategy that has evolved from modern portfolio theory.
Cloonan proposes a Level 3 which uses time diversification and stock diversification that over longer time periods outperforms most indices and mutual fund managers. His view is that by focusing on smaller stocks that institutions cannot access due to size, the individual investor can achieve significantly larger returns.
While Cloonan does an excellent job of explaining MPT and its limitations and exceptions, the use of level 3 thinking seems lacking. How to choose these special stocks and manage a portfolio is underdeveloped. He does supply a passive portfolio that makes sense and could be easily followed. But moving to active investment seems elusive.
Investors generally fall into two categories:
• Level 1, which is unorganized investing driven by impulse and emotion.
• And Level 2, which represents the investing strategy that has evolved from modern portfolio theory.
Cloonan proposes a Level 3 which uses time diversification and stock diversification that over longer time periods outperforms most indices and mutual fund managers. His view is that by focusing on smaller stocks that institutions cannot access due to size, the individual investor can achieve significantly larger returns.
While Cloonan does an excellent job of explaining MPT and its limitations and exceptions, the use of level 3 thinking seems lacking. How to choose these special stocks and manage a portfolio is underdeveloped. He does supply a passive portfolio that makes sense and could be easily followed. But moving to active investment seems elusive.
February 5, 2017
This kind of material can be dry but Cloonan crafted the book with enough east to get references and examples that allow you to keep reading. Make no mistake, some of the sections about modern portfolio theory and all the fundamentals you could analyze do get long. But if you're not up for getting through them, he gave you an easy out in the introduction to the book.
The big takeaway is that diversifying ends up costing you and is not a free lunch and so anyone who is investing 60/40 or 80/20 in equities and bonds is leaving a lot on the table.
The other is that you need to invest and have your sights set for the long run. The last chapter about dealing with investment psychologically was interesting but I kind of felt it was fluff as I was finishing the book. However, after sleeping on it I think it really does have a place of encouragement to let you know the path to investing for your retirement is going to have highs and lows and you have to stay the course otherwise you lose too much.
The big takeaway is that diversifying ends up costing you and is not a free lunch and so anyone who is investing 60/40 or 80/20 in equities and bonds is leaving a lot on the table.
The other is that you need to invest and have your sights set for the long run. The last chapter about dealing with investment psychologically was interesting but I kind of felt it was fluff as I was finishing the book. However, after sleeping on it I think it really does have a place of encouragement to let you know the path to investing for your retirement is going to have highs and lows and you have to stay the course otherwise you lose too much.
September 26, 2016
Following the advice in this book could double your retirement savings (if you start early enough).
Conventional wisdom for investing is wrong about "risk". Maximizing long-term returns is less risky than controlling short-term volatility. So don't buy bonds, put 100% of your long-term savings in equal-weighted (not capitalization-weighted) stock fund. Or if you trust yourself not to panic when the market drops, you can do even better with an active approach.
Conventional wisdom for investing is wrong about "risk". Maximizing long-term returns is less risky than controlling short-term volatility. So don't buy bonds, put 100% of your long-term savings in equal-weighted (not capitalization-weighted) stock fund. Or if you trust yourself not to panic when the market drops, you can do even better with an active approach.
September 2, 2016
This book is (at least for now) available only through the AAII (American Association of Individual Investors) website; http://www.aaii.com/level3
Displaying 1 - 13 of 13 reviews