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Money Wise: How to Create, Grow, and Preserve Your Wealth
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Money Wise: How to Create, Grow, and Preserve Your Wealth

by A. Michael Lipper

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Do You Use Your Wealth Wisely?

A. Michael Lipper, the analyst who helped develop the Lipper Indices for mutual funds, addresses the growing need for the wealthy to understand how to think about their wealth as a guide to how to invest it, spend it, and leave it to their descendants. Using insights gained from four decades on Wall Street, he shows that wealth is a


Do You Use Your Wealth Wisely?

A. Michael Lipper, the analyst who helped develop the Lipper Indices for mutual funds, addresses the growing need for the wealthy to understand how to think about their wealth as a guide to how to invest it, spend it, and leave it to their descendants. Using insights gained from four decades on Wall Street, he shows that wealth is a state of mind as much as the size of a bank account, and gaining wealth and keeping it can be two different skills. With the luxury of time and resources—and the wisdom of Mike Lipper's experience—investors can make sound financial choices for themselves and their heirs.

Topics include:

- How to match your hard and soft assets—your true net worth—with your hard and soft liabilities in a personal balance sheet

- How to put risk to work for you

- How to find the right investment advisors and how to advise them correctly to serve your needs

- How to determine your “investor personality.” Are you an Absolute Investor, a Confident Investor, an Uncertain Investor, a Relative Investor, a Fiduciary Investor, a Bored Investor, a Guilty Investor, a Financial Death-Wish Investors, or a Paralytic Investor?

In this wise and witty volume, legendary investment advisor Mike Lipper helps you explore and define your motives and needs in investing, identify your investment personality, and above all challenges you to think about investing, money, and your life in fresh and rewarding ways.

Editorial Reviews

From the Publisher
From the New York Times

THE appeal of “Money Wise” (St. Martin’s Press, $27.95), by A. Michael Lipper, doesn’t come from his investment picks. He doesn’t offer any.

It certainly is not provided by Mr. Lipper’s counsel on which asset classes to buy. His position is this: It all depends.

And after reading the book, you may not come away with new insights about how to select someone to help you manage your money, or about how to invest in general.

When it comes to advisers, Mr. Lipper says, “I look for managers who can carefully rotate their portfolio weightings and selections over multiple periods.” As for where to put your money: “Never invest in something because it is fashionable.”

You have probably heard views like that for years. So what makes this book by the founder of Lipper Analytical Services — now Lipper, a division of Reuters, which provides information on mutual fund performance — so worthwhile?

It’s the unusual path he has chosen to follow. These days, most investment books are trying to make the not-so-rich rich, with titles like “The Automatic Guide to Making Money in the Coming Crash” (my concoction). But Mr. Lipper has taken a different approach, by not aiming at people who are trying to become wealthy. He has written this book, with the help of Douglas R. Sease, a former editor at The Wall Street Journal, for those who are already well off and want to stay that way.

Such people are likely to find his straightforward and often unconventional advice extremely appealing. And so, too, might the rest of us, who can take advantage of at least some of the strategies that Mr. Lipper offers.

Consider the approach he suggests for one of the most fundamental components of financial planning: figuring out your net worth.

Typically, as part of this exercise, you are told to make a conservative guess of what your house would sell for today, deduct the mortgages against it, and add the difference to the asset side of your personal ledger.

The problem with that, Mr. Lipper argues, is twofold: Few people can count on converting their house into cash quickly, so whatever equity they have is far from a liquid asset, especially these days. More to the point, if you sell your house you still need a place to live (unless, of course, it is a second home). That expense — a liability on the balance sheet — is usually not included in the statement of net worth.

Not only do people overestimate their assets, Mr. Lipper argues, but they also underestimate their liabilities.

“Do you intend to fund education expenses for your children, or grandchildren?” Mr. Lipper asks. “Is your health going to be perfect until you suddenly drop dead? Do you intend to travel, eat in fine restaurants, and engage in other lifestyle indulgences after you retire? They’re all liabilities on your personal balance sheet, and many of them are, like some of your assets, difficult to estimate. Yet it is important that you make the effort because your estimate of your liabilities drives the way in which you arrange your assets.”

Other conventional wisdom when it comes to wealth is also misleading, he says.

Yes, of course, you want to invest in good companies with strong fundamentals, but Mr. Lipper says that “one of the rules that I try to follow is not to make a serious investment if I cannot find someone who has been in the same room with the principals of the company under consideration and seen them under some pressure.”

Mr. Lipper spends a great deal of time urging investors to be truly honest with themselves as they think both about their financial futures and their abilities.

Three quick examples make the point:

•“I know most people talk about cutting back on expenses when they retire, but they seldom make significant reductions.” His advice is to figure that once you quit work, you will continue to spend as you do now, and to plan accordingly.

•“Most investors at one time or another in their lifetime try their hand at trading stocks or other financial instruments. If you pay attention to nothing else I have written, pay attention to this: Don’t trade with a lot of money.” You are not likely to be good at trading, he says, no matter how smart you think you are.

•“The biggest mistake that I see people of wealth making is having a single-minded focus on investment returns with no thought about their spending patterns. At the end of the day, expense control plays a larger role in the success of a financial program than the entire array of specific investments.” His point is that you can certainly offset lower returns in the market, by living on less.

HIS thoughts even extend to raising children.

“If your child really wants an advanced degree in poetry,” he says, “consider that you might want to use the assets that would pay for the degree to instead set up a trust to help pay the cost of living until the child is economically independent.”

One last point also makes the book stand out: his focus on constantly asking what kind of financial legacy you wish to leave.

Competent estate attorneys can create your will and establish the necessary trusts, but it is up to you to decide whom or what you want to benefit.

The result of all this is a book that may help you preserve whatever money you have and think carefully about what you want to do with it.

—Paul R. Brown

From The Seeker

After many years of discussion with family, friends and colleagues, A. Michael Lipper, CFA, has written a book, Money Wise: How to Create, Grow, and Preserve Your Wealth (September 2008, St. Martin's Press) with former Wall Street Journal Money and Markets Editor Douglas Sease. The book is a delight to read not only for what it tells you about investing per se but because it's a witty tome about life's lessons. By the way, these lessons apply to investing, too.

Many clients of wealth managers will know the Lipper name, attached as it is to many mutual fund indices and fund performance statistics, often with the phrase, “according to Lipper.” Reuters bought Lipper's data company, Lipper Analytical Services, Inc. in 1998, now known as Lipper, Inc. As president of Lipper Advisory Services, Inc., and Lipper Consulting Services, Inc., Mike Lipper continues to engage in his philanthropic endeavors, to manage money for a select group of wealthy individuals and institutional investors, and to consult with financial companies.

Lipper is a member of the Board of Trustees of the California Institute of Technology (Caltech), which manages the Jet Propulsion Laboratory. In the book, he talks about what he's learned in the course of getting to know the physicists and professors there, and the parallels between physics and investing.

He sat down with Wealth Manager's Editor in Chief, Kate McBride, at his home in New Jersey in early June. [Full disclosure: The writer has known Mike Lipper for the better part of two decades, and worked for him for many years.]

In the book, you talk about science and the uncertainty of life, about change, and this ties in with your work with Caltech and the physicists there. How do you draw some of the parallels between physics and investing?

It has to do with probability and certainty. In physics you hope to discover or use a law that is totally repeatable and that anyplace in the world, somebody else can repeat it and get the same result not only today but forever. We know now [that] some of the past scientific laws weren't forever, but you're looking for [the ability to reproduce results] 100 percent of the time.

In investing, a good investor wins, in terms of dollar impact, something more than 50 percent of the time. A professional should win 60 percent and a great investor 67 percent–two-thirds of the time. You can look at Buffett, Soros, Neff, Peter Lynch. When you talk with any of them privately, they talk about the fish that got away, so while searching for investment truths we have to learn to deal with investment odds. The odds on totally replicating the past [are not good]; it's the ability to absorb error that is the way to stay in the game long enough for when things come right. The big tragedy of declines is that people sell out and say, “Never again,” and they miss the upsides, and historically, in this country the upsides have been bigger than the downsides.

What got you interested in doing the work that you're doing with Caltech in the first place?

Like with almost everything in my life, it was accidental–I had heard of the school but really didn't know it. A neighbor and good friend is a graduate, bachelor's, master's and doctorate and invited [my wife] and I to attend what they call Caltech Associates Dinners where they bring in professors to talk about what they're doing, and we were fascinated–[it's] a whole different world than what I was used to–even though I was at one point an electronics analyst. This stuff was way above anything that I knew anything about, and I was impressed. I can go in there and learn something from very smart people–a lot of what I've learned is not immediately applicable. It's a different point of view; that they are the manager of the Jet Propulsion Lab opens up the concept of space and how a tiny error here on earth means that you miss a planet by zillions.

The stuff they're doing in neuroeconomics is fascinating. The theory is that they can identify the portions of the brain that make decisions–and quite probably economic decisions. Whether those are investment decisions, more work's got to be done. They have a game theory group–fascinating work. Bottom line, [they're] just a bunch of very bright people, and it happened at the right time in my life.

Are you applying anything that you've learned there to your own firm or investments?

Yes and no. Yes in the sense that a good investment program would have significant investments in the progress of science. No in the sense that I don't feel comfortable in finding managers that are heavy in technology [companies]. Most of them know more than I do, but it's temporal and current, and I'm looking for, not quite a law of physics, but I'm looking for people that are looking at the horizon and beyond, and how to invest for it. The problem is that there's a lot of work being done on this, but it's inside large companies and it won't have, near term, significant earnings-per-share impact.

So there's a lot of work being done on the forward horizon, going beyond, to what's next–so it's very long term?

It's very long term. Since we manage some money, and some of our own money that should be long-term oriented, I need to solve this one way or the other, but I haven't gotten to it.

How would you know when companies are doing that deep thinking [beyond the horizon] inside; is it evident–is there something that you look for?

Well I can't be categorical because I haven't solved it, but you talk to people who read the papers [that are] being produced. Only a small portion of the papers is truly future-oriented. To some degree I look for the equivalent to the Erie Canal–after the Revolution the government recognized that to develop the West you had to have a water route, so they helped fund the connection through the Great Lakes to the Hudson.

There's been an old investment principle–follow the government where it spends its money–they may not be right, they may not do it right, but they are a change element. Landing somebody on the moon–everybody says that's very nice, but how do you translate that?

The technology that has come out of that creates GPS, the cell phone, and a number of medical advances. The question comes: How do you tie it together? It's bit by bit. You have to be very patient, and any number of the [entities] will go broke, often not because of the science, which is pretty first rate, but because the business management skills are not there. Hopefully I can recognize reasonably good business management skills; I need somebody to make the scientific evaluations. This is why my preferred method of investing is through funds where the research and portfolio management people have the requisite technical knowledge, and questioning them, and doing some direct work, we can make a judgment as to their business skills.

Is there something in the book that wealth managers could take away, or maybe have a conversation with their clients about?

In many cases the first thing they have to do is devote more time and energy to listening, so that they can fashion an account that is specific rather than thinking of themselves as either manufacturer or distributor. They should be a custom tailor.

The other thing is to be suspicious of whatever the current trends are–it doesn't mean you have to spend your life fighting conventional wisdom, but you need to prove out, in the current phase, the conventional wisdom.

The earth was flat until you had some evidence that it wasn't. If you were an early adopter you found gold; if you were a late adopter, you were trapped in Europe.

—Kathleen M. McBride

Publishers Weekly

Musings on the creation, preservation and use of wealth devolve into rambling in this personal finance guide from a seasoned Wall Street investor and inventor of the Lipper Averages for mutual funds. In his search for "the eternal truths" of creating wealth, Lipper addresses the needs of only the very wealthiest Americans, suggesting that investors hire a supermanager to watch over their regular advisers if they have more than three. Focusing on the emotional and psychological aspects of wealth management, Lipper broods upon the reasons why people invest, wealth psychology and the various "investment personalities" (absolute, confident, uncertain, relative, fiduciary, bored, guilty). In a book marked by a paucity of practical suggestions, readers will likely notice-and be dismayed by-the lack of research to support the author's claims. While Lipper competently addresses the responsibilities of great wealth-including handling charitable donations and coming to grips with one's own mortality through decisions regarding wills, trusts and heirs, the long-winded slog to get there is not worth the haul. (Sept.)

Copyright © Reed Business Information, a division of Reed Elsevier Inc. All rights reserved.

Product Details

St. Martin's Press
Publication date:
Edition description:
First Edition
Product dimensions:
6.40(w) x 9.30(h) x 1.10(d)

Read an Excerpt


Many people who do not have wealth believe that it bestows upon its holder a sense of well-being and satisfaction. Alas, they are often wrong and, were they to become wealthy, would soon discover why. Wealth brings with it tremendous responsibilities, not only to one’s self and family, but to the general welfare of society. How wealth is generated, invested, and spent has a tremendous ripple effect through the economy and society. Some people handle the responsibilities of wealth well, and some handle them poorly. But the mere weight of the responsibility is often enough to create a vague sense of unease. Am I investing correctly? Can I trust my advisors? Are certain family members feeling slighted? How should I determine which worthy organizations will get part of my wealth?

Ridding oneself of these and other related concerns is not easy. I think I know why. Too many people are thinking too conventionally about every aspect of wealth. We all have heard the phrase conventional wisdom, something that "everybody knows" without knowing how or why we know it. In many cases the term should be a red flag indicating that the person using it is preparing to introduce some kind of "unconventional wisdom" that is intended to challenge the conventional wisdom. Beware! More often than not that unconventional wisdom is a thin disguise for a sales pitch for an unproven or unneeded product or service. Only occasionally does the unconventional wisdom really consist of a genuinely new way of thinking about a subject.

This is a book about selected unconventional ways of thinking about wealth. I am presenting my ideas here because I believe people of wealth can benefit from them. They are based on my personal experiences, those of my clients, and years of careful observation of the investment world as the founder of Lipper Analytical Services, the operating assets of which I sold in 1998. If my coauthor and I do our jobs well, you can use these ideas to think about and manage your wealth with increased satisfaction and greater confidence.

I emphasize that not all conventional wisdom is wrong. Quite the contrary. Most of it is right and should not be ignored in favor of ideas that are merely different. The problem with conventional wisdom is that it is too often stated in a summarization or a generalization that, while it might have broad applications, fails when applied to specific situations. That is particularly true in a financial environment, where no two situations are identical, yet broad generalizations are most often used as the foundation of decisions.

My objectives for the reader are threefold. First, to help identify and think about what constitutes the conventional wisdom. Second, to understand the challenges confronting a person seeking satisfaction from wealth. Finally, to assist in the development of a series of philosophies and strategies that are tailored to individual needs.

I do not believe in complete solutions, and this book is certainly not an attempt to be a complete solution. I am not going to tell you that you should have 67 percent of your investment portfolio in equities, 32 percent in fixed income, and 1 percent in cash. Individuals and their circumstances are all different and are all constantly changing. Indeed, the one lesson that I hope comes through most clearly in this book is that one must at all times be prepared to recognize how change is affecting every aspect of your finances and life. People do not like change. We are comfortable with what is. But one cannot totally avoid change eventually. Little changes are happening to us all the time, and we manage them, for the most part, without even thinking about them. Even big changes, if they take place over time, can be handled with aplomb. Think about how different you are today from when you were an infant, a teenager, a young adult. Some of those life changes probably felt a little traumatic or confusing at the time, but now they are just memories, perhaps good, perhaps bad. But every so often there will be a monumental change, a life-altering event. Too few people are prepared to handle those changes, the ones most likely to disrupt one’s sense of satisfaction and well-being.

Change in our own lives is one thing; change in our environment is quite another. Most people go through the various stages of maturation at about the same ages, thus at roughly the same pace. But scientific and technological change is occurring increasingly rapidly. As mankind left the nomadic stage, people probably traveled no more than a day from their home site during their entire life. A century ago most Americans did not travel more than one hundred miles from their homes during their lifetime. Today we routinely travel thousands of miles from our homes without thinking twice about it. A mere fifty years ago most business was transacted face-to-face. Today I have "virtual offices" with people in a number of locations whom I rarely see face-to-face, yet we communicate easily and frequently via the Internet. The pace of change has significant implications for investment portfolios. We know, based on history, that we can confidently predict that current forces at work in the world will lose some of their potency at some point. Precisely when is a more difficult question to answer. But the most difficult question to answer is what will replace them? This is one reason in this book I recommend investing in numerous possible new trends. I realize at the outset that my batting average will reflect more strikeouts than hits. That does not worry me. I am hoping that my production of runs will be reasonably high and that some of the successes will be huge. This approach lacks certainty, but anyone who is totally certain about something in the future is a fool or a liar.

The ideas I put forth here are arranged, I hope, logically, but are not intended to build on themselves sequentially. You can read the fifth chapter before the first and it should not make much difference. This book is for browsing. You can stop to read something of interest, skipping the topics that do not seem relevant. We have tried to keep the chapters short and to the point.

We are all overwhelmed with information; to be useful we need to explain our ideas as quickly and efficiently as possible. No one is likely to agree with everything written here, and that is fine. Mine is not the only correct approach. All I ask is that you question the assumptions that lead to disagreement. Thinking is what this book is really about.

—Mike Lipper

Summit, New Jersey

Excerpted from Money Wise by A. Michael Lipper, CFA

Copyright © 2008 by Whitridge LLC.

Published in 2008 by St. Martin’s Press

All rights reserved. This work is protected under copyright laws and reproduction is strictly prohibited. Permission to reproduce the material in any manner or medium must be secured from the Publisher

Meet the Author

A. Michael Lipper founded Lipper Analytical Services Inc., the preeminent provider of unbiased comparisons of fund performance and management in the United States. He is now the president of Lipper Advisory Services, Inc., and Lipper Consulting Services, Inc.

Douglas R. Sease is the former “Money & Markets” editor for The Wall Street Journal and a veteran financial journalist.

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