Book Review: Juggling Dynamite

What many people don’t get is that making money is quite different than having money, and having money is not necessarily a static condition . . . you must keep it once obtained.

~ Danielle Park, Juggling Dynamite

Update: This post is featured in the March 29th, 2010 Carnival of Personal Finance posted at Four Pillars. Thanks!

This book came out early in 2007, before the worst of the financial crisis hit. Bear that in mind as you read it. And I do recommend that you read it. Many of the ideas expressed in the book were far from conventional just before the crisis hit. In retrospect, they might be considered quite prescient. I think they’re just as appropriate (maybe even more so) for today’s climate.

Ms. Park is a Canadian money manager whom you may have seen on BNN or other media outlets. Her views are pretty unambiguous, whether they jibe with the consensus or not. They often don’t, and that’s why I like to listen to her – that, and the fact that she’s been right about a whole lot over the past few years.

Juggling Dynamite = Managing Risk

I won’t try to explain the dynamite metaphor. Rather, I’ll let Ms. Park do so, quoting directly from the first paragraph of the Preface:

“As a money manager, I am focused first on protecting capital from blowing up. Investing requires a lot of measuring and estimating, a process highly charged with the emotions of the investment creators, marketers, and holders. For this reason, investments can be like lit dynamite: remarkably volatile and full of risk. Once destroyed, invested capital and precious time are lost forever. In this sense a money manager’s role can be likened to that of a professional dynamite juggler. Many investiors cannot see the risks involved until a pick ends badly. Many do not even realize the fuses are lit until an explosion goes off, and when it does, most are surprised by the extent of the damage caused.”

This paragraph describes quite accurately what happened just a few months after the book was published. Many people awoke to find that their capital had been destroyed and that they were exposed to much more risk than they had believed.

Know Your Cycles

I’ve read a fair bit about various theories on economic and investing cycles and I think they play an important role in the overall market climate. This book echoed many of those theories. But it’s not only about markets and investing. Ms. Park also addresses the problems presented by our consumerist society and the increasing prevalence of debt.

Although there are lots of facts, figures and charts, there are also plenty of practical ideas and pearls of wisdom. Ms. Park often quotes from some of my favourites (John Kenneth Galbraith, Peter Bernstein, etc.) as well as furnishing her own supply of quotable lines.

The book includes a nice summary of market cycles over the years and a reality check for followers of Jeremy Siegel. Her rebuttal of the “Stocks for the Long Run” thesis is one of the best that I’ve read. She posits that markets can and should be timed to some extent. That doesn’t mean we all need to become high frequency traders, but that we should be aware of the big picture and manage risk accordingly. Knowing where we are in terms of both short and long term cycles can provide valuable information for any investor.

An Insider’s View of the Investment Sales Game

Having been part of the mainstream investment sales industry for a number of years, Ms. Park shares some cautionary insights about how the industry really operates. She now manages money for high net worth clients at her own firm. As you might have guessed, she doesn’t follow the “all mutual funds all the time” formula that characterizes most financial services companies.

In addition to practical advice on managing spending, debt and risk, the book delivers information on mutual funds, management fees, and media noise. It also covers sector performance over an economic cycle as well as fundamental vs. technical analysis. They tend to lean toward technicals at Ms. Park’s firm. They also prefer to buy indices rather than individual stocks.

An Afternoon of Juggling Dynamite

I’m probably the slowest reader on earth. It takes me a long time to get through most books because I like to thoroughly understand what I’m reading. Also, I tend to fall asleep while I’m reading, no matter how interesting the material. (Yeah, that was a big help while pursuing my degree in English! ) I’m only mentioning this so that you’ll understand how remarkable it is when I tell you that I read this book on a single, cloudy Saturday afternoon a couple of years ago. I couldn’t put it down, and given my history, that’s saying something.

Whether you’re just starting out with investing or you’ve been doing it for years, this book is worth an afternoon of your time. Even if you don’t agree with the author’s thoughts, it’s sure to make you examine and evaluate your own.

Are you familiar with Danielle Park or Juggling Dynamite? Do you agree with her approach?