Book Review: Enough Bull

People on commission cannot be trusted.

~ David Trahair, Enough Bull, p. 121

This book came out in August of 2009. By that time, the market tailspin had finally subsided and many investors have since felt comfortable diving back into the investment pool. David Trahair would probably advise against that.

This book was billed as “the one book your bank really does not want you to read”. When you understand Mr. Trahair’s position, you can see why. Many of the ideas he proposes in this book would be considered sacrilegious in many circles, including some parts of the personal finance blogosphere, and of course, the financial services industry.

My first impression was that Mr. Trahair’s views were a little too extreme and that the book probably wouldn’t even have been published if it weren’t for the panic instigated by the financial crisis of 2008-2009.  The thing is, I actually found myself agreeing with many of his opinions. I’ll sketch some of them out for you here and you can decide whether or not to pursue them further by reading the book.

Traditional Financial Planning Techniques Don’t Work

Here comes the sacrilege. These (in bold type) are just a few of the pearls of wisdom you may have heard from your advisor or read in a book. Each is followed by Mr. Trahair’s response:

• Trust the stock market to make us wealthy? Never again.
• Pay your investment advisor a fee of more than 2% a year to try to beat the market? I don’t think so.
• Risk our home trying to “make our mortgage tax deductible” by investing in mutual funds? Please, give me a break.
• Skip a cup of coffee to get rich automatically? Yeah, right.

Mr. Trahair, like a lot of other investors, is angry that average folks were sold questionable financial products and advice, and that those who sold them got rich while those who bought them “got screwed”. I guess that sounds a bit severe, but in many cases, it’s exactly what happened during the financial crisis. The large institutions who created, packaged, and sold collateralized debt obligations, asset backed commercial paper and credit default swaps were bailed out with taxpayers’ money while those who invested in them got hit twice: once by their investment losses and once by the government’s use of their tax dollars.

The Antidote

So what’s a disillusioned investor to do? According to the author of this book, you can “retire well without the stock market, mutual funds, or even an investment advisor”. That probably sounds pretty good right about now to some of you after the past couple of years. Here’s the catch: In order to do that, you need to invest in high interest savings accounts and GICs that pay considerably less than historical stock market returns.

Still, Mr. Trahair makes a convincing argument for ditching the risks inherent in stocks in favour of the safety of CDIC-backed savings vehicles. Mutual fund fees (especially those dreaded deferred sales charges) eat into your returns as well. He proposes the use of a laddered GIC portfolio in conjunction with a high-interest savings account, preferably inside a tax-sheltered vehicle like an RRSP, TFSA, or RRIF.

There are 6 parts to Trahair’s antidote:

1. Avoid Personal Financial Disasters: Limit risk by avoiding investments you don’t thoroughly understand or are not backed by the government.
2. You Don’t Need the Stock Market or Mutual Funds: Use guaranteed savings vehicles as described above.
3. Buy a Home and Pay Off the Mortgage: Never borrow against your home to invest.
4. Reduces Expenses: You can do this by paying down debt to reduce interest expenses and paying a professional to do your taxes in order to minimize the amount you pay. (Mr. Trahair is an accountant.)
5. Forget RRSPs Until You are Debt Free: Yes, he means your mortgage too.
6. Ask Yourself if You Really Need an Investment Advisor: If you invest in GICs and savings accounts, you just need to do a little research on how they work, set up a laddered portfolio, and you’re good to go. It’s really not hard and the author spells it out pretty clearly in the book. Recently Rob Carrick addressed GICs in an informative article In Praise of a Much Maligned Investment.

Part II: The Details

The accountant in Mr. Trahair comes out in the second part of the book. He goes into great detail about the calculations behind your decision about when to collect CPP, his own “Money Maximizer” spreadsheet, and income splitting in retirement using RRSPs and TFSAs. The information in these sections can get a little dry for the layperson, but it could also serve as a great reference for Canadians in a world full of U.S.-centric personal finance advice.

My 2 Cents

I know that the idea of not saving in an RRSP until your mortgage is paid off, or of not investing in any equities at all will be completely unpalatable to some. That’s valid. But I think that Mr. Trahair’s plan is also a valid course of action if you think it’s right for you. He makes the point that by putting off saving in an RRSP until your mortgage and other debts are gone, you will ensure the safety of the roof over your head, and allow your RRSP room to grow. This way, as you get older and your income (hopefully) increases, you will be able to take advantage of the substantial tax breaks afforded by RRSPs and you will be able to save very quickly since you will have no debt to service.

I’m sure a great debate could be had over the years of compounded stock market returns you would forfeit by postponing your retirement savings. But look at the last 10 years. There wasn’t much to compound was there? The author’s point is that relying on historical averages to predict future stock market returns has simply proven to be a fool’s game. If you don’t believe it, just read any mutual fund prospectus: “Past performance is not indicative of future results.”

If you are a firm buy and holder, you probably won’t read anything in this book that changes your mind for good. If you have your doubts, go ahead and read it. There’s a lot of good food for thought to sample here, even if you don’t buy the whole meal. As for diving back into the pool, I happen to think the sharks are still in the water.

1. If you have read the book, what did you think? If you have not, are you likely to give it a try?
2. Would you consider retiring without an advisor, stocks or mutual funds?