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DIY Financial Advisor- A Book Review

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The Alpha Architect, LLC team of Wes Gray, Jack Vogel, and David Foulke has produced a dynamic, fun, and accessible text that has the power to free readers from agonizing over implementing a disciplined investment process and making investment decisions. The processes offered convincingly depict a route to success in investing. The authors present ample evidence that provides simple solutions to achieving selected investment objectives considering asset class risks and correlations among domestic and foreign stocks, US Treasuries, US real estate, and commodities.

The book is divided into two parts: Why You Can Beat the Experts, and How You Can Beat the Experts. This division aids the book’s overall purpose: to provide a sensible and systematic introduction to “doing investments yourself.” Why You Can Beat the Experts is fun to read and direct in its message. The authors question the real value of so-called experts. While the experts have access to information, more data, and experience, they are often wrong. Think about it: why would more data necessarily support better investment decisions? Rather than analyzing data until blue in the face, why not model the investment process? The authors “bust” many investment myths in this section of the book, and in doing so, entice the reader to pursue systematic decision-making—and be healthy skeptics.

The process to becoming a DIY family office is straightforward, according to the authors. It is a three-step progression that involves assessment of the current adviser/broker relationship, sticking to the FACTS (Fees, Access, Complexity, Taxes, Search) and understanding portfolio management fundamentals such as asset allocation, risk management and security selection. The authors probe asset allocation and modern portfolio theory with a vengeance. In discussing Harry Markowitz’s portfolio diversification techniques to maximize return while minimizing risk, they question the best way to achieve this, considering the length of the sample periods tested and the estimates of return and volatility used to calculate allocation methods that could change in the future.

Gray, Vogel and Foulke create a simple investment process through the magic of combining value and momentum strategies. Some may consider momentum strategies to be technical analysis, but no matter what they are called, they have delivered measurably better investment performance over long and shorter periods when used in combination with valuation strategies. Academia picked up on this in the 1990s. The authors present many compelling examples from the real world and the ivory tower to support their case for momentum as part of every investment strategy.

As the reader reviews the presentations in subsequent chapters entitled, “A Simple Asset Allocation Model That Works,” “A Simple Risk Management Model That Works,” and “Simple Security Selection Models That Work,” the authors make a convincing case for returns that can be achieved with a minimum of investment discipline. I choose not to give away the recipes in this review and will only say that they are straightforward and replicable. The companion website intended for readers who are financial professionals (found at http://www.alphaarchitect.com under tools--The Alpha Architect Financial Tool Kit) includes a screening tool to find value and momentum stocks described throughout the book, an asset allocation backtesting tool, and an active blog about developments in quantitative investing. Readers will want to delve into the Robust Asset Allocation (RAA) Solution after testing the tools on their own.

Tooled with fresh ideas and technical assistance when needed, what is a reader suffering from inertia supposed to do? Get started! Having read DIY Financial Advisor, you will be armed to invest on your own—or, if you prefer to work with an advisor, to be a better investor. When you have questions as I did, you will find that they are answered in the book. (My particular questions related to strategy replication and rebalancing.) Still, some investors may find it challenging to apply the newly absorbed strategy solo. The authors’ support is always available at the click of a mouse. Readers at high levels of investment interest and all levels of investment experience will be energized and enlightened by DIY Financial Advisor, assured that the authors’ advice and time-tested investment processes should help preserve and grow their assets.

-Janet J. Mangano co-chairs NYSSA’s Private Wealth Management Committee and is a member of the Society’s Programming Committee. She formerly held the position of Senior Portfolio Manager at PNC Wealth.

Gray, Wesley R, Ph.D., Vogel, Jack R., Ph.D., and Foulke, David P., DIY Financial Advisor: A Simple Solution to Build and Protect Your Wealth. (Wiley Finance Series) Hoboken: John Wiley & Sons, 2015, 207 pages, $34.95.

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