Looks like someone needs to buy Control Your Cash: Making Money Make Sense

If you missed Part I, check here.

Dan Thompson’s arguments in Discovering Hidden Treasures are largely on point, even if he evidently hasn’t bought a starter home in some time. The hopefully titled American Recovery and Reinvestment Act is indeed a dismal failure. Our elected federal representatives spend an obscene and unsustainable amount of money. Health care isn’t so important that bureaucrats need to keep it out of the hands of profit-seekers; rather, it’s so important that profit-seekers need to keep it as far as possible from bureaucrats. If you tax people for making a lot of money, they’ll respond to the incentive by working less or moving to a more favorable jurisdiction, thus defeating the purpose of increasing their taxes in the first place.

Thompson speculates: what if our elected representatives decide that maybe 401(k)s, the tax-free boon that so many of us are counting on for retirement, should be taxed after all? Will a government really stay that true to its word – especially when that word was given to the citizenry by an almost entirely different set of politicians from a generation ago? The book’s first worthwhile sentence appears at the quarter turn:

Most families and business owners make financial decisions out of necessity rather than preparation.

That’s in the middle of a tangential reference to Thompson’s career as a competitive water skier. He follows it up with his first piece of non-obvious advice, which is not to fixate on rate of return.

Huh? Why the hell not? What should I care about if not this?

He gets to this in due time…but even the fun of pointing out examples of the author’s inability to write gets old after a while. Thompson points out that when people retire, they should earn money from their investments rather than from working. Well, thanks for that.

Thompson intermittently inserts more stories about his childhood throughout the book, presumably to give a dry topic a human face. But the stories are dreadful. No one cares what vegetable he hated as a kid. His arguments often start off logically; e.g. Social Security won’t be there for you, so you need to invest for your own retirement. But then he tells us that standard retirement plans – 401(k)s, IRAs – are bad.

Huh?

He argues that retirement plans are bad because the people invested in them assume that

• they’ll grow
• when you start drawing from them, you won’t be in a punitive tax bracket.

He adds that mutual fund companies will screw you by assuming you’re too lazy or incompetent to do the math. They’ll claim that a 10% annual return followed by a -10% return is a 0% return, rather than the -1% return it really is.  Thompson maintains that you shouldn’t finance anything, e.g. a truck, that’s going to depreciate. (Agreed. As we say here at Control Your Cash, buy assets and sell liabilities. But good Lord, does it take Thompson a while to get there.)

To build wealth, Thompson recommends you create a “private banking system”, which is a roundabout way of saying (we think) incorporate and pay yourself first.

In the second half of Discovering Hidden Treasures he touts the financial metric of Economic Value Added, which is just after-tax profit less cost of capital. Thompson says EVA is important because when a business or person subtracts capital from profit, it forces him/her/it to put every dollar to work. If your capital isn’t earning you interest, put it somewhere where it will.

Finally, almost 2/3 of the way through, Thompson has all the answers for where to put your money. Someplace better than a retirement plan (see above.) Someplace better than a bank, which charges interest. His perfect vehicle for stashing your money?

Mother-loving whole life insurance.

It’s at this point that we’d have felt cheated had we paid for our review copy of Discovering Hidden Treasures. See the previous post for why whole life insurance is a waste of money.

The most entertaining line of the book:

If you take 1000 people from birth to death, 75% are still alive at age 65. So it would be safe to say that statistically speaking 3 out of 4 people will die after age 65.

Wait, how do you figure?

Notes for the author. This is not a comprehensive list:

• It’s “midst”, not “mist” (p. 11)
• principles/principals? Seriously? This confuses you? (p. 26)
• a plural noun don’t takes a singular verb. (all over)
• if something’s “unprecedented”, you don’t need to tell us it’s “never been seen before” (p. 28)
• for the love of God, when you type “$” you don’t have to write out the word “dollars”. Never. Ever. In English, we even call that handy typographical marvel the “dollar sign”. It has “dollar” in it! (everywhere)
• a thing can’t be “very unique”. It’s either unique or it isn’t.
• Roth IRAs aren’t capitalized. Well, the IRA part is but the Roth isn’t. (p. 35) It’s a guy’s name, not an acronym.
• saying that a particular URL “can be found on the web” and including the “www” doesn’t exactly paint you as tech-savvy.
• things don’t “yo-yo up and down”. The verb “yo-yo” implies the direction the thing takes.
• question marks end questions. Periods end statements. (p. 53)
• using “needs” as a noun is all sorts of douchey. (throughout)
• You can get something free (of charge.) You can get it for nothing. You can’t get it “for free.”
• And above all, passages are slowed down by use of the passive voice. (See what was done there by us?)

Understand the cover image? It’s very subtle

After murdering Jim Randel’s The Skinny On trilogy, we figured no publisher would dare ask us to review a book. But someone did ask, and it’s with great trepidation that we agreed to review it. On the minus side, we expected nothing good. On the plus side, we needed blog post material.

We’ve reviewed several books, and the best one by far was written by a guy who didn’t learn English until his late teens.

Dan Thompson’s Discovering Hidden Treasures: Innovative Strategies For Creating, Retaining, and Transferring Wealth sounds more like the title of a lecture series at The Learning Annex, but let’s reserve judgment until we get to the meat of the book. Which only runs 99 pages and has a superfluous exclamation point on the title page.

99 pages sounds like it’d be easy to get through. If only. And by the way, the innovative strategies Thompson has in mind? Whole life insurance. Sorry to ruin the ending for you.
He doesn’t mention this until near the end of the book, and does whatever he can to euphemize it. Nor does the phrase “life insurance” appear anywhere immediately visible on his company’s website. If a man works that hard to obscure what his business does, and what “wealth strategies” he’s advocating, that tells you more than his book could.

Whole life insurance, in a paragraph: most life insurance policies are for a particular term – 20 years, whatever. Stay alive, and you threw 240 monthly payments down the toilet. Thus the insurance companies invented whole life insurance: the premia are more expensive, and the insurer invests the excess, creating a cash value that it offers to you should you ever want to cancel your policy. Oh, and if you die, your beneficiary doesn’t get the cash.

The problems with this are plentiful and clear. For the increase in what you pay, the insurer incurs no additional risk. That excess is pure profit, but not for you. If the cash value excites you, then you aren’t really insuring, you’re investing. And if you’re going to invest, there are better ways to do it than with a whole life policy that’ll probably pay around 2% annually.

You can’t win with life insurance. Your death, while a foregone conclusion, is hard to predict the date of. In fact the more accurately you can predict the date, the less likely you’ll be to find a company willing to insure you: and the higher the premia you’ll pay.

Oh yeah, Thompson’s book. That the vast majority of self-published authors can’t write is a given. He either didn’t use, or didn’t see the use for, an editor. Six lines in, and we’re already on our 3rd cliché (“…can change on a dime”, “if you don’t like the weather, wait 10 minutes” and “not a cloud in the sky.”) Writers, if you’ve heard it before, don’t use it. Yes, ideally a reader should buy a book for its content, but he still ought to be able to glide rather than wade through it.

The book starts with a first-person story. Thompson was in a thunderstorm as a kid and avoided crashing his bike into a building even though his brakes weren’t working. And – wait for it – our ECONOMY doesn’t have functioning brakes either! Thompson makes every amateur mistake:

• using the passive voice
• being indirect
• capitalizing, hyphenating and pluralizing wherever the mood strikes him
• writing a book without apparently ever having read one
• not reading Stephen King’s On Writing. (If you have any aspirations to being an author, or even a blogger, buy it.)

Assailing the disjointed prose and prolixity of Discovering Hidden Treasures will take up most of the week, so let’s assail the book’s positions and arguments instead. Discovering Hidden Treasures starts off as ephemeral, the kind of book that will only be relevant during a recession – and only this particular recession. Thompson does find his voice in the first chapter when he stops reliving his childhood and starts talking about his topic of expertise. One thing about Thompson, he holds some unconventional beliefs. For instance, he claims that in the 1980s, “long-term” investments meant 1-3 years. When Thompson starts rolling, we get more clichés. Did you know we’re “not in Kansas anymore”? Thompson then helpfully explains where that comes from (The Wizard of Oz.) Which is appropriate, seeing as at least one of his observations comes from another world, or at least another decade:

Today you can barely buy a starter home for $105,000.

You can buy a pretty nice one in Las Vegas for that price. Or Fort Myers. Or Rochester, New York. Or dozens of other cities listed here. (Those are median prices, not entry-level prices.)

It isn’t pedantic to point out that lines like this would drive a more critical book reviewer to alcoholism:

…stocks have lost as much as 30%-50% or more from their highs.

Let’s break down that sentence. So stocks have lost 0-30% from their highs, or 30-50% from their highs, or more than 50% from their highs. In other words, they’ve lost some percentage from their highs. He could have replaced the 30% and 50% figures with 1% and 87%, or 14.3% and 61%, and it wouldn’t have made a difference.

We are seeing a reset in the stock market too, but where it stops nobody knows.

And all this time, we thought the stock market lands at exactly predictable levels on particular days. Thompson’s humor is atrocious, or possibly non-existent:

Many 401(k)s became “201(k)s” after the recent market decline.

It took a few seconds to realize this was an attempt at a joke. The book itself, alas, is not. Thursday we delve into what Thompson’s really selling and why you need to run away from it.