It's All In the Tailoring

An investing approach that makes enormous sense, at least in theory.
Author:
Publish date:

Peter Tanous, The Wealth Equation. Prentice Hall Trade, 1999. 320 pages, $26.

It is fitting that

Peter Tanous

, author of the exceptional 1997 book

Investment Gurus

, begins his latest

oeuvre

with a forward by infamous, and now semi-retired value manager

Michael Price

. Value investing as a discipline is woefully out of synch with today's market, yet Price remains unrepentant. And even though the funds he formerly ran lagged the market badly in 1998 -- a large investment in Al Dunlap's Sunbeam didn't help -- he insists he is not about to change his style. "If you understand the approach and it has worked well for you over time -- and these two things are key -- take the attitude that this approach works in the long term."

The primary purpose of this book is to help investors avoid mistakes, by preventing them from changing their investment policies to suit the shifting whims of market fashion. Tanous' mission is, in a sense, to be our financial tailor, to fit us into an investment policy that fits so well and is so comfortable that we will never want to change.

The best way to build wealth, he convincingly argues, is for investors to find a strategy and stick with it -- much like Price stays true to value investing, year in, and year out. To point the reader in the right direction, Tanous says that we investors should find our own investment personality type -- our "MoneyQ Personality Profile," as he calls it.

"Since investor behavior is not all that rational, investor psychology is an important, if hitherto not very noticed factor in investment performance. . . . Understanding your own money mind is the link to investment success that we have been missing for a long time."

Missing link or not, Tanous begins by having readers take a

Myers-Briggs

style personality profile test, where they can map themselves within a color-coded investor personality type, from the reckless "Blue Innovator" to the cautious "Gold Conservator." Once suited, the investor can then select his or her enduring investment policy, thus armed, one hopes, from making dumb mistakes. And as Michael Price reminds us in the introduction, "The cost of a mistake is huge."

It's in the second part of the book, which contains the 7 "Master Keys" to investing, where Tanous' book strays. Here, he attempts to distill the wisdom from the greatest investors, but in strokes broad enough to apply to any investor's personality type. These include such shibboleths as "Set Realistic Goals;" "Never Time the Market;" and "Allocate Wisely," to name a few.

While the chapters devoted to each of these "MasterKeys" contain some sharp interviews and analyses reminiscent of

Investment Gurus

, Tanous' MasterKey principals struck me as being more of the one-size-fits-all variety.

For his part, Tanous would no doubt reply that successful investing does not require elaborate schemes or complex, mystical insights. And, while the MasterKey principals might appear simplistic, sticking to them year after year

is

extraordinarily difficult.

Tanous' approach, in theory at least, makes enormous sense. But my concern is that few investors today will be convinced that they need the patient, self-reflective assessments that lie at the heart of Tanous' approach. Blame it on this exceptional bull market, which rapidly forgives most investor mistakes --- unless, of course, you're stubbornly clinging to a losing investment strategy such as value investing, or the shorting of Internet stocks. In that case, you might get the most benefit from the chapter devoted to MasterKey number six: "Have Faith."

Roger Segal is a financial adviser who lives and writes from his home in Montclair, New Jersey. TheStreet.com has a revenue-sharing relationship with Amazon.com under which it receives a portion of the revenue from Amazon purchases by customers directed there from TheStreet.com. TheStreet.com selects books for review solely on the basis of merit for its readers.