Book Review: The Canadian’s Guide to Investing

Authors Tony Martin and Eric Tyson have updated their book, The Canadian’s Guide to Investing, but it certainly does not seem very up-to-date.  Despite a few references to ETFs and some updated examples, most of the text seems decades old and no longer very relevant.  There are some good parts, but there are better choices for investment books.

The book makes reference to many things that used to be true.  Extensive discussion about “funds” is almost exclusively about mutual funds with little about ETFs.  Buying stocks is “costly unless you buy reasonable chunks (100 shares or so) of each stock.”  You can “call the fund company’s toll-free number” and invest by “mailing in a cheque.”  “A great deal of emphasis is placed on who manages a specific fund” – this is mostly a thing of the past.  “Invest in a handful of funds (five to ten).”  There is discussion of real estate “declines in the late 2000s.”

There are repeated references to MERs of 0.5% to 1.5% as being “low.”  Even the ETF discussion on this point says index ETFs “typically have MERs of less than 1 percent.”  I suppose 0.05% is less than 1%.

The authors advise people to avoid limit orders and use market orders when you intend to hold for the long haul.  They seem to consider limit orders as being only for trying to get equities for cheaper than the current ask price.  A good use of limit orders is to offer a price higher than the current ask price (or lower than the current bid price when selling).  This will usually give you the market price, but will prevent the trade from executing if markets move quickly against you just as you’re entering the trade.

The book advises people to rely on credit-rating agencies for bonds, which is interesting in light of the abject ratings failures leading up to the great financial crisis.

On asset allocation, “playing it safe” is to use your age as a bond percentage, “middle of the road” is age minus 10, and “aggressive” is age minus 20.  They go on to break down the stock allocation characterizing owning mostly Canadian stocks as “play-it-safe,” and having half your stock allocation outside of Canada as “aggressive.”  I don’t see anything safe about avoiding U.S. and international stocks.

The authors tell investors “who enjoy the challenge of trying to pick the better [fund] managers and want the potential to earn better than market level returns, don’t use index funds at all.”  Chasing star fund managers is an old and losing game.

At one point, the authors promise to help investors in “spotting a greatly overpriced” market so you can “invest new money elsewhere.”  It turns out that this method uses price-earnings ratios.  Shiller’s CAPE10 measure of U.S. stock market price-earnings has been above 20 since 2010, a period where U.S. stocks have grown by a factor of nearly 6 (including dividends).  This is not a good period to have skipped.

On the positive side, the authors advise against buying expensive cars: “set your sights lower and buy a good used car that you can afford.”  When it comes to index investing, “you can largely ignore the NASDAQ.”  “To find a home that meets your various desires,” taking “six months to a year [to find the right house and neighbourhood] isn’t unusual or slow.”  “Begin your search without [a real estate] agent to avoid … outside pressure.”

The authors have some interesting takes.  “One of the best tactics is to focus only on [retirement saving and paying off your mortgage] and ignore [saving for university or college]” until later.  They also offer extensive advice concerning owning a small business and determining if readers are suited to it.

The authors would need to put extensive work into this book to bring it up to date.  As it is, I can’t recommend it to others.