PDF Ebook The 3% Signal: The Investing Technique That Will Change Your Life, by Jason Kelly
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The 3% Signal: The Investing Technique That Will Change Your Life, by Jason Kelly
PDF Ebook The 3% Signal: The Investing Technique That Will Change Your Life, by Jason Kelly
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Product details
Paperback: 336 pages
Publisher: Plume (February 24, 2015)
Language: English
ISBN-10: 0142180955
ISBN-13: 978-0142180952
Product Dimensions:
5.3 x 0.7 x 8 inches
Shipping Weight: 9.1 ounces (View shipping rates and policies)
Average Customer Review:
4.4 out of 5 stars
125 customer reviews
Amazon Best Sellers Rank:
#31,403 in Books (See Top 100 in Books)
I have mixed feelings about this, and do have objections that I will address in the review. What I disagree with most, is the claim from the back cover that this is a "revolutionary new strategy".As others have mentioned, it is a little tiring on the rants against the financial industry. However, I guess some out there need to hear this if they haven't already. Although, at this point, it has become more or less common knowledge that passive investing via index funds should be the default strategy for most retail investors. The secret is out, that over time, even professional money managers will lose to the index. Study after study has shown this. At the core, this is what the 3% strategy involves, so in that respect it is nothing new. For those out there that are uninformed, look up "Bogleheads", or research the story of the Vanguard group. This will go a long way to get you up to speed on this. This "revolution" against account management fees and against speculative picking of individual stocks was started long ago (70s) by others and continues to become more mainstream. It is arguably the best default approach. Risk is managed within your portfolio of index funds by allocating a certain percentage between different asset classes, including stocks and bonds.Now, once you have decided to go with index investing (smart choice), the next decision is how you will manage the money in your plan. There are 3 well-established methods for this.1) Depositing a large chunk of new funds at random times (lump-sum investing)2) Depositing equal amounts of the large chunk at regular intervals (dollar-cost averaging)3) Depositing funds into a "safety bucket" at regular intervals (value averaging)This plan calls for an index portfolio that uses value averaging to manage the money within plan. This technique was first described in the late 80s by former Harvard finance professor and MIT PhD, Michael Edleson. The book describing this is available on Amazon titled "Value Averaging: The Safe and Easy Strategy for Higher Investment Returns". It is probably the least known of the 3 methods and has been described as "the closest thing to consistently buying low and selling high". The key difference between value averaging and the other 2 is in the method of rebalancing. With lump-sum investing and dollar cost averaging, the portfolio is set at a fixed allocation ratio between stocks and bonds and the performance of the portfolio is then at the whims of the market. With value averaging, the opposite is true. The performance of the portfolio is set at a fixed target and the ratio of stocks to bonds is then at the whims of the market. In both cases, you rebalance by selling or buying stocks and bonds. With value averaging the rebalancing is often done more frequently.The good news with value averaging is that it does have some academic evidence that it is indeed the most successful way to allocate funds within a portfolio when used within certain conditions. For those interested, the following link is for a study performed by Paul Marshall that compares the 3 investing strategies titled "A statistical comparison of value averaging vs. dollar cost averaging and random investment techniques". Indeed, it shows that value investing works best with high volatility as the 3% Signal author suggests. This makes intuitive sense, since you will make money by selling at higher highs, thus making more profit. On top of this, you will be buying new shares at lower lows. This combination ensures that you make more and pay less. That can be very potent over time as the following study shows and as the author shows in the book.http://www.google.com/urlq=http://www.studyfinance.com/jfsd/pdffiles/v13n1/marshall.pdf&sa=U&ei=_Mc_VfzLOcTAggThpoHoAg&ved=0CEkQFjAH&usg=AFQjCNFj70UzxaeHsP5aj8FelXcRQ2TkMwThe major shortfall I see with the plan is using it within a Roth IRA, which has a limit on annual contributions. Therefore, it is conceivable that you could find yourself in a bear market with the inability to buy more because you have used up all of your bond funds and are unable to add additional funds to the account due to government regulations. I would only ever use this in a tax-advantaged account because the frequent selling could add up with short-term capital gains taxes.Some of this won't make sense unless you have read the book, but I wanted to list it for a few reasons. First, I wanted to quell any anxieties about the plan as to whether it would work. As you can see, the author did not pull this idea out of a hat, but rather constructed it from well established techniques put forth by financial professionals and validated by academic studies. Therefore, it is conceivable that this will in fact work, though I have not confirmed the book's claims by backtesting of my own. For anyone who would like to do so, the data is readily available. Of course "past success is no guarantee of future results". Second, I think that the claims regarding the strategy as "revolutionary" and "new" are misleading. There is a clear marketing ploy by giving this "plan" a catchy name to further continue the facade. The author clearly needs to sell to fund a life abroad without a job. This is absolutely not a novel technique. I think it would have been fine to just present the ideas but I disagree with stretching the truth in the process. I was struck at how the author could constantly rail against the financial professionals for ripping you off (literally throughout the whole book), when he does the same thing by repackaging old techniques and pawning it off as his own. He pretends to be the protector of the common man, but needs to point the mirror at himself.In short, don't waste your time. Just look up "index investing" and "value averaging". This will be all you need to know to try this on your own.
Disclaimer: I have officially drank the Kool-Aid. I've read the book three times, I've followed Jason Kelly's weekly newsletter for years, and finally started the 3% Signal plan earlier this year. After sitting on the sidelines for far too long, I've grown increasingly confident that I've finally found an investing strategy that I can understand and execute without having to divine what's coming next for the stock market. I still do keep an eye on things, but now I find it more amusing than informative to read what "Zero-Val" analysts (that's all of them) are predicting. To paraphrase Jason's sentiment, those pundits and reporters don't actually know where prices will head next. Neither do I, and I don't care. The anxiety of managing my retirement account investments has been lifted, and I feel liberated and motivated to keep learning more about how this plan works.In particular, I finally feel that I have near mechanical answers to philosophical questions that have confounded me, such as: If you want to buy low and sell high, how do you know when to sell? (The answer comes primarily from running a simple calculation once every quarter, with notable exceptions that dictate when you should just sit on your hands and wait.) No need to be concerned about whether we're headed for a bull or a bear market; all that matters is what happened this past quarter. Just rebalance your accounts, and move on.To experienced investors familiar with dollar cost averaging or index fund management much of the content will seem familiar, and even possibly lifted from other investing books. But the devil is in the details. He explains clearly how he has improved upon these ideas to avoid the traps of emotional or predictive based investing. His method of reactively rebalancing between accounts once a quarter to keep your index fund growth line at 3% per quarter (12% a year) is exacting, but forgiving; you need to keep an approximate 80/20 balance between them, and you pick accounts from your broker that eliminate all unnecessary transaction fees. You also need to continue to contribute to your retirement accounts to keep pace with the plan; but if that isn't always possible, he addresses that concern as well. This may all sound like too much to take in for someone new to investing, but for anyone willing to spend some time with the ideas in this book, I can all but promise that it will seem simple and obvious in retrospect.Of course, if you are (like me) the type of person that looks at the underworld mechanics of Wall Street will skepticism, you might have some serious reservations. I will freely admit that I am relatively new to this plan, I might be missing something in my understanding of it, and I'm still collecting data in an to attempt to disprove the theory (or get rich trying). But Jason has truly written something special in this book to help put those concerns to rest. As I followed his reasoning behind each piece of the plan, he presciently anticipated and squashed almost every objection as they occurred to me. It was so well argued, that I have concluded that Jason is either a master investor or an accomplished hypnotist. Either way, I'm convinced. It sits here on my desk as my personal bible on investing, and I purchased several additional copies and handed them out to close friends that I know could benefit from Jason's advice, but would hunt me down if it turns out that I'm wrong.So... is it working? Well, so far, the value of my accounts has only gone down since I started the plan. However, I'm thrilled about that, because that means it's time to invest even more. When the market goes back up, I'll be just as thrilled then of course, because it will mean it's time to take profits off the table to be used in a future downturn. It doesn't really take the emotion out of investing; it just turns most of the anxiety into a general feeling of cautiously optimistic smugness.Note: If you do read the book and decide to start the plan, I highly recommend also subscribing to The Kelly Letter to follow along with him every week; it's a great touch point to ensure that you're following his plan to the letter. It's not necessary to understand how it works, but I've found it extremely helpful to have timely advice with real life examples to compare my own accounts with to make sure I'm headed down the right path.
Having spent time and energy trying to learn how to make money trading stocks, I have decided that playing against fast computers, insiders, and whiz kids with nimble fingers is a losing proposition. I'm at retirement age, and I've lost a little money playing the zero sum game (even though I haven't given up entirely). Also I've been playing with such small amounts that I can't get really hurt. Consequently, I have read dozens of books of passive value and quantitative investing. Jason Kelly's book is the first one that I find that gives me an EXACT blueprint with tools to account for the emotional coefficients as well as the confidence to put real money at work. Today, April 1st, I'm,taking the 3 sig position in my ROTH and am looking forward to a hassle free and non-time consuming method to add another 2.6% over the SPY index. Unless you want to roll the dice and try to get rich quick, which almost never works, the 3 sig looks like a great way to grow and stay safe, if played by Jason's rules, which are all laid out. Other excellent passive investing books have been too general and left me wondering how exactly to implement the techniques.Also, Jason gives a quick response to e-mails. If I have questions or need clarifications or if I get nervous or confused about upsets in the market, I feel he will be there for me. I will also be subscribing to his newsletter.Scott Brown
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