Book Review: Financial Jiu-Jitsu

The genre of personal finance books is crowded.  I have read my share of good and bad books in this area, and the book that I am reviewing this evening falls in the good column.

It covers all of the main areas of personal finance adequately, and makes analogies from the world of martial arts.  Now, personally, to me that is an odd place to source analogies for investing.  I remember being in a meeting when I was a corporate bond manager, and the new head of credit research said to the credit analysts, “Credit analysis is war by another name.”  I rolled my eyes, and said to myself, “Oh, please, this is a business, and no more than a business.  Don’t make my analysts non-economically aggressive.”

This book is long on structuring your finances, and short on how one invests, as is common for most personal finance books.  The advice is simple and practical, and will benefit most individuals/families.

One of the many places where I agree with him is that you don’t have to have a budget.  Save first, and then survive on the remaining cash flow.  This is an excellent way of managing finances, but it takes discipline.  Not everyone can do this because they lack discipline on a month-to-month basis.  Those that don’t have that discipline should craft a budget.

I also found his approach to financial goals useful, because it asks the deeper questions on what the ultimate reasons for living are: not only ways in which we want to be served, but ways in which we want to serve.  Figure out the broad goals for life first, then figure out the financial means to serve those ends.

He also takes a conservative approach to how much money one needs in retirement, using a 4% withdrawal assumption, which in a low interest-rate and mid-to-high P/E environment like today is only reasonable.

It was a breezy read for me, getting through the 180 pages in 90 minutes or so.  Part of that is that it is a very familiar topic to me, but I suspect more of it is good structuring and chapter ends that repeat the main points in summary form, so that the main ideas are difficult to miss.

Everything important gets covered here for the life of an average person/family.  The reader faces the challenge of executing on the good advice, or finding a good adviser to guide him.

Quibbles

Though I was a wrestler in high school, I sometimes found the analogies to martial arts to be strained.  More importantly, I had a hard time following the logic in the appendix regarding investment performance.  I am no fan of Modern Portfolio Theory, but MPT does not require the concept of buy and hold.  Buy and hold stems from the idea that equities outperform equities and fixed income by a wide margin (the “equity premium”), so one can always win by holding onto equities, and not ever switching into safer asset classes.

The author’s concept of capital preservation investing does not get adequately defined.  Indeed, that could be a book in itself.  The idea  that there are seasons to take more risk and seasons to take less risk is obvious in hindsight, but implementing that idea is tough, and the author leaves us with not enough to do it.  That should not be too much of a surprise though, because if there were an easy solution here, we all would have adopted it years ago, and I would be opining to you from a life of leisure, rather than that of a working stiff.

As such, I don’t penalize the author too much, no one has the holy grail of market timing nailed down yet.

Who would benefit from this book: This is a basic book, and most suited for those that need to get their lives in order.  Personally, I suspect younger males would find the analogies between investing and martial arts most appealing.  I should try it out on my son who wants to be a police officer.

If you want to, you can buy it here: Financial Jiu-Jitsu: A Fighter’s Guide to Conquering Your Finances.

Full disclosure: The author sent this to me after asking me if I wanted it.

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