Book Summary of Money: Master the Game


  • Money: Master the Game uncovers how the investing game is rigged in Wall Street’s favor., and why you – a private investor – is often drawing the shortest straw. You will learn to navigate in this toxic world by staying clear of actively managed funds and instead change to a passive allocation-, diversification-, and indexing strategy.
  • You will be presented with two portfolio structures that have historically ensured a 10-14% return with very low volatility (4-5% drops when the markets slipped ~50%).

I picked up a copy of Money: Master the Game in a croatian bookstore, mainly in the lack of alternatives. I was quite sceptic about this self-help guru, which was why this 600 page beast wasn’t exactly my first choice. However, there was actually quite a few interesting take-aways in it. Let’s dive in!

The game is rigged
The second section of the book reveals 9 myths, which Wall Street has palmed on private investors for decades, including lies such as “why our management fees are a small price to pay!”, “why our fund outperforms the market” and “why you have to take big risks to win big.”

The truth is, however, that 96% of actively managed funds underperform the market – and the remaining 4% of ‘winners’ vary from year to year! Your chances of selecting a year-after-year market-beating portfolio manager is basically zero.

Despite the fact that Wall Street is generally poisonous for private individuals, the industry is tailored so that managers make a killing box regardless of how the funds actually perform. Most actively managed funds charge around 2% in fees. If the fund performs as well as the market (which is a rarity), this 2% fee is nothing but an unnecessary tax on your investment returns – and an expensive tax at that! Over 30 years, each invested dollar is “transformed” to $30 if it’s compounded at a rate of 7%. However, a return of 5% will only amount to $10 per invested dollar! This fact lays at the foundation of Jack Bogle’s statement regarding actively managed funds: “You put up 100% of the capital, you took 100% of the risk, and you got 33% of the return!” (p. 481)

In short, the game is rigged in Wall Street’s favor. So what should the layman do?

Passive allocation, indexing and diversfication
Tony Robbins says that “complexity is the enemy of execution.” (p. 31) He believes that one shouldn’t speculate in single stocks, macro conditions or in any other way implicate oneself in the movements of the markets. You should rather automize your investments based on portfolio and asset allocation principles.

Asset allocation is basically the science of how the mix of shares, bonds, cash, real estate, currencies commodities etc. should be in your portfolio. Two questions should be asked in this regard: What asset classes do you wish to include in your portfolio(?), and how much do you wish to allocate to each class? The answers depend on your risk appetite, age, income, wealth and surely a lot of other factors too. On the basis of numerous interviews with investment titans such as Warren Buffett, Ray Dalio, John Bogle and Paul Tudor Jones, Tony concluded that asset allocation is the most important investment decision in your life, more important than any single investment in a given share, bond or property: “Anyone can become wealthy; asset allocation is the way to remain wealthy.” (p. 297)

How should your portfolio be constructed then? There are a myriad of possible solutions, and only the future can reveal which combination was best. However, Tony presents two structures that have produced high, stable returns with low volatility: David Swensen’s portfolio strategy and Ray Dalio’s “All Seasons” strategy. Note that both are based on passive, cheap index funds.

David Swensen’s Portfolio Strategy: David Swensen is considered the king of institutional investment, since he has been beating the market for decades using a very simple strategy. In fact, he has managed to 24-double Yale University’s fund over the course of just 25 years, which translates into an annual rate of return of 13.9% – while ensuring rock-bottom volatility! For instance, when the market nosedived 50% between 2000-2002, the Swensen portfolio fell by just 4.5%. “What is in this magical portfolio?”, you ask. Answer: Nothing but cheap index funds allocated as follows:

  • 20% American stocks.
  • 20% International stocks.
  • 10% Emerging markets stocks.
  • 20% REITs.
  • 15% Long-term US government bonds.
  • 15% TIPS (inflation-protected bonds).

With only 1/3 allocated to bonds, David Swensen’s portfolio is considered a bit more aggressive/growth-oriented than Ray Dalio’s:

Ray Dalio’s portfolio strategy: Tony Robbins describes this strategy as the Holy Grail for Private Investors, as back-testing shows it has produced extremely stable annual returns of 10% with virtually no volatility. For example, when ragnarok broke out in 2008, this strategy lost only 3.9% while the S&P500 was down by almost 40%. Before we dive into the portfolio design/structure, let’s double-click on the reasoning behind the strategy.

Ray Dalio says there are four factors that affect an asset’s price: 1) inflation, 2) deflation, 3) rising economic growth, 4) declining economic growth. In length, Tony describes Ray’s thinking: “When you look at a stock (or bond) price today, the price already incorporates what we (the market) “expect” about the future. […] It’s the surprises that will ultimately determine which asset class will do well. If we have a real good growth surprise, that would be very good for stocks and not great for bonds. For bonds, if we have a surprise drop in inflation, it would be good for bonds. If there are only four potential economic environments or seasons, Ray says you should have 25% of your risk in each of these four categories. […] This is why the calls this approach All Weather: because there are four possible seasons in the financial world, and nobody really knows which season will come next. With this approach, each season, each quadrant, is covered all the time, so you’re always protected. Ray elaborates: I imagine four portfolios, each with an equal amount of risk in them. That means I would not have an exposure to any particular environment.” (p. 388-389).

That was quite a lengthy introduction, but the reasoning/thinking resonates with yours truly! However, I was surprised to see the allocation split between defensive and growth-oriented asset classes. Yet, Ray explains that since stocks are 3 times more risky than bonds, the portfolio will naturally have an overweight of the latter. The recommended distribution is as follows:

  • 7,5% commody indexes.
  • 7,5% gold index.
  • 30% stock indexes.
  • 40% index of long-term US government bonds.
  • 15% index of medium-term US government bond.

Yes, at first glance this mix seems very defensive. Regardless, backtests show that this portfolio structure has produced stable, double-digit returns with very low volatility.

Whether the above designs resonate with you or not, Tony recommends that you follow an automated approach with an overweight in indexes. You shouldn’t speculate in Mr. Market mood swings. In the famous words of Jack Boggle, you should: “Don’t just do something, stand there!”

Leave a Reply

Your email address will not be published. Required fields are marked *

Bevis, at du ikke er en robot *