From the December 2007 issue of Research Magazine • Subscribe!

Take Back the Pie

Last month, I reviewed one of the few books by financial advisors on investing. This was Investing on Autopilot by Robert S. Cable. This month, I am reviewing Forget the Pie, by Ric Lager.

When I last checked, there were 4,455 books on stock market investing listed on Amazon. I said I couldn't find but three written by "in-the-trenches" financial advisors. Well there are more than that, but not a whole lot. My plan is still to review three of them. Next month, I will look at Surviving the Storm by James O. Lunney.

Why these three books?

Two reasons: First, they are written by people like you, people who raise the money, deal with the client, and take the anguished call when a family member dies. For you, and the authors of these books, investing is real life.

Second, as I mentioned last month, I am seeing a bit of a trend toward retail financial advisors and RIAs taking back the management of the funds they raise. To play on the title of Ric Lager's book, they are taking back the pie. For 25 years, a mantra chanted by this industry is that you can raise money or manage, but not both. As these authors will attest, that's just not true.

On its face, Forget the Pie -- its title an attack on pie-chart asset allocation theory -- is written for retirement plan participants. It presents some of the basic technical analysis tools to help individual investors. But I think his book has a better use.

The odds that very many people with full-time jobs, families, and a life have the time to responsibly manage their retirement investments from this or any other "how to" book are, in my opinion, somewhere between zero and nothing. Instead, if I were Ric Lager, I would focus on selling this book to RIAs and financial planners who do use technical analysis, and specifically, who were trained by Dorsey Wright & Associates, as was Lager. If this is you, you need it to help educate your investors on what you are doing and why.

Before proceeding with a review of Lager's book, a few notes on Dorsey Wright & Associates are in order.

From what I know, Dorsey Wright & Associates, founded by Thomas J. Dorsey and Watson H. Wright, is the premier firm providing technical analysis research to retail financial advisors. Founded in 1987, the firm offers technical stock, sector, and market indicators and research to help in managing institutional and individual portfolios. They offer in-depth relative strength analysis to help in the decision-making process of when to buy individual stocks, funds and ETFs, and how to manage the positions. A top-down analysis is used to focus on which stock market sectors and asset classes are poised to outperform the broad stock market averages. A statement on their website further explains: "There is always a time to buy and a time to sell, even the most attractive security; we do not feel compelled to be fully invested in stocks when an alternative investment offers a more attractive opportunity. In fact, it is our belief that avoiding severe losses is more important in determining overall market performance over the course of an entire market cycle."

If you are not familiar with point and figure charting, my advice is hike on over to dorseywright.com and order the third edition of Point and Figure Charting by Tom Dorsey. This is the book to start learning the craft.

Unique Business ModelNow let's look more closely at Forget the Pie. Lager has developed a unique business model. He is a Registered Investment Advisor in Golden Valley, Minn., a suburb of Minneapolis. His niche market is law firm partners, doctor groups, and top officers of local public companies in the Twin Cities. He does not take custody of assets. Instead, he gives advice on retirement accounts for a fee. Once he gets a new client, he builds a website for them showing the funds available to them in their 401(k) menu. Much of his advice is by e-mail. He tells them which funds to invest in, when to change those investments, and when to go to cash. Again, most of this is by e-mail. It is an interesting model.

A few years ago, a good friend told me, "I may be right or I may be wrong, but I am never in doubt." Well, if you have ever heard Ric Lager speak, or read his book, you know he is not in doubt.

Forget the Pie opens with these words: "This book is full of the truth." A little later, at the beginning of Chapter Two, he writes, "In the years that I have been providing risk-management advice to retirement plan participants, I have found out what works, and what does not. I have found out what retirement plan participants want, and what they don't. And most importantly, I know what retirement plan participants need in order to make investment decisions on their retirement plan assets."

See what I mean?

He has a low opinion of retirement plan sponsors. "Since the inception of the 401(k) retirement plan in the early 1980s, there has been a standard traditional approach in the communication pattern from the retirement plan sponsor/provider to the retirement plan participant. That is to provide only the most generic and hard-to-read statements as infrequently as the law allows."

The solution, Lager believes, is point and figure charting. Once he has dispensed with the usual "here's the problem" chapters, obligatory for any "how to" book, there's no question that the way to manage retirement plan assets is with the basic tools of point and figure charting.

The key question is: Based on this information, would an investor know enough to do it himself?

No.

Would the investor have an idea that there is such a thing as investment strategy and that he or she needs one?

You bet.

Rather than a book to educate clients to be investors, it is a presentation informing them that they need to have a strategy other than the "pie chart" they've seen umpty-ump times. A client who read all, or even some of this book, would have lots of questions for an advisor. And I would bet you dollars to donuts if you could sit in on one of Lager's presentations to a prospective client, he would go over the concepts there that he has presented in his book.

What he's really done for you is develop the methodical presentation you need in order to sell your clients on technical analysis, if, of course, that's something in which you believe.

Lager is especially good in explaining complex concepts so that a client can easily get them. For instance, virtually everyone would know of the "lifeline" concept from "Who Wants to Be a Millionaire?" He describes the three "lifelines" and then points out, "What the producers of the show have found out is that when you phone a friend for an answer they are right about 65 percent of the time. When you poll the audience however, they are right 91 percent of the time."

He then compares what he calls the Bullish Percent to "polling the audience" in the Millionaire show. "The large and diverse sampling of both the large and small investors that have chosen at any time to allocate their investment resources in the stock market will give you the most accurate picture available of the risk in owning stocks."

"At the end of each business day, the Bullish Percent 'polls the audience.' This audience is composed of about 3,000 stocks listed on both the New York Stock Exchange and Nasdaq. It is better at assessing risk than any other tool that has been invented."

Forget the Pie is available for purchase at www.lagerco.com.

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Bill Good is chairman of Bill Good Marketing Systems in Draper, Utah; see www.billgood.com.

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