Book Review - Safely Prosperous or Really Rich - Howard Ruff

Howard Ruff was once famous for his newsletters. In the 70s he advised people to buy gold, and was spot on - gold soared from $120 an ounce to $850. He also advised his newsletter readers to get out of gold at the right time. He was also a shameless self-promoter. In his latest book he endeavours to pass on his ideas on the two paths we may follow - the path to safe prosperity and the path to riches.

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Safe Prosperity

Ruff's path to safe prosperity is not very controversial, and agrees with most other books on the subject. This is not surprising, since the path to safe prosperity appears to have changed little in the last few thousand years. The most important is avoiding consumer debt. Do not use debt to finance your lifestyle. Avoid loans for fancy cars, holidays, big-screen TV's and all the other trappings. Either don't have a credit card, or be sure to pay it off in full each month. The logic of this is easy - consumer debt has a very high interest rate, and it simply sucks you dry.


The follow on from that of course is to pay down other debts (mortgage) as quickly as possible and to save, preferably in a tax advantaged way - make compound interest work for you instead of against you.

He has some slightly more controversial, or unusual advice, but most of it appears quite sound

  • get married and stay married - married people are supposedly happier, wealthier, and live longer, and divorce is a real finance-wrecker
  • don't smoke, and drink in moderation or not at all- these are expensive as well as unhealthy habits.
  • live frugally and don't try to keep up with the Jones's - chances are debt is financing their lifestyle.
As a Mormon, he also recommends an emergency plan - 6 months of food, and a 6 month backup of cash as well as $3000 in gold and silver for each member of the family. The gold and the food are a bit doomsday, although I could be convinced, but the 6 months of cash is a wise precaution for anyone. Job loss is a commonplace, not a doomsday scenario.

He cautions against Wall Street - a common theme in a number of books I'm reading at the moment - pointing out that they're wrong as often as they're right, and against buying stocks on margin. He has cautioned against gold for some time, but is now bullish - the falling US dollar creating rising gold (but note that this quite likely doesn't apply outside the US).

Finally (although in fact he leads with this) he cautions against love of money for its own sake, and of putting financial success ahead of family.

Really Rich

The second half (more like a third really) of the book covers "The Secrets of the Rich" and purports to tell you how to really make it. This boils down to:

  • Use leverage - of people, money and time
  • Guts and optimism - stop listening to your fears
  • Don't be afraid to fail - that's how you learn
  • Be passionate in your business ventures - care about what you're doing above the money you hope to make
  • Go public - an IPO turns a profitable company into a wealthy company.
  • Marketing, marketing, marketing.
They're probably sound advice, but they suffer from the usual problem of get-rich books of leaving a lot to the imagination. He does admit his advice is simple but not easy. Like my advice on success in cricket - "Hit a lot of sixes [6]".

Concerns

I bought this book on the recommendation of newsletter writer John Mauldin - who appears to me to be a serious economist. And his recommendation is on the back cover. But I was disturbed to see the book endorsed by real estate guru Robert Allen [1] who's "Nothing Down" book is in the highly questionable category of advice. I was even more disturbed to see a couple of references within the book to Robert Kiyosaki [2], as if his opinions were somehow relevant.

Further, some of his suggestions are worthy of Kiyosaki. The entire section on Stock Bear Markets contains the following wisdom:

There are a lot of ways to make money when you are caught up in a bear market. Some are pretty sophisticated, like "going short." Others are pretty easy, like buying shares of the Prudent Bear Fund, which takes the short side of the market and tends to go up as the general market goes down. Just be careful you are sure the market will be falling before you buy.

First, that doesn't really explain "a lot of ways", only two, and it dismisses one as being two complicated. Further, I'd hazard a guess that every dollar that was ever lost on the stock market was lost by someone who was sure the market was going in one direction, when in fact it wasn't. So it's rather vague advice.

Chapter 5 is titled "How to Prosper by Earning 15 Percent in a 1-Percent World". Indeed the advice is perfectly sound - try to earn 15-20 percent instead of 1 percent, as compounding works much better with big numbers, but this is kind of obvious. How to earn 15% is somewhat less so, and again his advice comes down to investing in a few mutual funds that have returned 15% in the last year. That's just plain poor advice, and made far worse by adding "You probably ought to throw a few darts at the sector[mortgage security funds] and invest in the holes to diversify." Isn't that just saying "I don't have a clue - hope you're feeling lucky"?

It's capped off with the suggestion that you call or email for a current list of "virtually risk-less", "intriguing" opportunities that "usually yield more than 15%", which he didn't have time to include in the book as he hadn't finished his research. That's a come-on if ever I heard one.

And this should not be surprising - Ruff got rich through marketing, and makes no bones about it. Undoubtedly part of the point of the book is to get you to subscribe to the newsletter at US$99/year. This would grate, except that he is so up-front about how he made one of his fortunes (marketing his newsletter) that you'd have to be pretty dim not to get it. You could even see it as part of the lesson he's trying to impart.

At 250 pages of fairly big print, this is a rather lightweight book. You won't get bogged down trying to understand any of it, because it's pretty much all easy-reading. It also repeats itself a fair bit, and contains a fair amount of Howard Ruff stories or celebration. It's vague in spots and a bit weird [3] in spots. If you're one of the drowning-in-debt, this book, or one of a myriad like it [4], may help. If you've already graduated from finance kindergarten, you're unlikely to find much of real benefit in here.


Footnotes

[1] Criticism of Robert Allen is based on John T Reed's excellent guru-debunking site http://www.johntreed.com/Reedgururating.html. I have not read Robert Allen myself.

[2] Kiyosaki's 'Rich Dad Poor Dad' intrigued me and led me to buy further books in the series. I soon realised I was just being fed feel-good stuff with no substance. That I was being tantalised by the idea of substance being just around the corner, if only I bought his $300 board game and signed up for some seminars. That the books were nothing more than a marketing exercise. John T Reed (again) thoroughly debunks this frighteningly popular author at http://www.johntreed.com/Kiyosaki.html and exposes him as a dangerous fraud.

[3] A number of times Ruff uses the phrase "Trees don't grow in the sky" to suggest that the stock market cannot keep growing at the current rate. It didn't quite make sense though until I saw the subtly reworded (corrected) version in Mauldin's book - "trees don't grow to the sky". Ok - it's a tiny thing, but it bothered me - I felt Ruff should know better.

[4] For Australian readers, I'd recommend Paul Clitheroe's books well above this one. They're fatter, they've got most of the same advice, and they're much more relevant to an Aussie audience.

[6] For American readers - a six in cricket involves hitting the ball to the boundary on the full. It's kind of the equivalent of a home run. And yes, I know there's no [5].

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