Review: Patrick O’Shaughnessy’s Millennial Money

Note to Baby Boomers with adult children: This book review is for you.  Buy a copy for your Millennial children and encourage them to read it.  Getting started early will make an incredible difference over the course of their lives.

Most readers of financial books and news today are Baby Boomers or early Gen Xers, as it isn’t until early middle age that most Americans begin to think seriously about saving and investing for retirement.  The Millennials, at this stage of their lives, are more focused on starting their careers and paying down student loans; retirement planning is not high on the list of priorities.

Patrick O’Shaughnessy—himself a Millennial—seeks to change this generational attitude in Millennial Money: How Young Investors Can Build a Fortune.  It is an impassioned plea to start saving early and aggressively, as the Millennials will face a very different reality in their golden years than that enjoyed by their parents and grandparents.  Written by a Millennial in a voice that other Millennials will understand, O’Shaughnessy writes about “financial karma” and notes that, when it comes to money, we reap what we sow: “Building good individual financial karma is straightforward: spend less than your earn and invest a chunk of your income in the stock market every year.”

Unfortunately, as a collective, we’re looking at some very bad karma. Social Security—if it still exists in anything resembling its current form—will be far less generous, as America’s high and growing debt load makes the status quo unsustainable.  It may not be fair, but—as O’Shaughnessy notes—with the federal government’s total obligations including Social Security and Medicare approaching $222 trillion by one estimate, Uncle Sam simply won’t have the means to continue funding at current levels.  Whether they intended to or not, the Baby Boomers and their elected politicians of both parties have effectively looted the country and will bequeath an unpayable pile of debt to their children.

After driving home the need for Millennials to take retirement planning seriously, O’Shaughnessy emphasizes why it is so beneficial to start early, noting that “young money…has tremendous potential” but that “money’s potential fades with time.”

As O’Shaughnessy continues, “One dollar invested today can easily be worth $15 in forty years; but if you wait ten more years to get started, the same dollar might only grow to $7.50. Imagine how different your lifestyle would be in your later years with twice the amount of money in the bank.”

Simply investing in an index fund would get most Millennials off to a fantastic start.  But O’Shaughnessy is his father’s son, and he has a few strategies that he suggests are likely to generate far better returns.

Patrick O’Shaughnessy’s father—James P. O’Shaughnessy—is the author of What Works on Wall Street, a veritable encyclopedia of back-tested quantitative investment strategies and, in my opinion, a reference book every investor should keep at their desk.  The younger O’Shaunghnessy is continuing a family tradition when he offers his “Millennial Money Checklist” of investment criteria.  When building a portfolio of stocks, he suggest buying stocks that:

  1. Have shareholder friendly practices (i.e. pay dividends, buy back shares, pay down debt, etc.)
  2. Earn strong returns on their investments
  3. Have high-quality earnings
  4. Are attractively priced
  5. Have “improving market expectations” (i.e. stock is in an uptrend or showing momentum)

Though O’Shaughnessy takes a hybrid investing approach that includes momentum strategies, I would classify him primarily as a value investor.   A lot of Millennials will find following a value strategy to be psychologically difficult because, as O’Shaughnessy writes, “Value investing is all about buying in the face of fear, pessimism and negativity…[and] the reason it’s so difficult to be a contrarian value investor is that cheap prices result from trouble.”

The Millennials are a generation that, in their childhood, witnessed one of the biggest bubbles and busts in market history in the 1990s tech mania.  And if that didn’t sear risk aversion into their personalities, then witnessing the 2008 meltdown as young adults certainly did.  Because they’ve witnessed nothing but trouble from the financial markets, Millennials are more reluctant than past generations to invest in stocks.  O’Shaughnessy’s goal in Millennial Money is to break down this risk aversion with solid facts written in language that the average Millennial reader can understand.

If you are a Millennial—or if you are a Boomer with a Millennial child or a Gen Xer with a younger Millennial sibling—pick up a copy of Millennial Money and put its advice into practice while time is on your side.

Charles Lewis Sizemore, CFA, is the editor of Macro Trend Investor and chief investment officer of the investment firm Sizemore Capital Management. Click here to receive his FREE weekly e-letter covering top market insights, trends, and the best stocks and ETFs to profit from today’s best global value plays. 


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