The Aspirational Investor: A book review by Bob Morris

AspirationalThe Aspirational Investor: Taming the Markets to Achieve Your Life’s Goals
Ashvin B. Chhabra
HarperBusiness/An imprint of HarperCollins (2015)

The power and prudence of an objective approach to personal goals-driven investment

To what does the title of this book refer? As Ashvin Chhabra explains, an investor’s financial decisions should be in response to this question: “How can I achieve my life goals with some degree of certainty?” Meanwhile, sufficient ROI is best viewed as a means rather than an ultimate objective. As he explains, “In this book, I will argue that the grand debates in finance, particularly the clash between indexing and active management, are focused on a series of false choices. If the markets don’t really care about you, as they surely do not, why should you spend all your time and effort trying to beat them? You certainly do not want the great successes of your life to be dependent on the future performance of financial markets.”

OK. Now what? Chhabra introduces the Wealth Allocation Framework (WAF), an approach that is designed to accumulate “the three seemingly incompatible objectives that should underpin every wealth management plan. The first is the need for financial security in the face of known and unknowable risks. The second is the need to maintain your living standard in the face of inflation and longevity. Third, but not last, is the need to pursue aspirational goals, be it for personal wealth creation, to create positive impact, or to leave a legacy.” Chhabra provides an abundance of information, insights, and counsel by which to explain HOW.

To what does the title of this book refer? As Ashvin Chhabra explains, an investor’s financial decisions should be in response to this question: “How can I achieve my life goals with some degree of certainty?”

Meanwhile, sufficient ROI is best viewed as a means rather than an ultimate objective. As he explains, “In this book, I will argue that the grand debates in finance, particularly the c lash between indexing and active management, are focused on a series of false choices. If the markets don’t really care about you, as they surely do not, why should you spend all your time and effort trying to beat them? You certainly do not want the great successes of your life to be dependent on the future performance of financial markets.”

OK. Now what? Chhabra introduces the Wealth Allocation Framework (WAF), an approach that is designed to accumulate “the three seemingly incompatible objectives that should underpin every wealth management plan. The first is the need for financial security in the face of known and unknowable risks. The second is the need to maintain your living standard in the face of inflation and longevity. Third, but not last, is the need to pursue aspirational goals, be it for personal wealth creation, to create positive impact, or to leave a legacy.” Chhabra provides an abundance of information, insights, and counsel by which to explain HOW.

Chhabra urges investors and potential investors such as I to shift focus from market considerations to our own short-term, mid-term, and (especially) long-term priorities and accommodate them an appropriate wealth accumulation and management plan such as WAF. By exploring in the book the investment strategies of successful funds such as the Yale and Harvard endowments, comparing/contrasting them with other investment models, he shows how each investor needs their own strategy for approaching the market to account for their needs.

These are among the dozens of passages of greatest interest and value to me, also listed to suggest the scope of his coverage:

o Active investment management and market debate (Pages 2-3 and 13-18)
o Wealth Allocation Framework and seven-step process (4-5 and 122-137)
o Investors (9-27)
o Basics of modern portfolio theory (13-18)
o Professional advisors versus “dart throwers” (16-18)
o Changing economic conditions in U.S. (33-37)
o Bubble drivers and example (43-5o)
o Economic dynamics of bubbles (50-54)
o Forbes 400 list: sources of wealth (64-66)
o Retirement planning (73-84)
o Asset allocation: difficult to classify (103-106 and 113-116)
o Active investment management: Alpha and Beta (110-112, 141-142, and 147-149)
o Performance measurement and benchmarks (116-117)
o Market risk bucket and portfolio (139-155)
o Value investing (159-160)

In my opinion, some of the most valuable material provided in the book is in Chapter 9, “Seven Steps to Implementation,” as Chhabra explains HOW each reader can complete a specific process with this sequence of initiatives (Pages 121-137):

Step 1: Outline Your Goals
2. Convert Your Goals Into Cash Flows
3. Create Your Wealth Allocation Snapshot
4. Assess Your Risk Allocation
5. Implement Asset Allocation and Portfolio Diversification
6. Analyze and Stress Test
7. Review and Rebalance

He explains why sticking with this seven-step process “in a disciplined fashion through all kinds of market cycles — from boring markets to market bubbles and crashes — is likely to yield better results than most active managers can deliver. More important, these steps are your road map for achieving life goals in a world where money and markets are a necessary input but not an end unto themselves.”

When concluding his brilliant book, Ashvin Chhabra cites advice offered by Yale’s David Swensen to alumni tempted to follow the university’s endowment investment model: “Do not try this at home.” What about replicating Warren Buffett’s approach? They “would do well to pursue a more conventional route: Buying Berkshire Hathaway’s stock.”

Posted in

Leave a Comment