By JLP | March 15, 2006
Along with Jonathan Clements of the Wall Street Journal, one of my favorite columnists/authors is Scott Burns with the Dallas Morning News. I have exchanged emails with Scott on several occasions over the last couple of years. Through those emails, we have formed a friendship. I asked Scott if he would agree to let me interview him so that his readers could get to know him better. He agreed and part one of the interview is below. Thanks Scott. All the rest of you enjoy!
JLP: How long have you been writing about personal finance and investing?
SB: Since the late 60s. Doubleday published my first book on personal finance in 1972. Vogue magazine also asked me to write a personal finance column for them that year. I was scared to death because they told me the previous writer was economist Paul Samuelson. He had just won his Nobel Prize.
JLP: What made you decide to write about personal finance?
SB: I decided to be a writer while I was an undergraduate at MIT. It was a big shift from my earlier plan to be an astronautical engineer and go to the moon. Back then I wanted to write fiction, live a dramatic but difficult life, and die tragically well before my enormous promise could be fulfilled. The Institute let me study with playwright Albert Gurney and then with Archibald MacLeish at Harvard. I think of it as my Thomas Dostoyevsky-Wolfe period.
Quite a few years later I had a freelance assignment from a Boston weekly. It was about personal finance. I was immediately at home. Doing number work was fun. Combining it with words was even better. I wrote two books and wrote articles or columns for the glossy magazines before I started as a newspaper personal finance columnist. That was in 1977 at the Boston Herald American. I’ve been thrilled with this area ever since— it’s got everything, including stories far stranger than fiction.
JLP: How do you stay abreast of all that is going on in personal finance?
SB: When my son Ollie (now 35) was 5 someone asked him what his father did. He gave them a serious look and said, “He reads.” It was an accurate answer. I spend a lot more time reading than writing. Basically, I get paid to do all the reading and learning that no one else has the time to do. I read a lot of academic and investment professional papers and I look for connections to the real world. I also learn a lot from readers. Their letters are an early warning indicator of what’s being sold and how it’s being sold.
JLP: On your website, ScottBurns.com, you have a section called “Couch Potato Investing.” What exactly is the Couch Potato portfolio?
SB: The Couch Potato Portfolio owes its existence to Jerry Perritt. In the summer of 1987, just before the crash, Jerry wrote a piece on “The All Weather Portfolio.” He was worried about stock prices and wanted to develop a portfolio that was suitable for all markets. It also had to be simple, so anyone could do it. I thought it was a great idea and started looking for something really simple that would produce better results than most people were getting with CDs or the mutual fund of the moment, whether it was sold to them or came off the cover of Money magazine.
Eventually, I reduced Perritts five choices down to two. I eliminated real estate, for instance, because most Americans already have a big real estate commitment in their house. I eliminated gold because it was too fluky. I eliminated international stocks because Coca-Cola gets most of its profits abroad while Honda gets most of its profits in the United States. That got us down to domestic stocks and bonds, a two fund portfolio you could produce with two index funds.
The Couch Potato Portfolio offers a simple challenge to all the purported brainpower on Wall Street. It produces a good return by being incredibly cheap to manage— 20 basis points or less— and by being something you can do while making your fifth margarita. If you can fog a mirror and divide by two with the help of an electronic calculator, you can manage a Couch Potato Portfolio. As a result, normal people who don’t care about investments can manage their own money without having to help someone on Wall Street make his Mercedes payment.
The Couch Potato Portfolio has evolved over the years as index funds have evolved. Today the S&P 500 index fund has been replaced by the Total Market index fund. The Total Bond Market index has been replaced by a TIPS index fund. Neither were available 10 or 15 years ago.
A few years ago, in honor of The Other Buffett (Jimmy), I introduced the Margarita Portfolio. Like the drink, it’s made with three equal parts only instead of tequila, triple sec, and lime juice its Total Domestic Market, EAFE, and TIPS. It has done rather well and any bartender will be your personal quant, free.
JLP: Over the last year or so personal finance blogs have become more popular. What are your thoughts on personal finance blogs?
SB: Conventional media have a problem. Blogs are symptomatic of the problem. In the past it was an advantage to buy ink by the tank car load. Today, it’s just a big expense, witness Knight Ridder. I think blogs are a great deal like old fashioned investment newsletters. People don’t subscribe to newsletters just for the content. They subscribe for the sensibility and world view of the editor/writer.
That virtue— direct opinionating— is also the biggest liability of the blogs. Like casual emails, many forget that clarity and evidence is the foundation for opinion, not the reverse.
And now, here’s Part 2.