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If you're spending too much time on your portfolio and seeing too little reward, maybe you should be a "Coffeehouse Investor." That's the suggestion of Bill Schultheis, a 40-year-old Seattle resident and ex-municipal-bond salesman who now spends his time climbing mountains (literally). He lays out his strategy in The Coffeehouse Investor: How to Build Wealth, Ignore Wall Street and Get on with the Rest of Your Life (Longstreet Press, $13).
The book's message is resonating far beyond the land of Frasier Crane. I spoke recently with John Smith, a 43-year-old Richmond (Va.) electrical engineer and stay-at-home dad, who told me he stumbled on Schultheis' book last summer while on vacation in Seattle. He uses it, he says, "to ward off the armies of 'financial experts' who want my money. I pull the book out, wave it at them -- and they shrink back in horror." For a quick preview of Schultheis' ideas -- hint: He goes heavy on the index funds -- you can point your browser to his Web site.
Schultheis published his little book in 1998, the year after he wound up nearly 14 years as a broker with Smith Barney, where he had specialized in munis. Now, he and two accountants have joined forces in a $25 million investment-advisory firm, Pacific Asset Management, where he's putting his "coffeehouse" principles into practice.
Despite his wealth of experience in muni bonds, Schultheis gives that often-murky arena short shrift in the book. In a phone interview this week, I asked him about the muni world's dirty little secret and more. (For detailed info on munis, see my Barker Portfolio column in the Nov. 6 BW, "Buying Munis, Not Heartbreak".) Edited excerpts of our chat follow:
Q: Who is the Coffeehouse Investor?
A: The best way to describe the Coffeehouse Investor is to describe my seven brothers and sisters. They're individuals who are fully embracing their lives. They're raising families. Building careers. And doing a great job of it. And when it comes to investing, they frankly don't have time to get involved in the daily ups and downs of Wall Street. In fact, they would prefer to ignore Wall Street. And yet they don't want to miss out on it as an investment opportunity.
Q: I see.
A: I have found that there are thousands, and I would contend millions, of investors just like them.
Q: So, why isn't Wall Street approaching folks that way?
A: I think that there is such an obsession with performance when it comes to Wall Street and the pursuit of investor dollars that it's difficult for the industry to step back and focus on some of the tenets of investing, such as diversification. Out of one side of its mouth, Wall Street talks about the pursuit of performance, and you see that in advertisements every day. On the other hand, Wall Street touts the buy-and-hold philosophy. Unfortunately, without being too critical of the industry, a buy-and-hold philosophy doesn't serve Wall Street's bottom line very well.
Q: You were in the industry yourself for a long time. Why did you end up leaving it?
A: I left it [mainly] because I had been focused primarily on municipal bonds and had developed quite a good municipal-bond clientele. But after doing that for about 14 years, you know, I had enough. I wanted to step way from the industry and pursue other things. And it was in stepping away from the industry that The Coffeehouse Investor kind of evolved. I felt that there was an enormous opportunity to tell an investment story much different from the story that Wall Street was telling clients.
Q: Did you really dream this up in a coffeehouse, sitting across from Frasier and Roz [from the TV sitcom Frasier]?
A: It came about in part because every Saturday morning, I would get together with a group of friends at a coffeehouse. We would hook up prior to getting on with our Saturdays, and we would talk about everything under the sun, including, of course, the stock market. How could you not, with what the stock market has done? They would frequently turn to me for my spin or my advice because I worked in the industry. And I found I was always telling them just to hold on, to buy and hold, invest for the long term and ... it became a kind of monotonous story, week after week.
Q: Sounds boring!
A: It turned out to be pretty darned good advice. And it was those friends of mine -- we still get together -- the initial Coffeehouse Investors, who really encouraged me to write the book and tell my story.
Q: A Coffeehouse Investor then is someone who relies on the buy-and-hold strategy and who uses index funds? For a person of moderate to better means, how much time would he or she need to spend each month on an investment portfolio?
A: Once a portfolio is constructed -- where you have diversification, where you have different asset classes in place, and recognizing the importance of capturing most, if not all, of the return of each asset class -- very little time should be spent on it.
Q: Thirty minutes a month? Less?
A: I would say 30 minutes, max. In fact, I think the less you spend on it the better.
Q: Why?
A: The more you spend on your investments -- and right now is a perfect example -- you begin to tune into that part of the market that's doing better than your portfolio. And there's always going to be a hot sector or a hot fund. To the extent that you compare it to yours, there's a tendency to switch to it, and I feel that that switching is very counterproductive to long-term wealth.
Q: Have you converted your seven siblings?
A: They are Coffeehouse Investors to one extent or another. Some of them have actively managed mutual funds. Some of them have a part of their portfolios in individual stocks. And there's a part of us that is drawn to the stock market. We work with and amongst people who work for publicly traded companies, and it's hard to ignore it.
Q: So where does that leave us would-be stock-picking geniuses?
A: A smart approach is to take 10% of your money and have the time of your life with it. Play the stock market. And as I say in my book -- who knows? -- you might be the next Warren Buffett. But I'm not sure it's worth risking your entire portfolio to find out you aren't.
Q: I can't let you go without one question about municipal bonds: What's the dirty little secret of the muni-bond world?
A: The dirty little secret of the muni-bond world is that they make it out to be much more complicated than it is. And just as investing in stocks can be very simple and very straightforward, municipal bonds can be very simple and straightforward also. One thing to be aware of is that they will never, ever, tell you the markup or the commission that they're making on the bonds, so you have to be very diligent in asking that.
Q: If we come to visit you in Seattle, what coffeehouse will we find you in on Saturday morning?
A: Everyone asks that question! If I reveal that, then there won't be any room for us on Saturday mornings. But I live on "Coffeehouse Corner" up here on top of Queen Anne [Hill] in Seattle, and if you come up, you'll find us in one of the three [coffeehouses] here.
Copyright 2000 , by The McGraw-Hill Companies Inc. All rights reserved.
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