A book better than Wilson White's new Municipal Bond Investment Advisor, Tax-Exempt Investing for High-Bracket Individuals (Probus Publishing, 268, pp., $24.95) for new retail investors in municipal bonds has not been written.
Mr. White, a "special situations" man and currently a consultant with Barre & Co., made a splash in 1985 with his book. Basics, which walked the reader through a competitive deal. His virtues, then and now, are a colloquial writing style and real attention to making his meaning explicit for the reader.
When dealing with investors new to the municipal bond market, this is precisely the tack to take. There are few markets more complex than the municipal market, with its numerous products, myriad credits and structures, methods of underwriting, layers of dealers, varieties of tax treatment.
Mr. White does not make it simple. He does not promise riches in short order. Again and again what he does is urge his readers to go out and get information on their own and bear down to the hard work of understanding what municipal bonds are all about.
Strategy: 8, 3, 83
He boils his strategy down early on, saying, "if individuals have a landmark to steer by I'm sure they have a better chance of investment success. My landmarks are 8, 3, 83 ... If you stay on the slow safe road of short terms until long bonds are at 8%; if bonds beat inflation by 3%; and if municipals yield 83% or more of governments, you should experience superior results."
The author also reiterates the best investment advice of all by citing the the shoe store with the sign "Don't ask for a size, ask to be fitted." There is no ideal investment or model portfolio; the customer makes it so. If you are too small for direct investment in bonds, but are still in the top tax bracket, better to get some tax-free income than none, in a unit investment trust or a fund.
Mr. White takes his readers to school, through UITs, managed funds of all kinds, and direct, unpackaged investment in municipal bonds. Along the way, he dispenses all sorts of pithy advice, sometimes stopping to package it under "Wilson Says," and then summarizing the main points he makes at the end of each chapter.
The approach seems to me to be a good one. It is axiomatic that when people find themselves with a war chest they have built up over the years, or when they inhert an estate, or when they find themselves the beneficiary of some nice windfall, they don't have a good time with it. They worry, Mr. White's frank manner will calm any nervous nellie. It may also make him any number of enemies in the business.
He counsels his readers on UITs and their markups, or loads: "Wall Street has developed UITs strictly for little fish -- tasty little fish-.... Naturally, the sponsors soft-pedal the load factor, preferring to emphasize the customer benefits. One ad showed parents smiling at each other over their little girl, tucked fast asleep in an insured UIT bed. Expect to hear lots of finesounding, heartwarming phrases from trust salespeople, with only a few figures sprinkled in here and there. I suggest you focus on the numbers and filter out those so heartfelt words."
Here is White on insurance -- on UITs, but also in genral: "skip the insurance and take the extra income," because insurance "is only against default, and not against the more significant loss factors -- inflation and interest rate changes."
'Mediocrity the Rule'
Or consider this, on buying bonds: "There is something seriously wrong with the way most people buy municipal bonds.... What is the biggest mistake municipal bond buyers make? Overemphasizing credit quality. What is the biggest mistake municipal bond sellers make? Overemphasizing credit quality."
Finally, White embarks upon what one of my reporters would call a "total harshfest" against professional money managers: "The plain fact is that extremely few money managers comprehend municipals and all are primarily driven by self interest .... One outstanding fault: almost unanimously, advisers refuse to adopt imaginative investing techniques." He reserves his special enmity for bank trust departments: "As a class my guess is that they have produced poor investment results .... I know of none to recommend."
Mr. White is a contrarian. He advises his readers, in the end, to forego the annual fees and markups on UITs and managed funds -- "Mediocrity in managing is the rule" -- and urges them to stick with direct investment in bonds. It is the harder road to choose, to be sure, and all too often the road not taken by those who advise newcomers to the market. As Mr. White shows, it takes a lot of work. But he also shows in a series of excellent graphics that the reward justifies the work, and the risk. As the old expression goes, if my creaky schoolboy Latin is correct, Nil sine, magno labore.
Two quibbles, Wilson. Anyone who looks for a "Munifax" newswire won't find one. It's Munifacts. And BIGI, the bond insurer, is no longer in business. Catch these in the second edition. Because The Municipal Bond Investment Advisor is bound to have a long life.
The book is available from The Financial Press, 2555 Kennedy Boulevard, Jersey City, N.J. 07304.
Mr. White's book is a terrific guide for the retail investor. Is there no single, readable guide to the industry for the professional? Watch this space for details in the coming weeks.