Why "Killing Sacred Cows" Is A Stupid And Dangerous Book
So I picked up Killing Sacred Cows from the library, because it looked intriguing. The cover says “Overcoming the financial myths that are destroying your prosperity”. There are lots of hucksters separating good people from their coin in the name of “helping” them financially: day-trading software vendors, whole-life insurance salesmen, “financial counsellors” with no fiduciary responsibility.
I thought maybe this book would take aim at those, or similar, false hopes. Then I opened the book.
I saw my first red flag when reading the front flap. I was willing to look past the statement that “401(k)s and other qualified retirement plans are risky and destructive to most individuals”, because it was probably just strongly worded to get more readers and I don’t know for certain that it’s not true. No, the first red flag was that the author provides a program, described as “a proprietary educational process”, to help “qualified individuals” get safer investments.
OK. So I’ve found the purpose of the book. This man is trying to sell consulting. My trust in his message was beginning to crumble. I’m not particularly interested in learning about how I need to pay him money to learn how to succeed, especially when well-diversified index funds are already a proven way to earn quality returns.
I decided to soldier on anyway, just to see if there was anything worth gleaning from the book. It was a decidedly mixed bag. Essentially, every good point the book made was hidden behind straw men and false dichotomies.
I almost returned the book after the first chapter. It discusses the differences between a scarcity mindset and an abundance mindset. Many people have a scarcity mindset, where they believe that everything they gain someone must have lost. Every dollar I earn must mean someone who would have earned it didn’t. This simply isn’t true, and I agree with the author. Human potential multiplies natural resources, and technology continues to accelerate that process. However, I wouldn’t have been as annoyed reading this chapter if he had tried to inspire the reader, rather than insult them (if they subscribed to the scarcity mindset) or their intelligence (if they were already on board).
Things didn’t get much better as I continued reading. It features yet another false dichotomy: you can either “put all your money in a 401(k) and forget about it” because “retirement is going to cost you everything you can possibly save” OR you can “put it to productive use”. He leaves no middle ground of saving some for retirement while also doing productive things with the rest of your money. He then trashes net worth as a means of measuring your financial progress, and prefers cash flow as a measure. This completely ignoring the fact that high net worth actually leads to cash flow, as interest and dividends from your investments.
Please allow me a brief digression. The national average household income is almost $50,000. You could achieve financial independence (not “retirement” where you decide to stop working, but financial independence, where you no longer rely on a paycheck or anyone else for your income, and money can stop being a factor in your decisions) when you can replace your income with interest and dividends equal of equal value. Conservatively, a net worth of $5,000,000 can do that indefinitely. Due to inflation, $50,000 of buying power today will take roughly $200,000 40 years from now. Assuming 8%-12% fluctuating returns from a well-diversified group of low-cost index funds, 4% of the value is “lost” to inflation, and you can then take another 4% as your $200,000 income. With the exception of the absolute worst-case scenario of a long-term bear market once you begin living off of this nest egg, this will last indefinitely. You can then continue working, because I assume that you’ve found work that you love, or you can volunteer, or travel the world, or donate to charities, or whatever you want with your money.
Now, $5,000,000 sounds like a lot of money, and it is. But, it is not difficult to reach that net worth. Starting early is the key, as compound interest is your friend. At 10% growth (the average of the US stock market over its lifetime), money doubles every 7 years. Over the long haul, this reaps massive rewards. If the average person making $50,000 (from above) puts only 15% of their income ($7,500 a year or $625 a month) into a low-cost index fund averaging 10% growth, they’ll have that five million in less than 45 years. Remember that I’m using very conservative numbers. If inflation is less, or more money is put in, or the stock market does better, it works out even better.
Anyway, back to the book. He starts spreading misinformation about why not to invest in the stock market. First, he says that 401(k)s are bad, so you should avoid them, without really explaining why, and then follows up with the fact that capital gains tax will dramatically impact your investments, so you shouldn’t invest in stocks. He completely skips over the fact that if you invest in 401(k)s or IRAs (both traditional and Roth), you don’t even pay capital gains tax. He also lies that stock growth is falsely reported. His example is that a year of 100% growth ($10 to $20) followed by 50% decline ($20 back to $10) would be reported as 25% average growth (in other words (100 – 50) / 2 = 25), when that simply isn’t the case. That would be reported as 0% average growth, because that’s what it is.
Chapter 3 I almost begin to agree with, but it’s hidden again behind a false dichotomy. You can either break your back working for whatever scraps someone will pay you, hoarding as much as you can, or you can find work that you like, providing you with joy and fulfillment. Again, he could have made this point in an inspiring way, rather than a disparaging way. Many people think that they have to work jobs they hate because it pays. This simply isn’t true. Most people vastly undervalue themselves, and don’t think they can get paid as well doing work they love. I submit, and the author clearly agrees, that this just isn’t the case. Follow your passion and find ways to get paid. Like to take pictures? Become a wedding and event photographer. Like to write? Get a job at the local paper, start a blog, write a book in the evenings while you work your day job. You just need to figure out what you want and work towards that.
I’ll be honest, though, that I had trouble getting any further in the book. As I said before, every good point was hidden behind an insulting attitude, straw men, and false dichotomies. Even when I agreed with the kernel of truth that was buried under the bullshit, I was still frustrated and annoyed.
OK, so that’s why it’s stupid. What makes the book dangerous? First, I’m concerned that people will take this man seriously and won’t save for their later years. We have this problem enough without this man. Something like fewer than 20% of people over age 60 have enough savings to pay for an emergency before their next pension or Social Security check comes in. This is frightening to me, especially as my parents get older.
But worse, the author advocates using debt and leveraging to accelerate your cash flow, which he describes is how large businesses operate. I certainly advocate using a portion of your cash to invest in yourself, in training, in learning, in developing your skills, like a business. However, for anyone watching the financial news lately has learned, this is a double-edged sword. While leverage does accelerate gains when things are on the upswing, it also accelerates losses when things are on the downside. A business can absorb these losses or disappear. A person has no such opportunity. If they go broke doing this, they are simply broke, or bankrupt.
In the end, the book still couldn’t beat the common-sense financial advice you can pick up anywhere sensible:
- Do the work you love
- Spend less than you make
- Have a rainy day fund
- Invest the difference
- Entrepreneurship is risky, but very rewarding