Book Review - The Coffeehouse Investor - pic

Book Review: The Coffeehouse Investor

My Strategic Dollar Investing, M$D Favorites, M$D Recommended Books 14 Comments

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The Coffeehouse Investor: How to Build Wealth, Ignore Wall Street, and Get On with Your Life was written by Bill Schiltheis who is a financial adviser with Sagemark Wealth Management and before that a broker for Smith Barney. It was during this time spent managing people’s money when he decided that what he was doing wasn’t working. He got to know the hysteria of Wall Street.

Bill quit Smith Barney in 1998 and wrote The Coffeehouse Investor to offer a mindset and frame of mind to fellow investors. He knew if people could understand that Wall Street is a marketing machine that exists to convince investors they can beat the market. Most fund managers don’t beat the market and underperform the market significantly.

Bill’s beliefs about investing and the stock market come from the following three thoughts:

Don’t pull all your eggs in one basket

“The key to building a successful portfolio is to diversify your assets in such a way that you maximize your chances of reaching your financial goals with a minimum amount of risk.”

There is no such thing as a free lunch

“Because markets are so efficient, any attempt to beat the market is likely to prove disastrous to your long-term financial health. Thus, it is essential that you capture the entire return of each asset class, and leave it at that.”

Save for a rainy day

“Developing a long-term financial plan, with a keen eye on your saving and spending levels, is essential for you to reach your long-term goals.”

Bill establishes this first set of principles through a variety of examples of stock market performance and proving that attempts to pick stocks and beat the market often results in worse returns. He instead recommends investing in the entire market. By doing this, you’re investing in human’s’ ability to continually create new, innovative products. You’re essentially investing in your believe that humans always find a way to improve.

3 Principles of Investing

This set of principles drives the investment strategy of a Coffeehouse Investor:

Asset allocation

“choosing the best combination of stocks, bonds, and cash to provide you with the greatest chance of achieving your financial goals with the least amount of risk.”

Approximate the stock market average

“making sure your stock market investments are doing at least as well as what the stock market as a whole is doing.”


“knowing how much money you need to set aside each month to reach your financial goal and eventually saving it.”

To Diversify or Not

For millennials, diversification is probably a concept they feel the need to carry out in a hurry. Don’t get me wrong, I think diversification is a good thing, but I subscribe to Scott Trench’s school of thinking. Scott’s book Set For Life emphasizes that diversifying early in your investment timeline may actually be a disadvantage to you in the long run.

“[diversification] prevents the investor from benefitting fully from the performance of stronger asset classes.” – Scott Trench

Thinking in that regard, as one ages and gets closer to retirement or financial freedom, they want to have a more stable portfolio that produces returns great enough to cover their withdrawal but with a reduced risk of losing the principal.


When your portfolio earns dividends, there are really two options of what to do with them: spend it or reinvest it. Compounding is the 8th wonder of the world, and let me tell you why.

Reinvesting dividends is a powerful way to grow your portfolio exponentially. “Earning dividends off dividends off dividends, off dividends is called compounding.”

Bill provides a powerful example of the value of $10,000 invested over a 20-year period starting in 1978.

The value if the investor took the dividends – $154,439

The value if the dividends were reinvested – $386,140

Drastic Huh?

Setting Up Your Coffeehouse Investor “Lazy Portfolio”

The main takeaway from The Coffeehouse Investor, is the recommendations to set up your own portfolio that is easily managed and set up to meet average market returns. Bill came up with the concept of the Coffeehouse “Lazy Portfolio” which has performed relatively strong over the past, 5 – 10 years.

coffeehouse investor lazy portfolio


For many millennials, this allocation is far too risk-adverse. Look, if you’re a millennial then your timeline for financial freedom or retirement is much further off than your older counterparts. You should be able to take on more risk and volatility in the short-term until you’re closer to retirement or financial independence. Don’t be stupid with your money and not diversify at all, but be willing to be bold and take risks because that’s where the rewards are.

Fees & Rebalancing

The purpose of The Coffeehouse Investor isn’t to teach you how to beat the market, but rather to capture the entire returns of the market. Beyond that, you need to reduce fees and make sure you’re only rebalancing when necessary.

If you were investing in managed mutual funds, your funds manager would buy and sell all day trying to get the right portfolio to beat the heck out of the market. Keep in mind the impact of the fees associated with the manager and the buying and sell. Fees eat away at the value of your investments. Bill recommends investing in low-cost index funds. These have lower fees and enhance your potential by reducing fees. Additionally, don’t rebalance too often. Even if your portfolio not allocated 100% correct, don’t rebalance until the allocation makes you uncomfortable. Reducing the number of rebalancing, buying sell, etc. will save you a ton of money is the long run. Bill recommends rebalancing once or twice a year.


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You aren’t going to walk away from The Coffeehouse Investor with newfound wisdom about how to pick stocks, beat the market and win big. On the contrary, the strategy Bill lays out on “how to build wealth, ignore wall street, and get on with your life” is instrumental for young investors educating themselves and building a low-cost, low-involvement approach to investing for financial freedom.

Interested in reading more? Check out the following:

Must Read Books for Every Personal Finance Beginner

Set For Life: Dominate Life, Money and the American Dream

What are some of your favorite books you’d recommend for new investors?

-My Strategic Dollar

Comments 14

  1. Wow – great review and some fantastic advice. Re-investing dividends are a great strategy.

    I really like The Bogleheads Guide to Investing. I also like the Millionaire Real Estate Investor… but that’s more about real estate (obviously).

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      I’ve got about 7 money/investing books in my queue to read including Bogleheads, I’ll have to add the Millionaire Real Estate Investor to that list. Thanks for sharing!

  2. I am probably pretty risky at the moment, but I feel like I can handle the risk at my age (32). I’m even going outside of stocks and trying out crypto currency, which so far have paid off quite well (+33% in June). Looking to back off in the next few months, though. I think a market correction is on its way. Also, for stocks, I do love VFIAX, and I have some of the small and mid cap index funds Vanguard offers. I think I could pick up a few more passively managed funds to capture the large cap and global, maybe even an REIT. Good post thanks for sharing!

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      I think taking risks is a good thing, and 32 years old isn’t an age where I’d consider being risk-averse. GO for it!

  3. Great review Lance! I really enjoyed this book as well. It covers the basics, and really everything that most people should know. I think people tend to over complicate this type of stuff, and it can actually negatively impact your returns. All the tinkering and attempts to beat the market. Again, this is a solid read.

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      Absolutely! I do feel that there’s too much detail in this case. I’d rather just invest in low-cost index funds and move on.

  4. Thanks for the review. I have not read this book, but it sounds interesting enough that I should be putting it on my to-read list.

    One question I’ve always had, but never gone to the trouble of trying to find the answer to: Often times people who preach the virtues of near passive portfolios tend to suggest an allocation of several stock funds. And US based ones tend to often show traits of home bias. If one truly believe in a passive strategy, as seems to be the instance here, why would one not find the optimal worldwide ETF/mutual fund and just put it all there?

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      Interesting point. I think there’s a happy medium with investing globally and investing in the US. I tend to put a bit more into international stocks than this book suggests, but I want to be more aggressive. Investing is a personal choice and making sure you’re taking an appropriate level of risk so it doesn’t keep you up at night.

  5. Great review. I totally agree that millenials are better guided taking a higher risk approach than suggested in the book. I’ve kept a portfolio of a diversified set of ETFs and then a higher risk position of stocks like amazon and Facebook were discounted by traditional market analysts for years because they did not hold up well with traditional metrics but have continued to push higher. I’ve been perfectly happy riding them until the steam runs out and haven’t changed my portfolio mix for over 2 years now with some amazing returns.

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      Sweet! I definitely support jumping on the tech-based companies stocks at the moment. There’s such phenomenal returns, that it’s worth the risk to me. I look forward to seeing some investment/dividend update posts!

  6. I’m a investing novice, but this post was full of great knowledge. I’m hugely risk adverse so I’m a huge fan of diversifying to hedge my bets. I’ll have to check out Scott Trench’s book because I’m super intrigued by his thoughts that “diversifying early in your investment timeline may actually be a disadvantage to you in the long run.”

    Definitely going to get my husband this book because a) he’s a huge finance geek and b) then he can break down some of the harder concepts for me, haha. Great post as always!

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      Love this comment! Honestly, Scott’s book is an awesome resource for anyone looking to take their finances from mediocre to #winning

  7. Excellent review Lance!!! This posts deserves more attention. Its like a mini investor crash course for those of us that’s too busy or not confident enough to keep up the reading. What’s next on the reading list?!

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