The Little Book of Alternative Investments by Ben Stein & Phil DeMuth Summary

The Little Book of Alternative Investments explores non-traditional assets like commodities, real estate, gold, and hedge funds to help investors diversify portfolios. Co-authored by economist Ben Stein and financial advisor Phil DeMuth, it emphasizes balancing risk by combining low-correlation assets. The book provides frameworks for evaluating alternatives, though some examples may feel dated since its 2011 publication.

This book suits intermediate investors seeking to expand beyond stocks and bonds. It’s ideal for those interested in hedge funds, tangible assets, or strategies to mitigate market volatility. Beginners may find the technical sections challenging, while finance professionals could use it as a primer on portfolio diversification.

Yes, for its clear breakdown of alternative assets and their role in risk management. While some fund examples are outdated, the core principles about diversification and correlation remain relevant. Stein’s accessible writing makes complex topics like commodities pricing or REITs understandable for non-experts.

Key ideas include:

• Low-correlation assets reducing portfolio risk
• Hedge fund strategies like long/short equity and global macro
• Tangible investments (gold, real estate) as inflation hedges
• Due diligence frameworks for evaluating alternative opportunities

Stein and DeMuth categorize hedge funds by strategy (e.g., arbitrage, distressed assets) and explain their role in diversification. They caution about high fees and liquidity risks but highlight potential returns uncorrelated to traditional markets. The book lists historical fund examples, though readers should verify current performance.

Critics note its 2011 examples (e.g., specific hedge funds) may not reflect post-2020 market dynamics. Some argue it oversimplifies commodities trading risks. However, the core thesis—diversifying beyond stocks/bonds—remains widely endorsed by financial advisors.

Unlike Stein’s retirement-focused Yes, You Can Retire Comfortably, this book targets active investors exploring niche markets. It shares his signature humor and real-world analogies but delves deeper into institutional-grade strategies.

• “Alternatives are the shock absorbers of your portfolio” – emphasizing volatility reduction
• “Diversification isn’t about owning more stocks—it’s about owning different risks” – redefining asset allocation

With markets facing AI-driven volatility and crypto fluctuations, its lessons on non-correlated assets help investors stabilize returns. The book’s frameworks adapt well to newer alternatives like blockchain-based investments or green energy funds.

Stein outlines a 4-step process:

1. Assess correlation to existing holdings
2. Analyze liquidity and fee structures
3. Verify historical performance during crises
4. Allocate only 5-20% of total portfolio

It highlights REITs, Treasury Inflation-Protected Securities (TIPS), and blue-chip art/collectibles as lower-risk options. These assets provide inflation hedging without the volatility of commodities or hedge funds.

Metaphorically, “new cheese” represents adapting portfolios to evolving markets—a theme Stein reinforces through case studies on post-2008 recovery strategies. This mirrors his earlier work linking economic resilience to flexible investing.