The Other Path: Illuminating the Path toward Reduced Volatility while Achieving Equity-Type Returns by Robert J. Klosterman CFP


Reviewed by Douglas R. Cobb

The Other PathIn The Other Path, Robert J. Klosterman’s follow-up to The Four Horsemen of the Apocalypse, the author once again offers his astute financial and investment advice. The book’s subtitle, “Illuminating the Path Toward Volatility While Achieving Equity-Type Returns,” is apt, as that is just what Klosterman advocates that investors do to achieve optimal monetary gains with their investment portfolios. Klosterman gets his title from Robert Frost’s famous poem, “The Road Not Taken,” which he quotes at the beginning of The Other Path, a highly interesting book that offers investors insights into a different sort of investment approach than they might be used to, though a very effective one that is designed to aid investors to earn equity-type returns while reducing the volatility that many other investors experience who only try more traditional approaches when it comes to planning their portfolios.

Klosterman’s book, The Other Path, is relatively short, coming in at just 60 pages, not counting the Appendices at the conclusion of it, but his approach to investing which he details in it is one which is very informative. The book is sure to interest and be beneficial to anyone who would like to lower his/her investment risks while maximizing his/her potential monetary returns.

The very title of Klosterman’s book, The Other Path, alludes to an investment strategy, or road, that most people have traditionally followed, which is investing their money entirely in stocks, bonds and cash. Such an approach is a tried-and-true one that has proven beneficial to many investors, but it has also proven to be a sometimes volatile path for others. Investing in stocks, bonds and cash, Klosterman argues, is an important part of an overall investment strategy, though there are other opportunities for diversifying one’s investments and reducing the volatility many portfolios unfortunately undergo, a volatility which can cause the monetary value of one’s portfolio to experience a disastrous nosedive.

Still, the main leg of the milk stool, that is, investing in stocks, bonds and cash, is a vital component in a wise investment strategy, according to Klosterman’s assessment in The Other Path. He calls it the core leg of a metaphorical three-legged milk stool, with each leg in the metaphor referring to a different but complimentary strategy when it comes to investing. If an investor diversifies his/her portfolio and does not solely focus on the main leg of stocks, bonds and cash, but also invests his/her money in nontraditional ways, Klosterman argues, using a series of useful and informative charts and graphs, that one’s portfolio is much less liable to experience a disastrous financial loss and the volatility of one’s portfolio will be reduced.

The second of the three legs of the milk stool is “Diversifiers,” and the third leg is “Absolute Returns.” Klosterman argues that “Diversifiers,” or alternative or nontraditional Investments, help reduce the volatility of an overall investment portfolio. Some examples that the author gives of nontraditional investments include real estate, private equity, “developed and emerging international equities,” distressed debt, and managed futures. These sorts of nontraditional investments can reduce volatility by either having a “very low correlation with traditional markets,” as Klosterman writes, or by delivering “consistent returns year after year, with little or no volatility.”

The third leg of the milk stool, “Absolute Returns,” is also the name of Chapter Four of The Other Path. Absolute returns are investments, according to Klosterman, which “demonstrate the same qualities of a bond with the assurance of return of principle and consistent payment of interest.” The author writes that they are similar to ten-year treasury bonds but “they are not backed by the full faith and credit of the United States.” Despite this, Klosterman states that aspect of absolute return vehicles can be considered to be an advantage. That is because strategies involving absolute return vehicles, as the author writes, “can invest in sound ideas and not have to fit restrictions that other institutions have.”

One example is investing in companies that lend money to small businesses and house flippers. These companies can work fast and close loans faster than banks. These companies have the ability to provide quick access to loans for money to people like real estate developers or house flippers, in comparison to banks.

In The Other Path, author Robert J. Klosterman writes about a no-nonsense approach to nontraditional investing and how it can benefit one’s investment portfolio and help reduce volatility. The book also examines and identifies “trouble signs” besides volatility when planning one’s portfolio, like groupthink, market disruptions and inflation. While Klosterman recommends that investors follow the advice of professionals who are experts in planning investment portfolios and have proven track records over at least a decade, The Other Path is an interesting and insightful look at adding nontraditional investments to an individual’s portfolio. Whether investors want and like to plan their investment strategies on their own, or with the advice of professionals, The Other Path is an eye-opening Must Read designed to inform investors of types of alternative investments that can balance out their portfolios and reduce the negative effects of market volatility. It is a book I would highly recommend to anyone who has ever considered expanding their investment portfolios and adding nontraditional investments to them.