Where do most investors go wrong in making their investment decisions? Warren Buffett, whom many like to think of as the world’s most successful stock market investor, has no doubts. People need to spend more time with their nose in a book, thinking about the way the world works, and less time looking at the price of the shares that they own. Buffett has long since moved on from buying individual shares to buying whole companies, but the way he spends his time has not changed much in the 50 years he has been a professional investor.
One day a couple of years ago, he received a faxed letter about a company he had never heard of. He liked what he saw. ‘The next day,’ reported the Wall Street Journal, ‘Mr Buffett offered to buy Forest River. He sealed the deal in a 20-minute meeting one week later. He spends most of his time alone in an office with no computer. He makes swift investment decisions, steers clear of meetings and advisers, and eschews set procedures. On a recent Wednesday he received only 13 phone calls, including one wrong number.’
This leaves him plenty of time for reading, and reading is how he gets most of his ideas. The point, says Richard Oldfield, a British fund manager who includes this passage in an entertaining new book of his own, is that spending all day looking at share prices moving around, as many investors now can do, thanks to the internet and real-time trading tools on their personal computers, is ‘an idiotic distraction and waste of time’. Not only that, but ‘staring at the Bloomberg machine impels people to do all sorts of things which are better left undone. Indolence can be constructive.’
The great merit of Oldfield’s book, Simple But Not Easy (Doddington Publishing), sub-titled A biased book about investing, is that it lays bare some of the secrets that professional investors rarely talk about in public, for fear of upsetting their clients. Not for Oldfield the convenient fiction that managing other people’s money is a smooth and seamless path to profit, as investment managers and advisers would love you to believe.
He knows, and describes with great humour, the world that he and his fellow investment managers really inhabit, which is one in which making decisions is akin to picking a path through fog, interrupted by occasional flashes of clarity, and success is at best a matter of small increments, rarely sustained without interruption for long. Whether chronicling his own investment howlers, dissecting the failings of hedge funds, or explaining how and when to get rid of a fund manager, this is the most accessible (and amusing) book about investing I have read for some years, one in which Oldfield’s own wisdom is artfully concealed behind a lively camouflage of anecdotes and personal experience.
If Simple But Not Easy is the connoisseur’s choice for reading this autumn, the blockbuster for City and professional types is inevitably Alan Greenspan’s memoirs, prosaically entitled The Age of Turbulence (Penguin). The former chairman of the US Federal Reserve had a reputation while in office — which he was for the best part of 20 years — for two things. One was for being the most important economic policy-maker in the world. The second, as James Harland recalled last week, was for being the most incomprehensible public figure on the planet, whose verbal obfuscations kept financial markets in a state of permanent suspense about his intentions. The surprising thing about his book is that it is both easy to read and surprisingly undull. Although it is clear that many hands have contributed to its drafting, and sensational disclosures are notably absent, Greenspan emerges as a likeable soul who never once thought that he was as powerful as the media and many market participants liked to portray him. Although it has become fashionable to trash the impact of his low interest-rate policies, his ruminations about the future, which err on the gloomy side, are well worth reading.
Three other titles with an investment theme also deserve a mention. The Black Swan (Allen Lane), a follow-up volume to Nassim Nicholas Taleb’s excitingly innovative earlier book Fooled By Randomness, continues the author’s attempt to explain why the human brain is in general extraordinarily ill-suited to analysing and making decisions of choice and probability — which, it just so happens, lie at the heart of successful investment. The book is erudite, eccentric and chaotic, but full of stimulating insights. I liked, for example, his distinction between experts who really can be experts — a category in which he includes livestock judges, astronomers, test pilots, chess masters and grain inspectors — with experts who by the nature of their craft ‘tend not to be experts’. This second list includes ‘stockbrokers, clinical psychologists, college admissions officers, court judges, councilors [sic], personnel selectors, intelligence analysts’, to which Taleb helpfully adds economists, financial forecasters, political scientists and personal financial advisers.
Seasoned stock market investors with a strong appetite for self-improvement should also try a new book by the American investor and author Ken Fisher. The Only Three Questions That Count (Wiley) is overly long, and creaks at times under the weight of the author’s research. Fisher’s advice on how to judge when bull markets are over, and his withering exposé of the folly of market pundits, among other findings, make it well worth the effort for those who persevere. His rules of thumb would have saved you the worry of thinking that the credit crisis this summer was the start of a serious setback in the stock market.
Finally, The Panic of 1907 (Wiley), by American academics Robert F. Bruner and Sean D. Carr, is an agreeably readable account of how through force of reputation and character, the great banker J.P. Morgan single-handedly defused a financial crisis of epic proportions that broke out exactly 100 years ago in the wake of the San Francisco earthquake — a task the present Governor of the Bank of England has found nowhere near as easy in the wake of the run on Northern Rock.
Jonathan Davis is editor of Independent Investor.