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on 23 January 2009
Prof. John Kay is one of the finest writers in English on finance, politics and economics.

His previous book 'The Hare and the Tortoise' was a compilation of articles from his weekly column in the Financial Times. Unlike most such collections, it succeeded in presenting a coherent theme - Kay's take on what he calls the resource theory of management - as well as being (amazing to say, given the subject-matter) entertaining and read-able.

This latest volume is a different undertaking altogether. It is a guide to the theory and practice of long-term investment for "normally intelligent people who are not in the financial services industry". In other words, how to manage your money yourself. And why you are probably better-off doing this than entrusting your investments, or even your pension, to professional managers.

The events of the last year have made this notion slightly less radical than it would have been in 2006, when stellar fund-managers were routinely boasting double-digit returns. But most of us may feel that Professor Kay still has some uphill work to do in persuading us that we can probably do quite well ourselves.

He starts by establishing that long-term investment returns can be only be derived from the returns on productive assets. And that much of the packaging and re-packaging of loans, securities, shares and bonds done by the financial service industry is (in the long-term) reducing that return by deducting fees and commissions. Our first task as Intelligent Investors, therefore, is to ensure that the largest possible slice of any return goes to us - not to the middle-men and financial advisers. How this can be achieved, fairly simply, is described in the book.

The second task is to define our own investment strategy, one that suits our likely needs and has a reasonable probability of success. What constitutes "success" and "probability" is the subject of the book's middle section, in which Professor Kay establishes a framework for assessing investment risk and uncertainty. The difference between Risk and Uncertainty, which Kay uses to mean different - and precisely defined - things, is perhaps one of the books' key insights.

'The Long And The Short Of It' is neither an investment guide nor a get-rich-quick book. It is more a description of a particular way of thinking about investment, and a method whereby this can be developed. Kay claims no ownership over most of the the ideas, which are based on what he calls fundamental valuation (with frequent nods to Warren Buffet and Benjamin Graham). In any case, his intention is not to propound radical new theories; but to demonstrate that much - although not all - of the mystification around investment can be dispelled with clear thinking as applied by "normally intelligent people".

'The Long And The Short Of It' is not particularly easy read, unlike John Kay's columns. Nor is the tone as light. (It reads as though someone has gone through it at the last minute and removed half the jokes.) However, it does absolutely deliver what it promises.

Now, to put it all into practice...
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on 7 February 2009
This book starts by gives some information about different asset classes such as bonds, equity and property. It explains the pros, and the cons of paying someone else to manage your investments.

It then discusses modern finance theory and, in particular the Efficient Market Hypothesis (EMH), which is the cornerstone of most finance theory. Kay believes that this is not true in some important respects, and gives some evidence for this. He explains how systematic deviations from the EMH can lead to enhanced returns. This is a contentious position, but has a lot of support, not least from some extremely successful investors, notably the Graham school, the leading exponent of which is none other than Warren Buffett.

The book then gives a brief guide to understanding companies' financial statements from a valuation point of view.

He then discusses risk and reward in portfolios and the Curious Case of Robb Caledonian, which is fascinating and illuminating. He then discusses the Capital Asset Pricing Model and the challenge to it from the Equity Risk Premium Puzzle. This is hard and advanced stuff, made palatable only by Kay's limpid prose.

There then follow three chapters of practical advice about how to go about investing to maximise returns over a normal timescale. These are absolutely excellent and certainly worth the price of the book alone.

Finally there is a discussion of what went wrong in the 2008/9 'credit crunch'. Kay lays some of the blame at the feet of the Efficient Market Hypothesis and 'rational expectations' or 'subjective expected utility' as he calls it. There is some excellent stuff in this chapter. A couple of choice quotes: "The cleverest people have intellectual capabilities that would win them success in many other walks of life. Yet the most successful people are, as always, distinguished by who them know rather than what they know. What they know is not very much, and is largely the relaying of conventional opinions whose validity they have little opportunity or inclination, to assess." Another: "There are also in the City some of the most selfish people outside prisons, who believe that no justification for their activities is required beyond the money they make from them."

This is by far the best guide to investment I have ever read. It's central message is that it is not only fairly easy to manage one's own portfolio so as to get a better risk adjusted return than a professional, it is practically impossible to fail to do so.
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on 3 September 2009
John Kay is an excellent writer - his books and columns are always fascinating and informative.

In this book he lays out a framework for thinking about how to invest for your long term future. It is not 'easy' reading but sure enough the content matter demands that it is treated seriously by the reader.

If you follow his advice I am confident you will be better off by a considerable amount within a decade - however this will take effort on the part of the reader and also a considerable amount of courage to take personal responsibility instead of relying heavily on institutions. This is a book to read several times to remind you of its key arguments. Foremost of these is that financial intermediaries are there to make money from you - if you can minimize use expensive financial tools, minimize fees and commissions you will be much better off due to the effects of compound interest. Essentially 2% difference of return year on year will lead to a big difference in the medium to long term future.

Some key ideas are:

* Do an audit of your financial service providers (current account, mortgage, credit card, savings account) every 2-3 years;
* Do not waste money on unnecessary insurance policies;
* Get rid of debt before saving (excluding mortgages);
* Aim for 8-10% compound growth rate;
* If you want to borrow then use your mortgage;
* Minimize fees and commission charges whenever possible;
* Seek to emulate the investment portfolio of pension fund managers;
* Use negative correlation analysis to create a stable portfolio.

I am 29 and have never previously thought much about savings and pensions - I now have a job where I can start to save so this book has come at the right time for me. If you are aged 25-45 you should read this book and try to act on it. It has been a real eye opener for me and I think in 2019 I will be a lot more comfortable for having read it. Good luck!
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on 16 February 2009
Other reviewers have covered the content well. What distinguishes this book for me is that the chapters on practical advice first give an excellent method for how uk residents can cheaply and easily replicate the allocations that the major local authority pension funds take to invest their millions in assets. It then moves on to give practical advice for how to diversify from that position if you are feeling more adventurous. To complete the twist, he then brings strong arguments to bear for why such a seemingly more adventurous position can, counter-intuitively, actually mean lower risks for the investor.
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on 13 December 2011
This is a good investment book and one that i had to really decide if i should give 4 or 5 stars to. It reviews Bonds, Gilts, stocks and shares, funds etc in a descritive manner as well as providing some really useful pricing roles and ratios etc.

The main reasons for not giving it 5 stars is because the fininacial times ..."selecting shares that perform" was a much more prescriptive guide which demonstrated different methods that you may use to be sucesful. The selection and identification of "star performers", the Coca Cola of the share world, the solid business decent dividend approach. On the downside i thought the FT book was a little simplistic and 'Haynes Manual(ish' (do this, buy that, sell then).

This book taught me to look into the market, to get into stocks and shares etc. The FT book taught me to select performing shares. Incidently the shares i bought following the FT have performed best...

Interesting read at a grown up level = This book. Less interesting but more prescriptive = FT Selecting shares that perform.
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on 27 March 2011
The content of this book is terrific, and i'd completely agree with the five star reviews here - it is clear, concise, very easy to read, and contains a wealth of good advise for the aspirant investor.

However, i've only given it three stars as the Kindle version I purchased is dreadful - I seriously wonder if the publisher ever looked at it. Tables are unformatted and unreadable, footnotes appear in the middle of unrelated blocks of the text (as do page numbers in the introduction), there are numerous typographical errors and the general formatting and layout is awful. It's a feeble effort to use the Kindle platform that at times seriously detracts from the enjoyment of the book.

So, buy this book, it's great - just not on your Kindle...
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on 6 May 2015
This is an informative and helpful book for anyone wanting to manage their own investments. It takes you well beyond the normal chatter of the popular investment news. Although its approach to fundamental concerns is still valid I think a new edition is now needed. The recent changes to pension regulation, SIPP's and ISA's mean it is out of date. My other niggle would be that whilst it does its best to explain some complex economic models with the minimum of charts, the absense of any equations, and only a few simple tables, this does mean that it is more difficult to learn enough to apply the recommended thinking to actual portfolio planning. A drawback of a book like this is that it cannot give specific advice or recommendations even in a fairly general way without falling foul of the laws regulating the provision of financial advice. This is a necessary safeguard but makes the book less useful and the chapters on developing a portfolio a bit vague at times.
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on 8 September 2013
John Kay makes an alien subject interesting and puts it over in a way that someone less than averagely clever (me) can understand.
Confirms some things I suspected. This should be part of the national curriculum. Those working in finance should be tested on it. I suspect I will be buying more of Mr Kays books.
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on 8 November 2012
This is a good book about investment. I've read plenty of other investment books and still learnt some hopefully valuable lessons from reading this. There are long descriptive sections which are, to be blunt, a bit boring, but these sections are interspersed with some real little nuggets of useful information. I found his chapter on commodities to be particularly revealing. He also emphasises the need to keep investment costs and fees as low as possible, since these are clearly demonstrated as being an important factor in long term investment results.
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on 22 July 2012
Far more than just an authoritative discourse on personal investing, this book throws considerable light on the whys of our present economic gloom. The author's understanding of the innards of the mechanism that drives our (Western) economy is formidable and he presents it with rare cohesion and persuasiveness. The structure of the material that makes its bulk is also carefully considered and well executed. The result is a book that works on a more than one level. It offers practical instruction and encourages one to trust one's own sense of understanding. But it also reveals many a dirty truth about banking. The closing chapter is the one politically most pertinent and as it happens, chillingly pessimistic. Yet in the view of current affairs, the pessimism seems perfectly fitting. The book was written in 2008. You'll find many of its propositions as well as the major strands of his analysis of the current banking crises closely reproduced in the pronouncements of those people who when they speak today strike you as forward thinking. It's then that you realise how privileged you are to have learned those truths at their source: from the man called John Kay. And if you are a budding investor, you'll probably be doubly grateful for having read this book. So, before you've even put its single lesson to use, you'll be a richer person.
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