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Nur fang es an
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...