24th December, 2017

The bureaucrats don’t know it, but investing can be fun

Almost everyone who wants to make money searches for the secret to successful stock market investing. So what is the best way to learn its mysteries? There are various courses one can take — from free online training to heavyweight qualifications such as becoming a chartered financial analyst.

For my money, though, by far the best-value way to improve one’s investing returns is to buy Harriman’s New Book of Investing Rules.

This is a fresh edition of a manual first published 16 years ago. It costs a mere £19.99 and includes practical contributions from more than 50 investment experts on how to generate profits by buying and selling shares.

I know a few of the investors who have provided their insight in its short chapters, including Ashton Bradbury, Gervais Williams and Jacob Rees-Mogg, and it is worth listening to all of them. The book offers more than 500 pages of hard-won wisdom and could surely help anyone who follows its advice to grow their portfolio.

It feels invidious to select a few maxims, since there are so many gems in the book. Nevertheless, here are some of my favourites: “Beware of geeks bearing formulas”, from Wesley Gray and Jack Vogel; “Invest with people who have skin in the game”, from Chris Mayer; “Turnover is the enemy of performance”, from Peter Spiller; “Bad figures always take longer to add up than good ones”, from Nigel Lawson; “A portfolio of 15-25 shares is enough”, from Alistair Blair; and “Time is your friend, impulse your enemy”, from John C Bogle.

Of course, some of the advice contradicts other inclusions — which demonstrate that there is no single winning formula when it comes to identifying great shares.

Harriman House, the small British publishing firm behind this book, has a number of excellent titles on its list for anyone seeking to develop their understanding of securities markets.

It publishes several modern classics, such as The Zulu Principle by Jim Slater, The Midas Touch by John Train, Simple But Not Easy by Richard Oldfield, and The Zurich Axioms by Max Gunther. These works alone will provide a sound basic investment education for any prospective asset manager.

I doubt very much that anyone at the Financial Conduct Authority (FCA), which regulates the competence of the financial services workforce, has ever heard of any of these highly readable volumes. Yet by law the FCA must judge who has the skill and knowledge necessary to give investors advice or manage money for a living. The guidance on its website about the expertise professional investors need is spectacularly unhelpful and bureaucratic.

I suspect the vast majority of the requirements are about process, procedure and pedantry — not about the difficult art of actually making clients rich.

Meanwhile, the Chartered Institute for Securities and Investment, the professional body for those working in the industry, provides sensible and worthy certificates and diplomas to would-be wealth managers and suchlike. However, its output fails to communicate the excitement and fun to be had from investing.

I am all in favour of training for analysts and fund managers, but many of the wealthiest stock market operators I have met over the years have no such accreditations. Instead, they have acquired their investment mastery through experience, diligence and the possession of common sense.

I worry that with the arrival next year of Mifid II — the new Markets in Financial Instruments Directive, a terrible piece of EU gobbledegook — the number of professional analysts will decline, and consequently the quantity and quality of quoted company research will diminish. Of course, this should create more mispriced shares and consequently opportunities for astute investors. However, it will not help unsophisticated consumers, the transparency of stock markets or smaller but growing quoted companies. Sadly, the functionaries in Brussels probably didn’t anticipate the unintended consequences of their onerous legislation.

One of my favourite lunches of the year happened last week in a central London casino (an appropriate setting). About 20 of us gather just before Christmas to choose a bull and bear stock each for the coming year. There is a reward for the winning speculations of the previous year. The attendees are an assortment of stockbrokers, industrialists, fund managers and City types.

Most are from a generation that pre-dates the plethora of red-tape exams that practitioners are these days expected to pass. Yet they are a highly accomplished bunch and know very well that the best investment decisions are rarely driven by textbooks or spreadsheets.

Every year I come away from our Christmas lunch having heard plenty of shrewd observations — and some good jokes.