Book review: Investment advice in The Long and the Short of It

In John Kay's The Long and the Short of It, the reader is taught how to become their own investment manager.

John Kay’s The Long and the Short of It. Courtesy Profile Books
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Is it possible to be your own investment manager? Yes it is, according to author John Kay in The Long and the Short of It, first published in 2009, and updated and re-released in December 2016, where he sets out to give the reader the guidance on how to achieve this.

This book does not contain hot stock tips. Instead, it gives the reader, the “intelligent investor”, the tools to hold their own in the world of investment professionals and improve the returns on their investments compared to “conventional investors” – those who follow the herd or who are constrained by having to deliver quarterly results.

The book starts with a review of the basics of investment and the financial products everyone needs – all helpful and fairly straightforward.

The author then goes on to describe the investment options available, the institutions selling them, the principles of sound investment and the research that supports it. Kay has a reputation for being able explain complex ideas in a clear and simple way – and rightly so. The sections on risk and reward are complicated and require perseverance; they are also perhaps the most rewarding.

Kay has three simple rules for investing: pay less, diversify more and be contrarian, ie using your own judgment to assess fundamental value rather than buying asset classes that have recently done well or dumping those that have recently performed badly.

Paying less to the financial services industry is “the least risky method of improving investment returns”, according to Kay. Consider this: with an underlying rate of return of 5 per cent, £1,000 could grow to more than £7,000 in 40 years. But with charges of 2 per cent (a common fee paid to financial advisers), the savings would accumulate to only £3,250 – with half of the potential return vanishing in fees and charges. This is a sobering realisation.

So too is Kay’s insight into risk. We are taught that risk may result in failure and to shun, to a large extent, risk-taking. But lack of risk may result in disappointment and the failure to meet realistic financial aspirations. This is also sobering and certainly an incentive to embrace the uncertainty of taking control of money management.

q&a tips for DIY investors

Lianne Gutcher expands on what you can learn from John Kay's The Long and the Short of It:

Who is the book’s target reader?

As the book’s jacket explains, this is “a guide to finance and investment for normally intelligent people who aren’t in the industry”. It is for the “retail investor” - someone who is investing his or her own money and whose main objective is “to have sufficient financial security not to have to worry about money”. The target reader is also characterised as someone “willing to take risks but only with small amounts”. This is not the book for people who want to become professional traders.

Is it relevant for readers in the UAE?

The version of the book reviewed does target readers investing in UK shares. However, there is also an international edition that may be of more interest for UAE readers. Regardless of geography though, after reading the book, Mr Kay says: “You will understand the principles of investment better than most people who offer financial advice to retail investors.” This is perhaps of particular importance to DIY investors in the UAE where regulation of the sale of retail financial services is far less compressive than in the UK.

Who is John Kay?

John Kay is a leading UK economist and his work focuses on the relationships between economics, finance and business. He has been a Fellow of St John’s College, Oxford since 1970 and has held chairs at London Business School, the University of Oxford, and the London School of Economics. He has also worked as a adviser to the UK and Scottish governments.

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