Product Description

This book provides a guide to the complexities of modern finance, both the basics of investment and the sophisticated innovations of the modern financial system. It explains how twice in the last decade - in the new economy bubble and the credit crunch - the follies of finance have threatened the stability of the world economy. It describes an environment that is complex and sophisticated, but greedy, cynical and self-interested.This book explains how to put your finances in the only hands you can confidently trust - your own. You will learn everything you need to be your own investment manager; to recognize your investment options, and the institutions that will try to sell them to you; to understand the principles of sound investment and the research that supports these principles. Since much of your portfolio will be in stocks and shares, this book describes why some companies succeed and others fail, and how to distinguish fact and fiction in what companies tell you. John Kay explains many meanings people attach to the term risk; the tools professionals use to analyze risk and the different tools you need to manage risk for yourself. You will learn a practical investment strategy and how to implement it. This is the only book about finance and investment you need, and the one you must have.

Product Details

• Amazon Sales Rank: #1862 in Books
• Published on: 2009-01-05
• Original language: English
• Binding: Paperback
• 300 pages

Customer Reviews

Nur fang es an
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...

The most important book on investment so far this century
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.

the practical advice is truly excellent
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.