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Weekend reading: Free your mind and your future with Free Capital

Weekend reading

Some great reading on money and investing.

When you’re young, half the classic books you read seem to apply to you. For example, like many a nerdy teenage bookworm without a girlfriend, a driving licence, or even a favourite tipple, I managed to see myself in Jack Kerouac’s literary tale of drop-out debauchery, On The Road.

Yet simultaneously my favourite poet was John Keats, the prototypical Smiths-ian hero – and a Romantic who possibly died a virgin.

As you get older, you start to get a better sense of who you are. As the English dandy Quentin Crisp once quipped:

“It’s no good running a pig farm badly for 30 years while saying, ‘Really, I was meant to be a ballet dancer.’ By then, pigs will be your style.”

Something similar has happened to me with my investing, and the investment books I enjoy. In my earliest days of investing (and even in writing with this blog) I toed the sensible line of putting away a bit of your earnings every month, investing it entirely passively, and waiting for the pay off 30 years down the line.

But in reality I’ve grown more drawn to biographies of Warren Buffett or even profiles of hedge fund managers, and I’ve invested my money ever more actively and aggressively.

Let me stress as usual that I don’t say this is the right thing for you to do. Most people are statistically best off following the passive approach outlined by The Accumulator here on Monevator. A good chunk of my money is in various index funds that are periodically rebalanced, too.

But it’s a case of do as I say, not as I do, with the rest of it, and I’m sure that’s what makes Free Capital, a just-released profile of a dozen super-successful UK private investors, such a compelling read for me.

Pre-release copies of this new book by Guy Thomas have been floating about the UK investment scene for a several weeks now, and I was very glad to get my hands on one. Extra frisson comes from the fact that – in online form at least – I know who a few of the purportedly anonymous investors really are. Long-time denizens of bulletin boards like The Motley Fool, ADVFN, and Stockopedia will have fun trying to guess the usernames behind the biographies and strategies.

Actually, there’s very little pure strategy discussion in the book. Thomas also resists the urge to say that just because these 12 investors made themselves millions by investing in the stock market, “you can to”. In fact, he’s downright frank, discussing in some depth the role that luck undoubtedly played in their success.

But he also writes:

A reasonable observation put to me by one of the interviewees is that there are two types of luck. The first type, ‘lottery luck’, is wholly random – like winning the lottery – and exposure to its possibility requires negligible effort, like buying a ticket. But there is another type of luck characterised by French microbiologist Louis Pasteur: “in the fields of observation, chance favours the prepared mind.”

I think this is a reasonable compromise. Several of the investors profiled made huge gains in the late 1990s stock market bubble, for instance, and held on to them. They were lucky to be in the right place at the right time, and then to buy the right stocks, and perhaps even lucky to get out before the crash (as opposed to prescient). But it was no accident that they were invested.

Inevitably, survivorship bias looms large. This is a book about 12 investors who – leaving aside a couple of very distinct outliers – reinvested savings from their salaries into strategies that paid off big time. They’ve made themselves ISA millionaires. Given the short time ISAs have been in existence, that’s something that can only happen by compounding very strong gains.

It isn’t a book about the losers who tried to do the same.

On the subject of losers, I’m not surprised to see these self made millionaires didn’t get there by relying on financial advisors, or even fund managers. Trying to beat the market may be a quixotic goal, but doing so while also paying for a bunch of hangers-on is an even harder one, unless you’re rich to start with!

Whether you go active or passive, it pays to read obsessively, take responsibility, and do it yourself.

I’m not going to write much more about the lessons, such as they are, in the book: Most are lifestyle orientated, as opposed to general investing ones, anyway. Virtually all the mainly 40-somethings featured (all male) are living reasonably modestly compared to their net worth, many are childless, and the few who risked getting married often got expensively divorced. Most seem introverted, and a couple borderline Aspergic.

All useful traits for accruing self-invested wealth, but if you want something different out of life, you’d be a fool to copy them for money. As for me, while I’m not quite the shy bookworm of my teens, I’m still your basic introvert, a natural long-term thinker, a marriage-a-phobe, a dedicated follower of business and the markets, and living well below my means. I’m also on a path that could put me in this book in a decade’s time. (Well, with luck!)

I heartily recommend the book if this sounds like you, too.

It’s currently going cheap at Amazon. But the value of discovering anew that you’re not alone in your thinking and your game plan is priceless.

From the money and investing blogs

Mainstream media money stories

  • How much is a Princess worth? – Slate
  • Bubbles and busts – Buttonwood/The Economist
  • The foolishness of crowds  [a few weeks old] The Economist
  • Get rid of ISAs, opines an irrelevant think tank – Motley Fool
  • Hong Kong sees weak debut for first offshore Yuan IPO – BBC
  • Indian bank termites eat piles of cash – BBC
  • GDP: Slow but not stagnant – Flanders/BBC
  • Home insurance costs soar after that rotten winter – FT
  • US funds have beaten UK funds, thanks to lower fees – FT
  • London homeowners can get a lot more for their money by moving – FT
  • Buying the case for UK small cap shares – FT
  • Weaker dollar gives UK tourists reason to smile – Telegraph
  • Average couple spends £16,500 to marry – Telegraph (figures abroad)
  • Investing beyond the BRICs – Independent
  • Can you feed a family of four for £50 a week? – The Guardian
  • The case for a British King and Queen – The Guardian

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{ 7 comments… add one }
  • 1 OldPro April 30, 2011, 5:09 pm

    Keats eh? I had you down for a Byron man…

    So how many millions… inflation adjusted… are you shooting for?

  • 2 The Investor April 30, 2011, 9:20 pm

    @OldPro – Ha, as you may remember, my ultimate target is independent and fairly inflation-ready income from capital, rather than a target capital figure per se.

    If I was buying tomorrow, then I think about £1m would do it, presuming I could get a 3-3.5% overall yield, largely free of extra taxes. But sadly I won’t be buying tomorrow and touch wood I need to plan on it lasting 4-5+ decades.

    I can’t see me ever getting properly rich (certainly not £5m+) unless it was a by-product of something else like a business or some fluke novel writing or similar. I’m not motivated enough by money, bizarrely enough for a money blogger. I’ve lots of other things I should and would be doing as well as managing my money, and after £1m (in 2011 terms) I suspect a change would be in order.

  • 3 Andy Cheung May 1, 2011, 2:56 am

    “In my earliest days of investing (and even in writing with this blog) I toed the sensible line of putting away a bit of your earnings every month, investing it entirely passively, and waiting for the pay off 30 years down the line.”

    This is exactly how things have worked out for me as well. Thanks for the recommendation of “Free Capital”; I may not have heard about it otherwise. I’ve really enjoyed reading Anthony Bolton’s Investing Against The Tide, the couple of books by Peter Lynch, as well as classics from Philip Fisher and Ben Graham. I would be interested to know if you have any other books you would recommend

  • 4 Bret @ Hope to Prosper May 1, 2011, 3:06 am

    I invested exclusively in mutuals funds for many years. Then, I got the bug to trade stocks. I moved a portion of my savings into a brokerage account and have been learning ever since. I must admit the mutual fund managers are better than me at picking stocks, but I am getting a lot better. And, I enjoy a more active role in managing my money.

    I currently have about 40% of my portfolio in stocks and 60% in mutual funds.

  • 5 Andy May 1, 2011, 9:13 pm

    Looks like an interesting read. I’ve had this on my Amazon wish list for a while, it’s nice to have the reminder that it is now out. I hope it’s better than The Warren Buffets Next Door.

    Somewhat worryingly, or perhaps reassuringly, the listed personality traits seem like a perfect fit for me.

  • 6 Deb May 4, 2011, 12:05 pm

    Thanks for pointing this one out – off to spend some of my hard-earned investment returns now!

    With only a couple of years under my belt, I am still trying to settle to an investment style. Reading your blog keeps tempting me back to passive investing, but it seems “nature will out” and the trader in my soul wants some excitement.

    Hopefully another 10 years and I might be the first women profiled by Guy Thomas.

  • 7 The Investor May 4, 2011, 12:18 pm

    @Deb – Good luck! Guy did interview a woman but she didn’t make the final cut.

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