Oldfield - Simple But Not Easy

And what do you do?

Im an investment manager.

How nice. Pause. Slight embarrassment. Im afraid I dont know anything about investment.

The subject is a sure social conversation-stopper. The business of investment, said John Maynard Keynes, is intolerably boring for anyone exempt from an instinct for gambling. For many it is a no-go area.

A friend who looks after the money of one of the wealthiest British families told me that when members of that family come of age, and so into some money of their own, he has a chat with them. He tells them that they can either become actively involved in how their money is managed; or they can leave it to him and his colleagues in the family investment office. If they choose the latter, congratulations, he tells them, you are normal.

Another person in the business has told me I have always thought that investing is something to do, rather than to talk about.

Investment involves the fluctuating ownership from a sedentary position of what were once pieces of paper and have now been virtualised so that they are no more than entries in some faceless computer records. It is an activity which can seem unreal.

Consequently it is rather less normal to be interested in investment than in a dozen other potential enthusiasms. But most investment managers do what they do because they find it strangely captivating.

People outside the profession think it complicated. Generally speaking, it is not. One of the reasons that investment is, for the amateur, a rather obscure activity is that, like anything specialised, it is full of jargon, much of it devised to put off the amateur, and to reassure professionals that what they are doing is scientific. But the rudiments of investing in equities and bonds can be expressed in fairly ordinary English, and picked up by anybody.

On the other hand, though not complicated, investment is difficult. People on the outside tend to think that anyone on the inside should be able to do better than the market indices purely by virtue of being a professional. Sadly not. Professional managers find it hard to beat the market over the long-term. Fewer than half the professional investment managers outperform the market itself. All of them can be quite sure that they will not outperform the market in every year.

The fact that investment managers in aggregate are not producing anything useful does not mean that all investment managers are useless. How to decide who is likely to do a useful, outperforming, job is a fascinating challenge. To succeed in it the investor must first understand the paradox that investment is simple but not easy.

I should explain what this book is, and what it is not. It is not a stage 1 primer. I have not provided a glossary of terms. If the reader wants to find out what an equity is or, more sophisticated, the definition of a Sharpe ratio, there are other places to look. It is not an academic book, and to avoid giving that sort of impression I have eschewed footnotes. Nor is it a detailed exposition of investment analysis. There is no discussion of how to look at a balance sheet or cash flow statement.

What it is meant to be is something in the middle: a commonsensical approach to investing, stripped of mystery and as far as possible of jargon. The aim is to make the subject of investment accessible to the many people who find it potentially interesting but baffling.