Investing isn’t a science so stop reading books that treat it like one, said Keith Ashworth-Lord, FE fundinfo Alpha Manager of the SDL UK Buffettology fund.
Investors would find of greater utility reading about behavioural psychology instead.
For this instalment of the investors’ bookshelf, the manager and the analysts behind Sanford DeLand’s flagship fund recommend books that have taught them something useful about investing and shaped their careers.
Ashworth-Lord has been praised by FE Investments analysts for his “disciplined approach, extensive experience, strong ties with management teams and alignment of interests with investors through significant personal investments in this fund” .
“His meticulous, patient and concentrated approach results in a uniquely active fund that has the potential to outperform the UK market,” they said.
However, SDL UK Buffettology has suffered in the short term for its preference for small and mid-sized companies and underweight to energy and commodity-related sectors.
Performance of fund over 5yrs against sector
Source: FE Analytics
The Zulu Principle
We begin with The Zulu Principle by Jim Slater, “a digestible read for amateur and professional alike” and the first “serious book on investment” read by chief analyst Eric Burns.
“The book introduced me to the durable competitive advantage and the importance of cashflow and strong balance sheets, which are concepts I use today. Slater rightly regards value plays and turnarounds with suspicion as they frequently turn out to be traps and instead focuses on quality growth companies, even if this means paying up for them,” he said.
“Slater shares our view that portfolios should be fairly concentrated affairs (our funds have around 26 holdings in each although he actually suggests no more than 12). Similarly, not making brokers rich through over-trading is common sense.”
The most pertinent piece of advice from the book in the current market?
“Not to allow a bear market to frighten you into taking patient money out of good long-term growth shares. Despite traversing the 1929 crash, depression, an oil crisis and a World War, Slater notes the rise in the stock price of Coca Cola from $40 at its 1919 IPO to the equivalent of $1.8m (with dividends reinvested) at the time of publishing the book in the early 1990s.”
The Complete Financial History of Berkshire Hathaway
Choosing another book aligned with the team’s philosophy, investment analyst David Beggs recommended The Complete Financial History of Berkshire Hathaway by Adam J. Mead, which gives a comprehensive history of Berkshire Hathaway from the origins of its predecessor companies in the 1800s right through to the modern day.
“While far from a light read, it highlights the importance of effective capital allocation and the value it can create,” Beggs said.
“It explores and analyses the key decisions made by Buffett and Munger on a year-by-year basis in remarkable detail which evolved Berkshire Hathaway from a struggling textile business to one of the largest and most respected companies in the world. It’s an invaluable reference guide for all things Berkshire.”
The Money Masters
Investment analyst Chloe Smith draws her inspiration from the books published by successful investors themselves as well as from The Money Masters by John Train. She sees it as a ‘one-stop shop’ book, which “delves into the background and strategies of nine of the famous and most successful investors of our time including Benjamin Graham, Phillip Fisher, Warren Buffett, Phillip Fisher and John Templeton”.
“It also looks at their methods for making investment decisions. And finally, of course, we cannot make a book recommendation without mentioning Invest in the Best by Keith Ashworth-Lord,” she said.
Thinking, Fast and Slow
Finally, Ashworth-Lord’s pick was Thinking, Fast and Slow by Daniel Kahneman.
“It is about behavioural psychology and not explicitly related to investment. However, it is probably of greater utility to the investor who wants to understand himself than all the formulaic books that make investing sound like a science,” he said.
“It introduces you to all the likely ‘ghosts in the machine’ of how you are ‘wired’. The cognitive biases that we all have but don’t always realise or, worse still, don’t accept. Using very appealing everyday examples of our irrationality in the face of choices, it leaves the reader realising that any serious money manager must come to terms with personal flaws that can never be exorcised.”