• The Global-Investor Book of Investing Rules

• Invaluable advice from 150 master investors

• by Philip Jenks and Stephen Eckett

Reviews

Reviews

• In the past I wrote a column devoted to investment rules. Now those ingenious fellows Philip Jenks and Stephen Eckett have produced a whole book of them. It's called The Global-Investor Book of Investing Rules and will almost certainly prove to be the most useful financial book published all year. The format is straightforward. One hundred and fifty financial experts have each written a short chapter covering their favourite investment rules. Inevitably lots of the contributors are American, and they specialise in a range of themes: from particular industrial sectors, like chemicals or luxury goods, to bonds, currencies, international markets, technical analysis, silver and even the influence of weather! The quality of the sections varies, but the typical standard is high. This is not a work designed to be read through, but should be used as a reference work, to be dipped into when appropriate. At £24.99 for around 500 pages, it offers terrific value when compared with the extortionate cost of much investment advice offered by so-called financial professionals. Each section gives a brief biography of the contributor and supplies a website address where possible. New rules are apparently going to be added on a regular basis to global-investor.com, the publisher's website. I've selected my favourite 20 rules from the hundreds supplied. These are not necessarily the most important or valid principles. I chose them because I found them original or funny or inspiring. If you feel some of the rules need further explanation, I'm afraid you'll have to get the book to read the full meaning. The author of the rule is named in brackets at the end of each of my choices. It is easy to get a high value for a company - just underestimate the capital investments it will need to make. (Nick Anstill) "A thing may look specious in theory, and yet be ruinous in practice; a thing may look evil in theory, and yet in practice be excellent." (Ian Burns quoting Edmund Burke) Always treat any stockbroker who is remunerated with commission as a compulsive liar. (Simon Cawkwell/Evil Knievil) "Be diffident when others exalt, and with a secret joy buy when others think it is in their interests to sell." (Edward Chancellor quoting Sir Richard Steele) Recently privatised businesses acquire disastrously. (Nigel Davies) "Whatever is true, whatever is noble, whatever is right, whatever is pure, whatever is lovely, whatever is admirable - if anything is excellent or praiseworthy - dwell on such things." (Foster Friess quoting Philippians 4:8) Historically, equity investors have over-paid for comfort and excitement. (Jeremy Grantham) Take note if a company picks a public fight with shortsellers and/or refuses to return calls to reporters. (Herb Greenberg) It is a myth that profits are higher in fast-growing industries. (John Kay) Avoid company visits, since they are usually successful promotions. (Dean LeBaron) If the share price divided by the annual research and development spend per share is five or less then buy the shares of a technology company. (Conor McCarthy) The children (or designated heirs) of a great CEO are about as likely to excel as replacement CEOs as are any of Beethoven's children to write great symphonies. (Robert A G Monks) Buy columnists for long term advice. (Robert Preston) You can lose as much money on a 10p share as a 500p share. (George Putnam III) The new issue market is never in equilibrium. It's either too hot or too cold. Buy in the cold periods. (Jay Ritter) Fifty million Frenchmen can't be wrong, but a consensus of economists can. (John Rothschild) If the results of a company seem too good to be true, do you believe them? You shouldn't. (Alan Sugden) "Buy straw hats in the winter. Summer will surely come." (Andrew Tobias quoting Bernard Baruch) If you cannot understand it, don't buy it. (Timothy V Pick) Those who win on every trade are losers or liars. (William T Ziemba) Of course lots of the rules contradict each other, and plenty of rules are repeated. You are certain to disagree with many of them, but the book will certainly make you think and will probably help you save money - and it might even help you make money!
  A G W Haydon
• The Book of Investing Rules is a fascinating summary of the tactics, strategies and insights relied on by 150 well-known investors, fund managers, analysts and financial commentators. Each contributor provides focused and practical rules on a particular theme within their area of expertise - e.g. share valuation, biotech stocks, the technology sector, turnarounds, surviving bear markets, spotting acquisition targets, investing in growth stocks, common mistakes, and so on. More than simply a list of what to do, the reasoning behind the rules is carefully explained in a way that both novice and experienced investors will appreciate. Edited by two well-known financial journalists, Philip Jenks and Stephen Eckett, the format of the book works particularly well. Each contribution is self-contained and provides a concise and digestible read. Other publications by the contributors are listed together with web site addresses, making it a helpful reference source for readers who want to learn more about particular methods and approaches. Memorable quotations from the contributors are interspersed throughout the text to highlight key points, often wittily observed. This book is impressive not only for the depth and range of knowledge of the contributors, but also for the thoughtfulness and sincerity with which each delivers his or her advice. It makes and even better read for having been compiled during the throes of a bear market - there is a sense that the recent downturn has encouraged the contributors to think even harder about the essential features of their respective investment methods and styles. What results is advice from some of the best financial minds that has a piquancy and depth greater than might have been the case had the book been written at the height of a bull market when the incentive to be reflective about methodology is less pressing. The book is all the better for the mix of contributors from both sides of the Atlantic. Not just for the variety of ideas but also for the contrast in styles. Only a few female contributors though - interesting in the light of recent research in behavioural finance which seems to show that women have an edge over men as investors. There is actually so much in The Book of Investing Rules that it is like a condensed library of the best financial publications. While many 'how to invest' books are a good one-off read this one goes a lot further: serious investors will mark and linger over key passages; re-read important sections many times over; and reference favourite contributions as a touchstone for developing and refining their own investment approaches. A real treasure chest of insights and ideas that we think readers of Techinvest will find both enjoyable and useful. Declaration of interest: the editor of Techinvest is one of the 150 contributors to the book. Techinvest is a monthly investment newsletter which, since 1984, has been telling subscribers - including institutions, analysts and private investors in more than 50 countries - what to buy, hold and sell in the technology sector. Its editor is Conor McCarthy.
  J Partington
• I have been reading a book containing several wise comments and many others which are merely thought-provoking. I wish I could reliably tell which were which. However, here are two which I believe I have categorised correctly. "When the rest of the world is mad, we must imitate them in some measure." A thought-provoker, this one. It was uttered by a certain John Martin - one of several people (Isaac Newton, as in gravity, was another) who lost a bundle on the South Sea Bubble. It provoked recollections of my own thought process, as recorded in this column towards the end of last year's bubble, which I would summarise less poetically as: "Fools are getting rich - I cannot resist following them any longer." Fortunately, I only got in up to my knees. "Markets can remain irrational longer than you can remain solvent." This one, from J M Keynes, is about the same syndrome, but is wise. I think you could restate it, after Martin, as: "When the rest of the world is mad, we must neither imitate them nor in any measure wager on when they will regain their sanity." I wonder whether Keynes crafted this snippet before or after his near disastrous investment of King's College's endowments in a bet against the market trend in wheat futures (I believe the bet came good in the end). Investing Rules is compiled by Philip Jenks and Stephen Eckett of the Global Investor bookshop, to which this column often directs you. They must have asked every author on their shelves - and a few others besides - to write down 10 useful rules for investors. About 150 responded. The outcome is a fascinating patchwork quilt with every strand of the subject briefly represented. Here is John Bogle, the hero of indexed investment - Rule 2: "Buy right and hold tight, no matter how high a greedy stock market flies or how low it plunges." Within the same covers is, for instance, Joe DiNapoli, author of The Fibonacci, Money Management and Trend Analysis Home Trading Course, Rule 2: "Use logical profit objectives. This concept is the most important I know of... it gets you back to your computer the next day." But the book contains a lot more than the screaming divide between day traders and buy-and-holders. There's a penetrating account of what makes the chemical sector tick by a top-rated broker from Salomon Smith Barney: Rule 1 "The chemicals sector has not rewarded a buy-and-hold strategy." Similarly, Credit Suisse First Boston's tobacco man explains what drives tobacco stocks and why earnings disappointments in this sector are all but intolerable. Professor Mehra delivers a three-page thumbnail of the equity premium debate and Joel Stern has a four-pager on economic value added, which is much sprightlier than his (nevertheless excellent) book on the subject. Half a dozen people with expertise in technology investing give their individual perspectives on the process. Sounds a bit heavy? Then turn to Henry Weingarten's contribution. For the past 12 years, he has run the Astrologer's fund, "which employs astrology as the primary analysis tool". And be disappointed. There is no buy when Venus enters Leo (well, presumably there is, but he doesn't share it with us). There are contributions I disagree with, and others that fuel my convictions, sometimes with new insights. Quite a few contributors observe that asset allocation (deciding which generalised investment markets to invest in) is far more important than stock selection. To me, this is a pig in a poke, because sector allocation is at least as difficult as stock selection. But why cannot others recognise this? Now I have the answer, in Jeremy Grantham's Rule 7: "With a 60 per cent hit rate, it takes a good manager only 1.5 years to prove he can pick stocks, because of many decisions a year, but 55 years to prove he can pick stocks versus bonds (assuming one decision every three years)." I also liked Grantham's Rule 8, which you might bear in mind next time you are admiring the recent track record of your favourite fund manager: "90 per cent of what passes for brilliance or incompetence in investing is the ebb and flow of investment styles, such as growth, value, small, foreign." There is a certain amount of repetition, especially of beginners' tips. We are told by at least 28 people to cut losses and let winners run, that we must understand risk, understand ourselves, and that we must diversify. The book is no less useful for that - the basics should not be overlooked and these rules make the book accessible to everybody. Another tip is perhaps more useful for being repeated 28 times, on this occasion with admirable pithiness by Timothy Vick: "The entire financial industry exists to sell product. If you don't understand this basic maxim, you'll be misled time after time."
  At Fenwick
• A VERY simple idea underlies this project. Invite 150 leading practitioners and commentators to provide their top 10 investment tips, publish their every word in a nice thick book and market the package as "an unmissable opportunity to acquire knowledge and skills from the best in the world". Many of the contributions (particularly from the Americans) make great reading, but the effect of so much advice is like being stuck in a lift with 150 fast-talking wise guys trying to sell you their opinions. Well, 146 wise guys - proving that the City and Wall Street remain largely male bastions. Only four female advisers make the cut. The editors advise that "this is a reference book to be dipped into, not a narrative to be read from cover to cover". That advice neatly sidesteps the book's biggest problem. Each adviser is introduced alphabetically, from Robert Aliber to William Ziemba, with the result that there is no rhyme or reason to the flow of information. The 1,500 or so tips should have been structured in line with the index at the back. This breaks the contributions down into categories such as investing style, sectors, companies and trading. That criticism aside, Investing Rules has something for everyone and contains plenty of advice that many people may wish they had read before last year's market downturn. Dru Edmonstone of Durlacher provides a neat guide to investing in AIM-quoted stocks, consultant Steven Davis has good advice on bank stocks, while short-seller Simon Cawkwell (aka Evil Knievel) contributes his tuppence worth. The sheer weight of opinion makes it inevitable that many of the contributors will end up saying roughly the same thing. There is also a certain inevitability about the conflicts of opinion. Is it better to buy and hold or be an active investor? How much weight should be given to value investing? Do you take your profits early and often or bet the house on a few big plays? All interesting questions for investors but, sadly, there are no definitive answers.
  Gregg Strydom
• Oscar Hammerstein, who wrote the lyrics for "There is Nothing Like a Dame", might have put it this way: There is nothing like a rule Nothing sounds so cool There is nothing that can fool That is anything like a rule Thus, when we came across the newly published "Global-Investor Book of Investing Rules: Invaluable Advice From 150 Master Investors", we felt great pleasure mingled with anxiety. Nothing seems more appropriate in the tempestuous early years of the millennium than a set of rules to provide a proper foundation for successful investing. Editors Philip Jenks and Stephen Eckett have provided an invaluable service in eliciting contributions from 150 "master investors" culled mainly from the tribes of money managers, academics, industry experts and writers of market letters in America and Europe. Jenks and Eckett claim that no other book has put together a roster of such high-caliber contributors, and, except for the inclusion of the co-authors of this column (who stick out like sore thumbs in the august company), we agree with their self-evaluation. The trouble with rules The problem with these rules and all similar rulebooks, however, is that it's hard to differentiate the good rules from the bad, the rules that worked at one time from those that have stopped working, the rules that are true in all situations and are basically banal tautologies from those that have some sharp focus and explanatory value. What would be ideal in a compilation such as this would be to find testable hypotheses on important non-random tendencies in the market, with the relevant historical period and specific estimates of magnitude and uncertainty attached to the conclusions. If this were combined with some attention to the ineluctable principle of ever-changing cycles, the reader would be on third base in his quest for making some extra profits. As it stands, we're afraid he's still going to be at the batter's box, but at least (after a careful and judicious reading) with a proper bat and stance. Nonetheless, one of the valuable things about the book is the wide coverage of specialized fields with recognized experts, each of whom has unloaded 10 or so rapier-sharp rules. To name but a few of the distinguished contributors: Bob Dischel, a consulting meteorologist on weather; Jeremy Grantham of Boston's Grantham, Mayo, Van Otterloo & Co. on investment management, Bill Gross of PIMCO on bonds, Steve Harmon, a top tech analyst on tech stocks; Roger Ibbotson on asset allocation, Dean LeBaron, founder of Batterymarch Financial Management, on investing habits; Viren Mehta, a pharmaceutical expert, on innovative therapeutics; Thomas A. Petrie, a top oil analyst, on energy; and Richard Thaler of the University of Chicago on investing mistakes. Despite the wisdom and wealth of the contributors, the book is marred by the non-testable nature of 90% of the rules. It is a standard tenet of science that knowledge cannot advance without a theory that leads to falsifiable predictions. Just three of the rules included numbers: - David Fried, editor and publisher of The Buyback Letter, said the average annual return of companies that buy back their shares is 8% higher than for companies that don't. - Jay Ritter, a University of Florida finance professor, said initial public offerings (IPOs) underperform the market by 4% a year during the first five years after issuance, with the underperformance starting six months after the IPO. We noted that corporate officers and directors make an extra 3 percentage points on their buys and an extra 3 percentage points on their sells. Despite the book's shortcomings, however, which unfortunately are endemic to all investment tomes, we can recommend it highly. We particularly liked the following rules, all of which are testable: - Sell short the stock of any company with a former or future senator from Tennessee on its board: Robert A.G. Monks. Monks, founder of the shareholder activist fund Lens, cites Howard Baker of Waste Management, Albert Gore Sr. of Occidental Petroleum and Fred Thompson of Stone & Webster, which filed for Chapter 11 bankruptcy protection last year. - Watch the wider world for clues that a trend reversal is due: Donald Cassidy. A senior analyst at Lipper Inc., Cassidy recommends watching cartoons, TV sitcoms and ads, which all reflect "well-established (late) trends". - Beware financial engineering: John Kay. "Over the long run, the only place shareholder value can come from is cash generated by operating businesses", says Kay, who has been described as the most important business analyst in Britain. - Challenge the consensus: Catherine Tan. At the top of a cycle, excess capital expenditure is always disguised as productivity increase, observes Tan, a money manager with Lloyd George Management in Hong Kong. "Special mention goes to Singapore's senior minister, who claimed East Asia's success was due to Confucian values." - Goldilocks demographics; not too young, not too old: Richard Cragg. The growth of the 45- to -55 age group, relative to the young and elderly, is the ideal investment backdrop, says Cragg, author of "The Demographic Investor". The best bet from now to 2020 is China, where collapsing birth rates will create a huge bulge in the proportion of 45- to 55-year-olds. Many of the untested but testable propositions in the book are variants of "The Trend Is Your Friend". If the book has a dominant rule, this would be it. Here are but a few examples, selected from 12 dozen or so: - The trend is your friend in the last hour. (Alan Farley) - The trend is your friend unless it is about to end. (Thomas DeMark) - Never short-sell stocks when they are going up. (Simon Cawkwell) - Draw trend lines. (John Murphy) - Frequently, what is low will go even lower, and what is high will continue to rise. (Marc Faber) The editors of "Investing Rules" are quite frank in saying that many of the propositions in the book are contradictory. They believe this to be a virtue that illustrates the "diversity and conflicting nature of investing". The virtue is not quite so apparent to us. However, in the spirit of the book, we are pleased to report the inclusion of one contradictory proposition to "The trend is your friend". That rule is: "See what the trend followers are doing, and do the opposite".
  I Gillies
• Earlier this year, investment bookshop Global-Investor approached 150 of the world's most respected financial experts and asked them each to provide ten 'rules' for stock market success. Global-Investor subsequently published their responses in the book "Investing Rules". Writing in The Sunday Telegraph, Luke Johnson described it as "almost certainly the most useful financial book published all year." The Motley Fool agrees. No matter what stock market strategy you favour, you're bound to find the rules that suit your investing aims.
  Jj Farr
• Zak always jokes that I see it as my mission in life to fall out with someone with whom I work (at least temporarily) at least once a week. And in that spirit, since this book is compiled by the nice chaps who run the t1ps.com bookstore, I read the Book of Investing Rules minded to slate it as an exercise in superficiality. Sadly I find myself unable to do this. It is actually quite a good read. The Concept The idea is a simple one: gather together 150 "top investment experts" and ask them to give their rules for investing success. Obviously, the 150 top experts are selected partly by the editors and partly by who is prepared to play ball. If you are expecting to see Warren Buffett in there (a man who would even make Zak's top 150 experts!) you will be disappointed, although one contributor attempts (successfully) to distil the genius of WB. However, there are a host of big names including Jim Slater, Tim Congdon (economics guru), Conor McCarthy (tech guru), Michael O'Higgins (Dow guru), Evil Knievil (Down Guru), Colin McLean (fund manager guru). There is also a contribution from myself. The different contributors have different styles. If you want pompous, long-winded American management-speak tosh (ie "We believe in Convergence") then the chap from Red Herring is the man for you. If you want someone telling you that the key to investment success is using Bulletin Boards then there is a chap who, surprisingly enough, owns a Bulletin Board company, and manages to arrive at that conclusion. In other words you will not agree with all the experts and at least one (already mentioned in this piece, no prizes for guessing who) is clearly talking utter tosh. Indeed one of the attractive features of this book is that not all the experts agree with all the other experts. However some themes re-occur consistently: for instance, everyone seems happy to go along with the conclusion that one shouldn't follow the herd! And, I should warn you, that you will find a couple of the commentators profoundly irritating and more than a couple of them rather self-important and dull. Having said that... This 500 page hardback contains pearls a plenty. The contributions are arranged alphabetically and three in is a profoundly sensible set of rules for analysing companies written by Nick Antill - a jolly nice guy who has spent 16 of the past 18 years working as one of the City's top oil sector analysts. Antill's rules are really just common sense but it is amazing how often they seemed to be overlooked in the equity research that lands on my desk: "Rule 2: It is easy to get a high value for a company - just underestimate the capital investments that it will need to make". Anyone who has ever owned shares in a company such as Colt Telecom (CTM) or a soccer club might wish to think about that one for a while... I may be biased but in my view, the pithiest and wittiest contributions come from Evil. "Rule 3: Always treat any stockbroker who is remunerated with commission as a compulsive liar". Evil does not elaborate on that point. Evil's best rule: "Rule 7: When a man says that his word is his bond...take his bond". Almost as entertaining (but not quite as brief) is Marc Faber, an American who writes and edits "The Gloom, Boom and Doom Report", a monthly publication for investors of an Evil disposition. Anyone thinking of buying a property might wish to read his "Myth 2" before leaping. Some of the humour is unintentional. A gentleman from thestreet.com explains the tell-tale signs for spotting a corporate disaster using Lernout Hauspie as an example. I spent a happy twenty minutes trying to figure out how many of his ten rules applied to another disastrous investment...thestreet.com itself. I think the answer is 6 but I would not swear on it. I am still reading this book. It sits happily next to my bed for use when it is my turn to give Olivia a night-time feed. I have to admit that I had never heard of most of the contributors before starting. Who is Frank Curzio? He's an American trader with almost 30 years market experience. With such a long grounding it is not surprising that he has a few handy hints - his comments on exploiting institutional period end window dressing are well worth reading in the run-up to the year end. William Bernstein's analysis of human behaviour is superb: anyone who bought into tech heavily will read it and weep. The Bottom Line The 150 contributors to this book probably have more than 3,000 years of market experience between them - I am one of the younger contributors. And you don't spend 3,000 years operating in the stockmarket without picking up something worth passing on. Will reading this book make you a better investor? Probably not. One of the points flagged by a couple of contributors is that we all tend to kid ourselves when we know that we are erring in investment matters. But the book should help explain where you went wrong in the past and might just help you avoid some (but clearly not all) pitfalls in the future. Above all it is one of those books that you can put down between instalments but don't want to.
  A Murray
• But for a more wide-ranging take on the investment climate it is hard to beat Investing Rules in which Philip Jenks and Stephen Eckett collate advice from 150 investment experts in what amounts to a bible for traders.
  Gregg Strydom
• Although investing is a subtle and complicated endeavor, everyone can benefit from a simple set of rules and principles. One of my favorite portfolio managers, Thomas K. Brown, chief executive of Second Curve Capital, a New York hedge fund that specializes in financial stocks, recently sent clients a little booklet called "My Ten Rules," guidelines for building "a long-term successful track record". Brown was inspired by an excellent 2002 tome, "The Global-Investor Book of Investing Rules," in which Philip Jenks and Stephen Eckett compiled advice from 150 professional sages, including Marc Faber, the Hong Kong bear; Ralph Wanger, founder of Columbia Acorn fund (LACAX), one of the great small-cap funds; and Bill Gross, the bond guru.
  Gordon Leong