In this book, Tim Price starts by explaining the problems the investing world faces. The backdrop of these problems is diverse:
- Banks failed in their traditional role of prudently accepting deposits and extending loans; we should let banks fail.
- Central banks are compounding financial crises by implementing flawed monetary policies: QE, ZIRP, NIRP, etc.
- Economists and financial theorists provide no useful scientific advice.
- Fund managers are by and large asset gatherers and marketing machines.
- The financial media exists to monetise airtime and column inches.
- Bonds are uninvestible and you need an edge to do well with stocks.
Throughout the book, the author challenges a number of misconceptions and replaces them by more relevant alternatives.
|Keynes’ metaphor of the economy as a machine||The Austrian School sees entrepreneurial trial and error as essential; economic planning is virtually impossible|
|Risk = volatility||Risk = permanent loss of capital|
|Markowitz’ Portfolio Selection||Mandelbrot: markets are riskier, misleading and follow a power law|
|Asset gatherers, who aim to maximise assets by keeping funds open and constantly experimenting with new funds, represent smart money||Look for boutique asset managers who limit their AuM to protect performance, invest their own money, and are owner managed|
|Financial media provide new, up-to-date, useful narrative in real time to explain the prevailing situation||Jason Zweig: “My role is to write the exact same thing between 50 and 100 times a year in such a way that neither my editors nor my readers will ever think that I am repeating myself.”|
In the second part of the book, Tim Price offers 3 solutions for private investors: value investing, trend-following strategies, and gold.
1. Value investing. The author builds on classic Graham metrics that work, as analysed by O’Shaughnessy. A look at the VT Price Value Portfolio shows that Price currently sees value in Japan and Vietnam (together they account for over 50% of the fund). A large part of the Japanese investments are done through Samarang Capital. Holdings like Fairfax (Prem Watsa) and Loews (Tisch family) are also well represented.
2. Trend-following strategies. Tim Price is fond of systematic trend-following, as it offers both performance (see page 182 for examples of successful firms) and de-correlation. The strategy has not performed well recently but the author remains confident in its merits. For more info, see here.
3. Gold. Given his criticism of monetary policies, it is not surprising that Tim Price likes gold and doesn’t view it as a “barbarous relic”. According to Price, “Gold is an insurance policy against both monetary and fiscal recklessness”.
In summary, the book gives a good overview of what’s wrong with the current state of investing, and offers 3 interesting solutions. As a lot of criticism is directed towards recent policies, I wonder how the views of the author are evolving in the era of Trumponomics.