For one whole week this summer, the value investment team I lead at Schroders held its inaugural Reading Week – all heading to our respective homes to read books.
To be very clear, great care was taken to ensure no portfolios were left unattended and we could always be contacted.
Nor, just in case you were wondering, did we head off on holiday together – we are a close team but not that close.
My picks for reading week
Why did we do this? When you are constantly being fed news and other information about any subject, the time available for thinking deeply about a subject can become very limited.
Everybody elected to read up on very different subjects. I picked fund manager Ray Dalio’s Principles (2017) and A History of the UK Stock Market from 1945 to 2009 (2010) by George D Blakey.
My reason for choosing the latter was to gain extra perspective. I’ve managed investments for 18 years – but 65 years is better still.
History tells us much about the emotions and perceptions that drive investment decisions. As ‘value investors’, we seek to maximise returns by finding stocks that are undervalued by the market. A key part of this is identifying the emotions that leaves some stocks so unloved.
This is where I thought Blakey’s book could help.
As an investor, you lose count of the times people tell you this event is unprecedented or that episode is particularly extreme. This is a basic behavioural finance sin, the so-called ‘availability heuristic’ also known as ‘recency bias’. It is the idea that we tend to ascribe greater significance to more recent events.
Blakey’s book serves an excellent antidote. It reminds us that if you consider all that has happened in the UK since the end of the Second World War, today’s political machinations and economic swings – while undeniably feeling momentous – are in reality nothing out of the ordinary.
To pick one example, things got so bad in the mid-1970s, many people genuinely feared the UK was facing the threat of a military coup.
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Beating your biases
My motivation for reading Ray Dalio’s Principles also stemmed from a desire to ward off a behavioural finance sin – this time, confirmation bias.
When picking books to read, we are naturally drawn towards subjects we know and like and, almost by extension, to thinking that tends to chime with our world view – Dalio’s book seemed unlikely to be the case.
According to Bloomberg, Dalio is one of the world’s 100 wealthiest people, having founded hedge fund manager Bridgewater Associates in 1975.
Among other things, Dalio is know for management techniques, such as ‘radical transparency’ and ‘tough love honesty’, leading to stories of his employees rating each other with iPads in meetings with public scores, “like a reality television show”.
It sounded a little odd but I did not have a very deep knowledge of this undeniably successful investor – which is why a colleague challenged me to read his book.
I learned Dalio likes investors who can be open with each other, are unafraid to take unpopular views and are willing to analyse potential investments in great detail.
As value investors we rate these qualities highly.
I remain unpersuaded by parts of his thinking. But some of his concepts are hugely revealing and what is the point of having a reading week if it does not introduce you to new ideas, challenge your preconceptions and, ultimately, take you not just out of your offices but also your comfort zone?
- Nick Kirrage is an author on The Value Perspective, a blog about value investing. This is the art of identifying stocks that are unloved by other investors without good reason.