Free Capital: the critics’ verdict

Investors Chronicle by Alistair Blair. Extracts: “…a compelling read…” “You could learn a lot from this dazzling dozen…” “…definitely the best investment book that has crossed my desk for some time.” Full text of review here. Stockopedia Extracts: “At last,a true to life account of UK investing…” “…highly recommended reading…” Full text of review here. Andrew Howe (longer version of … Read more

Not taking advice

From the concluding chapter of Free Capital:  “A consensus of expert opinion is often not useful in finance, because of its self-negating property: if something is widely anticipated, it is already in the price. But the investors’ antipathy towards the concept of taking advice sometimes seemed to go beyond recognition of this point. John expressed the … Read more

Meeting management

The investors in Free Capital have divergent views on the value of meeting company management.  Bill (Chapter 3) : “I never visit companies, hardly ever go to an AGM, and speak to hardly anyone.” Sushil (Chapter 5) : “…the relevant question for me is whether, say, six hours spent on a meeting with one company I already own …is more … Read more

How important is analytical intelligence in investing?

Above a certain level, not very important.  IQ is a hygiene factor, not a discriminating factor: it helps to be reasonably smart, but above a certain threshold, further increments help less than in some other fields. The two PhD’s in the book specifically commented on this…  Sushil, Chapter 5: “…for anyone in the top few … Read more

Max, min and average payoffs

From Vernon, Chapter 7: “He drew a distinction between activities with ‘positive scoring’, where success is defined by gaining wins, and activities with ’negative scoring’, where success is defined by avoiding faults. Positively scored activities include selling, leadership, and most sports. In these activities bravery, ‘having a go’ and risk-taking give a better chance of … Read more

Optimal leverage and compound growth

Chapter 5, Sushil, talks about optimal leverage and compound growth.  The main takeaway is that investors are better off maximising expected logarithmic return (not expected return), and this often means lower leverage than you think. In my view expected return (the mean) is often a poor objective, because the distribution of terminal wealth from any long period … Read more

Concentrated investors often come a cropper

This is another angle on the “how many shares” question. Over the years I have observed many successful private and professional investors.  There have been a very few – including some, but not all, of the investors in Free Capital – about whom I’ve thought “If I ever get bored of investing, I’d be happy for them to … Read more

How many shares should an investor hold (2)?

My last post discussed how many shares one should hold in a relatively abstract way. Another angle is to ask how many shares it is practical to follow. There is clearly some sort of trade-off between number of shares held and your quality of knowledge.  Many experienced private investors are surprised (and often derisory) about the … Read more

How many shares should an investor hold?

Most of the investors in Free Capital  hold concentrated portfolios, sometimes of fewer than ten shares (Luke, Owen and Taylor). Others such as Eric, John Lee, Peter Gyllenhammar and Sushil hold up to 60 shares.  Who is right? How many is too many? Many experienced investors advocate a small number of holdings. I used to think … Read more

Diamonds and flower bulbs

Diamonds These are the shares orthodoxy says you should buy: shares in businesses with exceptional economics and long-term comparative advantage.  They are shares you would buy if you followed the Buffett doctrine: choose shares you would be happy to hold if the stock market closed tomorrow for five years.   Flower bulbs These are shares which are cheap … Read more