Max Hastings took a DIY investment masterclass courtesy of Prospect. What happened next?
I went straight home from meeting John Kay (Prospect, February 2011) and followed his advice by opening a NatWest online trading account. A kind friend who is both a keen and successful private investor gave me a list of his own holdings, which I set about mimicking. I soon discovered that I could not deal in many of the foreign shares and funds he holds via the internet. I was therefore obliged to use my bank’s broker to purchase them, and restrict my own dealings to British FTSE shares unless I went through a lot of bureaucratic processes that I knew would defeat me.
I have since discussed my progress with some savvy investing friends. They said: “Max, you’re mad. You don’t just go out and buy shares and forget about them. You have to manage your portfolio, which means watching the markets and moving investments regularly.” I said: “But I don’t want to do that. I don’t have the time, and I’d die of boredom. I thought I was doing the sensible thing by investing in some good, safe companies and then forgetting about the shares for a year or two.” This prompted hysterical laughter from my friends.
What it amounts to, I fear, is that John Kay’s immensely sensible methods work only for those who are inherently interested in investment, as I am not, and who are willing to spend a few hours a week at it. I am so incompetent at handling the online mechanics that each share purchase has taken me an hour or two, allowing for mis-keys and confusions about whether a log-on password or dealing password is required, which, like some nightmare game of snakes and ladders, oblige one repeatedly to return to the start. I have to call the helpline at least twice during each transaction.
I shall persist for a while with the online trading account. But, in my heart, I know that innumerates like me are doomed to remain prisoners of the banks and financial advisers, who will continue systemically to skin us alive.
John Kay replies
It was all too predictable that Max would barely get home before he was got at by his friends in the investment business. They would tell him that successful portfolio management requires extensive knowledge and constant attention. After all, if people didn’t believe that, portfolio managers would be out of a job. But they didn’t tell him of the evidence that, on average, active portfolio management underperforms a passive, index-tracking strategy by roughly the costs of trading and the fees of the portfolio manager.
What you learn by monitoring your portfolio every day and constantly listening to market gossip isn’t, in the main, worth knowing. The best advice remains—buy a simple, diversified portfolio and switch off your computer.
Also in this month’s investment special:
Gavyn Davies, former chief economist at Goldman Sachs, assesses the prospects for global economic recovery.
Adam Posen, external member of the MPC, Andrew Balls, Pimco; Guan Jiazhong of Dagong Global Credit Rating, and Henry Kaufman of Kaufman & co set out the regional risks to growth.
DeAnne Julius, former MPC member; Jon Moulton, chairman of Better Capital; Diane Coyle, head of Enlightenment Economics and several other leading business figures reveal which investments they would buy—and which they would steer clear of.
I went straight home from meeting John Kay (Prospect, February 2011) and followed his advice by opening a NatWest online trading account. A kind friend who is both a keen and successful private investor gave me a list of his own holdings, which I set about mimicking. I soon discovered that I could not deal in many of the foreign shares and funds he holds via the internet. I was therefore obliged to use my bank’s broker to purchase them, and restrict my own dealings to British FTSE shares unless I went through a lot of bureaucratic processes that I knew would defeat me.
I have since discussed my progress with some savvy investing friends. They said: “Max, you’re mad. You don’t just go out and buy shares and forget about them. You have to manage your portfolio, which means watching the markets and moving investments regularly.” I said: “But I don’t want to do that. I don’t have the time, and I’d die of boredom. I thought I was doing the sensible thing by investing in some good, safe companies and then forgetting about the shares for a year or two.” This prompted hysterical laughter from my friends.
What it amounts to, I fear, is that John Kay’s immensely sensible methods work only for those who are inherently interested in investment, as I am not, and who are willing to spend a few hours a week at it. I am so incompetent at handling the online mechanics that each share purchase has taken me an hour or two, allowing for mis-keys and confusions about whether a log-on password or dealing password is required, which, like some nightmare game of snakes and ladders, oblige one repeatedly to return to the start. I have to call the helpline at least twice during each transaction.
I shall persist for a while with the online trading account. But, in my heart, I know that innumerates like me are doomed to remain prisoners of the banks and financial advisers, who will continue systemically to skin us alive.
John Kay replies
It was all too predictable that Max would barely get home before he was got at by his friends in the investment business. They would tell him that successful portfolio management requires extensive knowledge and constant attention. After all, if people didn’t believe that, portfolio managers would be out of a job. But they didn’t tell him of the evidence that, on average, active portfolio management underperforms a passive, index-tracking strategy by roughly the costs of trading and the fees of the portfolio manager.
What you learn by monitoring your portfolio every day and constantly listening to market gossip isn’t, in the main, worth knowing. The best advice remains—buy a simple, diversified portfolio and switch off your computer.
Also in this month’s investment special:
Gavyn Davies, former chief economist at Goldman Sachs, assesses the prospects for global economic recovery.
Adam Posen, external member of the MPC, Andrew Balls, Pimco; Guan Jiazhong of Dagong Global Credit Rating, and Henry Kaufman of Kaufman & co set out the regional risks to growth.
DeAnne Julius, former MPC member; Jon Moulton, chairman of Better Capital; Diane Coyle, head of Enlightenment Economics and several other leading business figures reveal which investments they would buy—and which they would steer clear of.
