Common Sense

I liked the recent blog post from The Escape Artist that should, in my opinion, be printed in every Money section of the weekend newspapers in the country. Or better still, the mainstream papers like the Daily Mail or The Mirror but I know that’s way too much to hope for. Finance? Who’s interested, versus who’s dress showed the most cleavage at the Oscars, or whatever they were going on about on Monday?

I’m one of these strange people who read the Money section of The Sunday Times straight after I’ve covered off the columnists in the main section. The finance paper has some good columnists too – Hunter Davies and Ian Cowie, for example – but they couldn’t write as straightforwardly as TEA in order to get their point across. Hunter Davies hates all fund managers and finance companies after a disastrous experience with the Equitable Life and his personal pension. He comes from a generation where frugality was the norm and, despite being quite possibly a multi-millionaire, still rummages in neighbourhood skips to see if someone has thrown out anything of value that he could use. A man after my own heart. Ian Cowie often alludes to the attraction of passive investing, but is a bit of an “Active” dabbler himself (or seems to be, maybe it just gives him something to write about!) Meanwhile the rest of the paper buries any worthwhile information under reams of other material that suggests maybe your savings would flourish under this fund or that fund, or in property – but I never read the Home section of the Sunday Times, clearly unlike many of their readers given property is given a whole weekend supplement to itself.

I accept that this agenda is probably driven by the advertisers – i.e. the big financial institutions – and I wonder how many articles’ recommendations are basically driven by a bung? Or to court favour with some fund manager who might lead them to a better story somewhere down the line if they turn out to be the next Neil Woodford.  Or Anthony Bolton (remember him?)  The financial industry and the financial press seem to have this need to find “investing heroes”, the David Beckhams of the Stock Exchange. I kind of understand the marketing psychology behind it, but it’s pretty ephemeral as the Anthony Bolton story demonstrates. Except for Warren Buffett, of course. There is a cynical view is that he is merely the fund managing monkey that typed the works of Shakespeare, or that maybe he’s just the financial equivalent of Highlander –  there has to be The One, doesn’t there, and he’s it. But Buffett himself tells you not to do what he does, but do what he says, and what he says is that you should invest in tracking funds, not stock pickers. I’m happy to follow this sage advice.

Extreme Brain Love

Extreme Brain Love

(Saying that, however, if Merryn Somerset Webb recommended I sink a few grand into the Ecuadorian Peanut Futures Market ETF, I’d be setting up the Direct Debit tomorrow as I am, I’ll admit, madly in love with her and her brain.)

No matter how the Money supplements try, however, the Passive Investing movement is building. I hope that the eventual outcome of this will be that good fund managers will eventually charge the same fees as a tracker funds, although I’m not holding my breath. There would still be plenty of cash in the racket if they did, and I have to admit that I would be tempted to give some of my savings to someone dedicated to trying to pick winning companies and gain an investment edge. After all, we trust professionals in other areas of life and knowledge and experience are surely worth something – it’s just that in the City, they’re not worth what they’re asking. TEA’s example of how to turn a £1m investment into £450k by simply giving it to some Champagne Charlie to manage for a 2% fee should be common knowledge to every schoolkid who can sit an arithmetic O level (if they even have these any more at school.)

It’s supposed to be that common sense is not so common and, to me, tracker funds struck me as complete common sense the very first time I read about them. I think that many people would think likewise, if only they could get past the “mystique” of investments and equities. Fund managers and IFA’s need to keep that aura of complexity alive as their fees depend on it, as do the firms that they represent. Independent financial bloggers – and Warren Buffett – can rise above such concerns, so let’s keep doing our best to get the message out there.

5 thoughts on “Common Sense

  1. When I learned about passive investing and index funds (probably from MMM at the time), I felt enlightened. The concept is so simple and so crystal clear that everything else I thought I knew about finance just became obvious BS. My two regrets:
    1) I wish I had learned about it 15 years before I did
    2) I now sound like a cultist every time I talk about finance to friends and family, to the point that it has an adverse effect on them. In many aspects, passive investing works so well it triggers the “too good to be true” switch in some people’s brains

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  2. My top-tip would be for you to stop reading the sunday times immediately, its designed with the sole aim of making londoners feel miserable about their sorry lives on the day they don’t have to work 13 hours. Save the money spent on the sorry-rag and spend it on some coffee.

    As for:
    “After all, we trust professionals in other areas of life and knowledge and experience are surely worth something”

    No – wrong, really, really wrong. You’ve not grasped the root of the issue. We don’t trust professionals in areas where they have to make predictions about the future under complex conditions. We trust professionals where they have to apply tax rules, fix a car, mend some electrics/plumbing, write up a legal document etc. etc.
    To conflate the two is asking for trouble..

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  3. Is there a passive/index fund that somehow excludes investments in companies trading arms or tobacco? I would like to invest in this way but wish to have an ethical dimension. Any suggestions?

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    • Vanguard do a couple of ‘socially responsible’ investment funds which may be worth checking out . I think ishares may also do similar.

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