Books: You too can get rich slowly and steadily

The author's investment gods may fit awkwardly into his template, but it's a helpful one, reports Alastair Ross Goobey.

by Alastair Ross Goobey, chairs Hermes Focus Asset Management
Last Updated: 31 Aug 2010

Mark Tier is an Australian living in Hong Kong. His career has included periods as a gold newsletter writer and a journalist. He has also taken courses in psychology. In this book he lists 23 attributes of two great investors, Warren Buffett and George Soros. This is not so much a 'how to get rich quick' as a 'how to get rich slowly and steadily' book.

Tier's 23 attributes include many that seem screamingly obvious, such as 'Learn from your mistakes' (no. 15). On the other hand, there are habits that are not as widely accepted: 'Diversification is for the birds' (no. 5), for instance.

He then tries to match the working methods of the two investors with these badges of good investment. Since the ways in which Buffett and Soros invest are so different, there are some areas where this simply does not work. Habit no. 18 is 'Know how to delegate'. Buffett has found this relatively easy, delegating the operation of his businesses to people he trusts, leaving him free to allocate Berkshire Hathaway's capital. For Soros, it has been much more difficult - he sees his skill as being the person with the critical macroeconomic insights that drive his funds.

Buffett believes 'investment is fun', which falls in with precept no. 20: 'It's not about the money'. Soros is quoted as saying: 'If you're having fun, you're probably not making any money.' What started as a good idea for a book has had to stretch a point to make the claim that the two men follow the same fundamental rules.

Nevertheless, the rules themselves offer sensible advice. Principal among these are Winning Habits nos. 1 and 2: 'Preservation of capital is the No. 1 priority' and 'Passionately avoid risk'. It has always struck me that few investors understand these. We are in a period where absolute returns have become a priority, following 20 years of a bull market where relative returns were the only measure.

Although preservation of capital and avoidance of risk can be achieved by holding cash, this would not give the returns achieved by Buffett or Soros. Tier is pointing out that the best investors find opportunities where the risk/reward ratio is clearly tilted in the investor's favour.

I have always believed that if the downside is protected or limited, the upside will take care of itself. We should look for 'high probability events'. These don't occur often, so it's right to hold cash sometimes and not feel you have to make an investment decision every day, or even every week (Habit no. 10, 'Have infinite patience').

The 23 Winning Habits make sense overall, but underlying the book is a rather sad obsession. One of the habits is 'Focus on after-tax return' (no. 6). Tier lives in Hong Kong principally because it is a low-tax domicile. The tail obviously wags the dog in this man's life. I would decide first where I want to live, and try to tailor my investment policy to the tax environment in which I settled, rather than the other way round.

Many of the people I know who chose tax exile do not have great depth, and so may not miss the joys of living in a world-class city with its enriching environment. That enrichment is surely as valuable as clocking up another million or two in the bank.

As to living and breathing investment 24 hours a day (no. 22), most professional investors will have some sympathy with this; we know that investment thoughts come at all times and in all places. However, the story of Buffett excusing himself from watching his friends' slides of a trip to Egypt so that he could read another annual report suggests that there are limits to this in simple politeness.

The 23 Winning Habits will certainly help the average investor. Developing a coherent and consistent approach to investment, from which you are not diverted by the current fad, will provide better long-term returns. I only regret that there is no mention of the only piece of investment advice that I ever give in speeches: buy low, sell high, not the other way round.

The greatest losses that private investors make are those where, fearful of having missed the most recent investment boat, they finally jump on just as it hits an iceberg. Conversely, many investors capitulate at the bottom of bear markets. Who was an active bear in March 2000, or a bull of any sort in March 2003? Modesty forbids.

The Winning Investment Habits of Warren Buffett and George Soros Mark Tier Kogan Page £14.99 To order, visit www.mtmagazine.co.uk

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