Guy Thomas talks to tradingdiary about his new book Free Capital: How 12 private investors made millions in the stock market.
Who are you?
I am an actuary and investor. I qualified with a firm of consulting actuaries and then spent some years as a university lecturer. I left that job in 1999 in my mid-30s to concentrate full-time on investment, also continuing with some academic research.
What is your new book about?
The book profiles 12 private investors. Each of them has accumulated £1m or more ? in most cases considerably more ? mainly from stock market investment. Six are ?ISA millionaires? who have £1m or more in an ISA ? a result which is arithmetically impossible without exceptional investment returns. The profiles cover the 12 investors? backgrounds, how they made their fortunes, and how they spend their days now.
Why did you choose to write this book?
As a full-time investor myself, I have long been curious about other investors? methods, literally what they do all day. How much of their time do they spend reading company reports as opposed to talking to company managers or analysing share price data? For many years I hoped that somebody else would write a book like this. Nobody did, so eventually I decided to write it myself.
How did you decide who to interview?
I posted descriptions of the project on investment bulletin boards; I asked stockbrokers, CFD providers and spread bet firms for introductions to their most successful clients; I asked friends and friends of friends. I wanted to include a variety of personality and career backgrounds and investment styles. In general terms, around one-third of the interviewees are ex-City professionals; one-third are other degree-educated professionals; and one-third left school at or before age 18. Most gave up all employed work in their 30s or 40s to be full-time investors.
Are there any common qualities that the successful investors you spoke to share?
The final chapter identifies some common qualities. One is the attitude that money is a source of quiet freedom, rather than ostentatious spending power. They aren?t high spenders: they tend to live very modest lifestyles relative to their accumulated wealth.
Another common factor that they all work alone, with a very strong psychological self-reliance: they prefer to figure things out for themselves rather than seeking advice.
Another commonality is that they seem to enjoy the process of investing, rather than just the proceeds. Several spoke of investment as a game, more like playing poker or chess than working.
Is there anything that surprised you during your interviews?
The variety of approaches which appear to work. In my own investing, I?m a fundamentalist focused exclusively on smallcap equities. I spend a lot of time reading accounts and researching the competitive position of the underlying businesses represented by the shares in which I invest. My time horizon is months or years. But there is at least one person in the book who never looks at a set of accounts, and generally has little idea what a company actually does. His time horizon is minutes to hours, trading mainly on short-term newsflow and price charts. So writing the book opened my eyes to the possibility that for some people, some very different approaches to my own seem to work.
Have you changed your strategy as a result of meeting and interviewing these 12 investors?
In Chapter 9 on Owen, the activist investor in closed-end funds, I wrote that his was the approach I most wished I could emulate. I particularly envy his time efficiency. So yes, I have tried to increase my own focus on closed-end funds. But Owen has more than 20 years experience of this type of investing, and his depth of knowledge is not easy to replicate.
Why are you donating the author royalties from this book to charity?
I didn?t write the book to raise money for charity, I wrote it for fun. But any author of investment books is susceptible to a critique along the lines of those who can, do; those who can?t, teach. Or something like: those who can, make millions in the market; those who can?t, make a few pennies writing books about it. Donating all royalties to the United Nations Stop Tuberculosis Partnership is potentially a way of deflecting this critique. I chose this cause and organisation with help from the charity evaluators Givewell, whose research I strongly recommend.
Are there any finance or investment related books you recommend?
I have always found books of interviews with professional investors are enjoyable and inspiring, albeit somewhat remote from my own activities as a private investor. I enjoyed Jack Schwager?s Market Wizards books and John Train?s Money Masters books; and for an insight into UK professional investors, Jonathan Davis?s Money Makers.
I read many investment books, both academic and professional. But I think anyone looking for a definitive book on investing will be disappointed. Investing is much more a practical craft than a formal discipline. Almost all the people in Free Capital have learnt mainly through their own experience and reading bulletin boards, rather than from textbooks.