Tuesday, 22 September 2015

'Smarter Investing' - Review

I finally got hold of a copy of Tim Hale’s ‘Smarter Investing’ from my local library last week - it has been on my ‘to do’ list for the past couple of years!

The book was the inspiration for Retirement Investing Today to devise his starting plan for a low cost investment strategy and which appears to have served him well so far as he closes ever nearer to financial independence.

The original version was published in 2006 - this 3rd edition came out in late 2013 so is relatively up to date. Some things have changed - the arrival of Vanguard to the UK markets, the nature of financial advice following the introduction of RDR - some things remain much the same - investor behaviour, the uncertainty of markets etc.

The underlying thesis of the book remains - to construct a robust portfolio which can withstand whatever storms the markets suffer over both short and long term.

As I have been moving my investing strategy more towards index funds over the past year or so, I was interested to read how Hale made the argument for passive investing and the evidence drawn upon in support.

The case against managed funds

Fact - the market will always beat the average investor, professional or amateur. The market consists of all investors, the return of the average investor must be the return of the market before all costs. After costs, therefore the return for the average investor must be below the market.

Hale quotes a 20 yr study by Dalbar in 2011 which shows the average investor made a return of just 4% p.a over the period compared to the average market return of just under 10% p.a.

He suggests industry costs are excessive for managed funds, and that a good record of past performance of any individual fund offers little reassurance that its future performance will be good, bad or indifferent.

Looking for future winners over the next 20 yrs from over 2,000 UK funds is compared to looking for a needle in a haystack. Research by Bogle in 2007 covering a 35 yr period revealed that less than 1% of the 355 US equity mutual funds delivered consistent out-performance.

Hale suggests the issue of whether active management can beat the market depends upon 3 questions :
  • Can active managers beat the market after costs?
  • If so, do some do it consistently over time based on skill rather than luck?
  • Finally, does the average investor have a reasonable chance of identifying them in advance?
The author then proceeds to address each of these questions at some length. His conclusion - Hale is convinced the best way for investors to capture the returns is via low cost, globally diversified index funds.

Smarter Investing

For all the above reasons (and many more), the book suggests  avoiding the complications generated by media advertising, stock tip columns, fund rankings and other streams of endless ‘noise’, side step stock-picking, buy/sell signals, economists and active management, all of which are mostly irrelevant and confusing for most average investors.

The strategy is then simple, calm and relaxed - it is focussed on index funds and long-term asset mix.
"This is concerned with building and holding a sensible portfolio that provides the greatest chance of success…it’s about pursuing options that increase the chances of success, avoiding the chase for returns or trying to beat the market".

Smarter Strategies

Te book goes on to cover many of the basic pointers for a successful outcome - it covers the process of deciding on asset allocation and asset mix in some detail, also practical aspects such as compounding and the need to minimise costs, the ongoing maintenance of a portfolio and importantly a section on contending with human behaviour and emotions and how we can often be our own worst enemy.

The second part of the book looks at many aspects of controlling risk as well as the practical aspect of building a portfolio.

Whilst it is important to understand and evaluate risk in its many forms, it is probably easier than managing a diy portfolio over many years as the markets gyrate and any initial enthusiasm is challenged. This is why I would place more emphasis on the early chapters, particularly understanding human behaviour and ways to minimise making poor investing decisions

Simpler Decisions for a better result

This is the sub title of the book and a message repeated throughout is to keep things simple. Don’t try to select the handful of funds that may succeed from the thousands on offer. Don’t invest in things you do not understand. Review your portfolio just once per year. Don’t get sidetracked by media hype. Don’t put all your eggs in one basket and don’t worry about the things outside of your control.
“Smarter Investors realise that investing is not about trying to be an economist, or knowing how to read a company balance sheet, or having the ability  to pick and choose when to be in and out of the markets, or what stocks to buy and sell. What they do know is that their mix of assets has a good chance of delivering them a successful outcome and will not lose them too much if things don’t go as planned.”

For the newcomer to investing, this book is a great resource - if I were to be critical, possibly a little too long for my liking and a little repetitive in parts but that would be nit picking. Also, the cost at £19.99 is possibly a little prohibitive for some so if, like me, you can get hold of a copy at the local library, so much the better.

That said, I enjoyed the book very much and even as a seasoned investor for many years, I have taken away many points to learn from and hopefully improve my own investing process.

The essence of the book are simple and probably common sense - invest in things you understand, use simple low cost funds, globally diversified passive index will probably do a better job compared to managed funds and be aware of the many human traits and poor practices which often can sabotage the chances of a good outcome for the small investor.

Its not rocket science but I guess from time to time all investors need to be reminded of some of the basics.

A really great effort from Tim Hale and, I would say, one of the best investing books on the market for UK small investors.

Leave a comment below if you have read this book. Let other know what you think of it.


  1. Nice write up, diy.

    This is the book that helped me form the foundation of my investment strategy. Prior to reading it, I was invested almost entirely in actively managed funds and suffered massively from 'home bias' - now I only hold one actively managed one (Woodford), the rest is in trackers and I have a more diverse/global portfolio.

    The individual stocks and p2p that I have and continue to invest in? That's just 'dabbling' on the side to see what income I can get - the bulk of my portfolio is in index trackers. A year on from adopting this strategy, I'm pretty much now at my 'Portfolio for All Seasons' which I developed after reading Hale's book - I intend to review the allocations in 4 years time, probably to reduce the equity a little.

    I'm not sure I would recommend the book to a complete novice, since as you say, it is a pretty long book but certainly, as a relative beginner who had already started reading up a bit about investing, I found it extremely useful.

    1. weenie

      Interesting to hear how you changed your strategy and the influence this book had - particularly the move from UK-focus to more global.

      It is a little on the lengthy side for such a straight forward concept - whether it would be suitable for a novice - I suppose it depends on the person. For some it may be more suitable as a follow-on book after reading 'Diy Simple Investing' !!

      Thanks as ever for stopping by with your views.

  2. I haven't quite read it yet - like you, I'm getting it from the local library when I finish reading my current book (Business Adventures: Twelve Classic Tales from the World of Wall Street).

    The overview you have provided is really useful, so thanks for that. I'm not sure I 'need' to read this if you say it is good for novice investors, but I have wanted to read it for several months, just so I can see how clear and simple it is and thus whether I can advise friends/family to read it when they're just starting out on their investment journeys. £19.99 though - a bit steep for a book these days.


    1. M,

      Good to hear from you and be interested to hear what you think at some point. I agree, £19.99 is a bit on the high side these days so good that your library has a copy to borrow.

      I am waiting to get hold of Lars Kroijers 'Investing Demystified' - its out on loan at the present time but hopefully get hold of a copy to take away on hols!

  3. Hi John, I have been meaning to read this for years but have never gotten around to it. I guess having read The Intelligent Asset Allocator a decade ago I feel like I know pretty much all there is that's worth knowing about passive asset allocation.

    Once you get the gist of low cost + passive + wide diversification + occasional rebalancing, there isn't much more to know.

    Ditto the Lars Kroijers book, although he takes it to the logical extreme of 50/50 global stocks/bonds and then forget about it, more or less.

    1. John,

      I was thinking you were not really into index investing - more the higher yielding FTSE value shares. Your model portfolio is outperforming the FTSE All Share over recent years so this seems to contradict the central message in the book!

      I have not read the Intelligent Asset Allocator - I guess it will not take me much further than Smarter Investing? I will see if my library has a copy.

      As always, thanks for stopping by.

  4. I haven't read this book but I accept and follow a largely passive, low cost, investment strategy.

    However, I am slightly concerned that if taken to its logical conclusion, passive investing would be a disaster. I mean, if everyone were to become only passive investors, there would be nothing to control the company boards or hold them to account: tracking machines would not care about executive pay, ethical decisions or indeed EPS, leveraging or business performance or anything else. IPOs might become a lot rarer. So a lot of negatives if taken to the logical conclusion. This is partly why I invest in ITs as they should care about these things and be custodians of sensible investing.

    I would be interested to learn if the book touches on this issue. Or indeed if DIY has a view?


    1. Chris,

      I don't recall anything specific in the book regarding your issues. I will re-read at some time later this week and make a note if I see anything.

      I think the take-up for index funds in the UK is just over 10%, probably a little higher in the US so for the time being the points are hypothetical. Although it is becoming more popular, I can't imagine index investing overtaking the traditional active investing for a long, long time.

      I am not sure what impact on boardrooms the active managers have - possibly not a great deal judging by the likes of VW, Enron, RBS etc.

      I will get back if there is anything I find of relevance.

      As ever, thanks for your thoughts on this.

  5. Passive investors take a great deal of interest in corporate governance. Unlike active investors they don't have the option of bailing out if the management take the company into a kamikazi dive.

    1. Thanks for your comment.

      This US-based article from Wharton seems to suggest that index fund companies do have some clout:


    2. Thanks for the replies. I will investigate further.
      The likelihood that say Vangaurd, in one of its worldwide ETFs (eg VWRL) will have the time or the inclination to monitor the 2900 companies in 47 countries in that fund, is quite far-fetched. Especially as they only earn 0.25% of which their fee is much less.
      Thanks for the replies. If I get a clearer position on this I will come back.

  6. You say the book is too long... but the first part of the book (around 40 pages or so), is a summary of the rest of the book - you can get what the book has to say from reading just those pages :-) The rest of the book just provides detail that substantiates that summary.

    I've read around 50 finance books. This is the only one you need.