An Important New Book about the Finance Industry

Victor Levinson Comments

From time to time since Park Piedmont Advisors was founded in 2003, we have quoted extensively from various authors whose books we have embraced.  These authors and their books include Burton Malkiel’s A Random Walk Down Wall Street;  John Bogle’s Common Sense on Mutual Funds;  David Swensen’s Unconventional Success; Charles Ellis’ Investment Policy; and Nassim Nicholas Taleb’s The Black Swan and Fooled by Randomness.

To this list we would like to add John Kay’s Other People’s Money, newly published in 2015.

The author finds much to criticize in the current highly complex world of finance. He maintains that those engaged in finance have gone from providing traditional functions useful to society, to now engaging in activities profitable mostly to themselves and their own financial businesses. He uses the term “financialisation” to describe the two main components of these unfavorable changes: “the substitution of trading and transactions for relationships,” and the “restructuring of finance businesses.” (Pgs. 15-16)

In the upcoming months we will present selected portions of the book, which we highly recommend. The following excerpt discusses the likelihood of most investors successfully timing or outperforming the market:

“Many financial promotions exploit the control illusion and the excessive confidence people have in their own judgment. The most common means of chasing the dream is to believe that savers can successfully identify market highs or lows or select stocks or managers that will outperform the market. The overwhelming evidence is that they can’t. Few investors or managers have any sustained capacity for outperformance. Actively managed funds, taken as a whole, do worse than the market averages by the amount of fees charged.  Retail investors do even worse than the average of investment funds by mistiming their purchases and sales. As with games involving mixtures of skill and chance, such as poker, there are few people with genuinely outstanding abilities who profit at the expense of the general run of players, and many more who persuade themselves, and perhaps others, that recent runs of good fortune are the result of their exceptional skill.” (Pgs. 62-63)