Journalists have a crucial role to play in holding the investment industry to account and helping people to achieve better investment outcomes.
Sadly, as Michael Lewis, author of The Big Short warned this week, many of them, for whatever reason, are too timid and fail to ask the right questions. Lewis cites The Wall Street Journal as an example of a newspaper that “has the fingerprints of the finance industry all over it”.
There are, however, some excellent journalists who are making a positive difference. All financial publications rely on the industry for advertising revenue and all are compromised to some degree or other. Here in the UK, the Financial Times is, in my view, the newspaper whose interests are most aligned with those of investors, followed by the Telegraph; the Mail, too, despite giving far too much coverage for my liking to the latest investment products, has the potential to become a consumer champion.
Although we don’t see eye-to-eye on everything, one of my favourite investment journalists is Andrew Oxlade, Executive Head of Personal Finance at the Telegraph. I was grateful, then, when Andrew agreed to meet and to give this interview for The Evidence-Based Investor.
In a nutshell, what are the key ingredients of successful investing?
A lot of people find investing intimidating. There’s a whole mystique surrounding it, which means the investment industry can charge more than it should. But it’s very simple to build a share portfolio or just buy low-cost funds that basically track the market. All you want to do is watch your cost, don’t overtrade, put your money in and leave it there for at least ten years.
How important are costs, and why do you think investors have such little awareness of the impact they have?
We’ve had a long history of an industry that makes it difficult to understand what you are paying. Things have improved marginally over the last few years, but nowhere near enough. It would be much clearer if it was just declared in pounds and pence on your fund statement how much it has cost you, and you don’t get that. You get complicated acronyms and percentage figures instead. But it’s hugely important, because if you look at the performance and the charges over the very long term, the difference between a 1.5% charge and a 0.5% charge is colossal. So it’s absolutely important to keep an eye on those costs.
I suspect we’re going to disagree on the wisdom of using actively managed funds. What’s your view?
We very much believe that there’s a purpose and a point to having actively managed funds. There are some very good fund managers out there. Sadly most of them aren’t very good; the vast majority of them aren’t. But there are a very small number who are very skilled at picking the right stocks. That said, with tracking funds you don’t need to worry about picking the right one or wrong one, and you’ll pay less. So there’s a place for both of those types of fund.
The managers who outperform consistently are very few in number and almost impossible to spot in advance. If people really want to pay for active management, how should they go about it?
We’ve talked about this in the office quite a lot, about who’s a good manager and who’s not. We kind of go through this process. We call it fund manager dating. You meet a fund manager and he’s very, very impressive, and you realise that he’s one of the few that gets it. Unfortunately, those encounters are few and far between. The only way you’re going to be able to unearth these people is to do your research, to read publications like ours. But do remember you are taking a risk, because even some of the great fund managers have turned out to be not so good after a few years. They all go through good and bad spells.
You mentioned the importance of not overtrading. Explain that.
Time and time again it has been shown that, as investors, we are a danger to ourselves. We do too much and we think we can second-guess what’s going to happen. And you can’t, really. What we do know is that stock markets have done very well over the very long term. So if you’re a long-term investor you should put most of your money in the stock market at the lowest possible cost, and not touch it. Don’t try to second-guess when’s the bottom of the market or the top of the market, because you’ll almost certainly get it wrong.
How prone are investors to market noise?
Undoubtedly, people react to noise. We want to know what’s going on and we want to understand things better. And we think that the more informed we are, the more likely we’ll be to make better decisions and to get an edge over everybody else. Now, it’s very important to be knowledgeable about how investment works, but you don’t need to know what’s going on in the markets today, this week, next month. Those things are going to be irrelevant to your long-term plan and strategy.
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