A couple of months ago an excellent book, The Idle Investor, was published through Harriman House by a writer that Stockopedia subscribers will by now be very familiar with? the irrepressible Edmund Shing. Calling Edmund a writer does a huge dis-service to this man?s multi-faceted skill set. He?s an Artificial Intelligence PhD, equity quant, global hedge fund manager, TV broadcaster, prolific blogger and serious Paris-London air-mile collector. In fact it?s very difficult to get him to slow down or pause for breath as I found out over a proper full English fry up around Paddington Station a couple of years ago. So what can this extremely non-idle man tell us about winning in the markets without any work? It seems rather a lot?
The book is a slim tome of less than 150 pages that makes it easily read in a couple of hours. It?s packed full of market wisdom learned first hand from Edmund?s 20+ years of working in a diverse set of research, trading & investment roles at institutions as impressive as Goldman Sachs, Schroders, BNP Paribas, Barclays Capital to name just a few.
The lessons, maxims and axioms he expounds are essential market truths, practiced by seasoned investors, but which novice investors often learn only through experience and expensive mistakes. They include avoiding complexity, keeping costs low, switching off from news, improving risk adjusted returns through diversification & rebalancing and benefiting from the miracle of compounding.
As the title perhaps alludes to, the core of the book is focused on illustrating simple, low admin strategies that lean heavily on the use of collective investment vehicles like ETFs. It is certainly less a book for stock pickers, more a book for those who want to apply an active approach to boost the returns from passive investing. The strategies he expounds on include:
The Bone-Idle Strategy - 60/40 equities/bonds rebalanced annually for an 8.5% annual returns since 1990.
The Summer Hibernation Strategy - which ?Sells in May and Goes Away? switching between 100% shares and 100% bonds through the year for a 15% annual return over the same time frame.
The Multi-Asset Trending Strategy - a certainly less-idle cross regional ETF strategy using 8 share and bond ETFs and moving average trend following to switch between them. The extra sweat apparently leads to a 27.6% annual return.
While that all sounds impressive, Edmund would be the first to admit that investing directly in shares can improve the returns from stock markets for those who can be bothered to do the extra work. Which leads nicely onto a discussion of my favourite chapter in the book.
Stock market payoffs?
For some background, not long after we?d set up the Stockopedia service I was introduced to Edmund?s work by a mutual friend. Edmund had been the European Equity Strategist at Barclays Capital and I'd been forwarded some of his research publications which mirrored almost exactly the ?factor? investing approach we?d taken in building the Stockopedia StockRanks. Where we used the acronym QVM, BarCap used the alternate VQM to summarise the ?Value Quality and Momentum? stock selection approach incorporated into their market beating screens. (I?m sure that Edmund won?t mind me linking to one of his 2012 BarCap notes for Stockopedia readers click here).
In Chapter 5 - ?Beat the Share Market Without Breaking Sweat using proven anomalies to your investment advantage ? Edmund dives further into the research around these Value and Momentum effects which helped BarCap beat the market. In summary he explains these effects and more:
Momentum - winning stocks beat losing stocks
Value - cheap stocks beat expensive stocks
Size - small stocks beat large stocks
Dividends - high payers beat low payers
Volatility - low volatility shares beat high volatility shares
In Edmund?s day job he?s a global fund manager and selects individual shares (and ETFs) by screening international markets for those that are most exposed these 5 payoffs. Edmund backs up the text in this chapter and through the book with charts and references to famous academic research papers - from Fama & French?s work on the Value Effect to Meb Faber?s excellent work on tactical asset timing. I think any investor will find Chapter 5 a useful summary of the key concepts and literature of what works in stock markets and the steps you need to take beat it.
What should be praised about this book is that Edmund has the ability to express very difficult concepts to the layman in plain and simple English. For someone steeped in academia and quant finance this is an exceptional skill to have developed, and a credit to the years he?s spent getting his message across through writing and broadcasting.
"The Idle Investor" could act as a refresher for seasoned investors, or a working template to novice passive investors. It?s a brief and easily read addition to any stock market or ETF investor?s library and comes highly recommended. Here?s the book link again - The Idle Investor on Amazon.
PS - Need to idle some hours away? You might be interested in some Shingy things to watch and read. Of course it does take a bit of effort, but hopefully in reading this you?ve already plugged in your computer.
Edmund Shing?s Blog - http://edshing.blogspot.co.uk/
Edmund Shing's Tweets - https://twitter.com/theidleinvestor
Edmund Shing?s musings on Stockopedia.
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