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Book reviews

The publishing world is full of interesting reads that can broaden your investment horizons. Here's our review of some new releases to give you some bedtime reading ideas.

Please remember that the ideas and conclusions in this section do not necessarily reflect the views of Fidelity’s portfolio managers or analysts. They are for general interest only and should not be taken as investment advice or as an invitation to purchase or sell any specific security.

The Debt Trap by Sebastien Canderle


The Debt Trap

The Debt Trap by Sebastien Canderle, published by Harriman House

Do you remember Go for broke? It was a board game from around the mid 1960s and was a kind of Monopoly in reverse. Players received £1million at the beginning of the game and the winner was whoever got rid of their cash the quickest and go bankrupt. You could spend your cash at the racecourse, the casino, or play the stock market. You could even give money to charity. Unlike the classic Richard Pryor film Brewster’s Millions, you could fritter the money away on nothing rather than buying anything tangible with it.

Montgomery Brewster does of course have a long term plan when he spends his £30million, culminating in an inheritance of £300million. His task is complicated by the restrictions his will places on him. In spending the £30million, he is prevented from revealing the terms of the will, and this makes him appear to be a newly-rich snob with no taste.

I was reminded of both these scenarios when reading the case studies in The Debt Trap. Sebastien Canderle’s detailed accounts of 14 Leveraged Buy Outs (LBOs) over the last 20 years takes what could be quite a dry subject and transforms it into a riot of endless debt restructuring, dividend recapitalisations and asset stripping.

Not only does the book offer plenty of warning for private investors about investing in IPOs (Initial Public Offerings) where the company floating is backed by a Private Equity (PE) house, but also offers institutional investors plenty of evidence of what can go wrong with companies saddled with the exorbitant debt an LBO can bring.

The case studies focus on LBOs where the leverage is more than 70% and explains how in many cases this over-leveraged position from the outset makes the PE ownership of the business a flawed enterprise.

We’re also taken on a tour of the most favoured practices of PE owners when trying to extract the maximum return on their investment. In many cases these practices leave the acquired firm critically short of value by the time they have finished with them, either because the target firm goes under or is taken over by its lenders; or in the case of Debenhams because the true causes of a spike in operating profit is hidden by the sell and lease-back of its property portfolio.

One of the themes that runs through the narrative is how unqualified so many of the protagonists are to run the businesses they end up running. The financier Guy Hands ended up running the music giant EMI in 2007, turning one of the UK’s most iconic companies to rubble within five years. These stories highlight how the art of managing LBOs is far from an exact science.

Luckily, lessons can always be learnt. However, that’s not necessarily the case in private equity. The story of the KKR takeover of the Texan energy company TXU shows us how betting big (with debt) on the continued price trajectory of a historically cyclical commodity can only spell disaster, and in this case saw the tenth biggest bankruptcy in US history. What is unforgivable is to make the same mistake twice in such a short space of time, as KKR did when they bought Samson Resources even as they issued debt upon debt to try and keep TXU afloat. In 2015, Samson filed for bankruptcy under $4.1billion of debt.

What I most like about this book is its broad scope in explaining the social effects of this kind of financial engineering. In the UK, the most recent high-profile case of corporate greed involved Sir (is he still Sir?) Philip Green’s calamitous ownership of BHS; we are reminded of its subsequent collapse and loss of over 11,000 jobs every time we visit the high street.

What many ordinary people cannot understand is how it is legal to denude a company of its assets in the way Green did. Canderle argues that the ‘preposterous behaviour’ employed by some PE operators could eventually come back to haunt all of us in the same way the irresponsible sub-prime lending of the banks in the early noughties eventually sparked the biggest financial crisis since the 1930s.

Unless someone or something begins to regulate the PE sector more carefully ‘the whole fabric of our capitalist societies will self-destruct’ says Canderle, which admittedly sounds rather dramatic; but it does show the passion he has for this industry - how it once was a force for good, and how it has become ‘unfair and brutal’ when relying on leverage.

While Richard Pryor’s Monty successfully played his version of Go for broke! he did so with a view to the bigger picture. This book shows PE firms should do the same.

Fidelity rating:

Fidelity customers who wish to buy this book or any Harriman House title can get 25% off when you order direct through Harriman House (for both print books and eBooks). Use the promo code FIDELITY25 when prompted.




The Laws of Wealth by Dr Daniel Crosby


The Laws of Wealth

The Laws of Wealth by Dr Daniel Crosby Published by Harriman House

This doesn’t look like it’s going to be a particularly interesting book. But it is in fact interesting and entertaining, and deals with some of my favourite investing subjects with such infectious aplomb that I’ve found myself quoting sections to friends and colleagues and becoming something of a bore.

But the fact that most of the people I know are unlikely to read this and it is unlikely to be a publishing phenomenon on a par with Harry Potter or even the 1949 investing classic The Intelligent Investor, suits me just fine. If everyone read it, as indeed they should, then the book’s claim to hold the ‘Secret to investing success’ would be out and no longer be a secret.

As Dr Daniel Crosby is quick to remind us, the stock market is a zero sum game. So no matter how good you are at it, if everyone else is better than you, you will lose money. But what if everyone else is just as good as you at investing?

That is where this book comes in. By concentrating on the science of psychology, Dr Daniel Crosby shows us how we can manage our behaviour using Rules Based Investing (RBI). By controlling our behaviour, we can beat everyone else at this game. There are some pretty simple ideas in here that make a lot of sense, and the beauty is that they can be used whether you dabble in the stock market yourself, have your own financial advisor or if you invest via mutual funds.

There are some truly staggering figures in here that show how poor behaviour impacts long term returns. Some of this is regularly highlighted by our experts, such as the folly of trying to time the market. How can it be that the highest returning stock fund from 2000 to 2010 had investors that lost 10% of their money during their time invested in the fund? Not only is timing the market not necessarily going to help you beat the market, but also makes it more likely you will lose money.

My favourite chapter deals with one of my pet hates and that is the definition the financial services regulators have of Risk. All over this website you will encounter warnings of each fund’s potential to lose you money; yet at the same time if you read the objectives and investment policy of the funds on our platform, excepting cash funds, they will rightly advise you that investments in the fund should be regarded as a long-term investment.

When I get to retire I want to have a pension pot that allows me to live a comfortable lifestyle with a few treats thrown in. The Junior ISA I have for my daughter I hope will allow her to pay for a deposit on her first property so she can benefit from the apparently inexorable rise in property prices.

If my goals for these savings are realised I could not care less if during the interim period the value of those savings has gone up and down.

Despite this, the risk profile of the funds I own are weighted towards the riskiest. If I kept my money in cash I would be taking no risk at all. Yet the risk is that I won’t have enough money to retire, or that my daughter won’t have the helping hand on to the property ladder that my parents gave me.

Defining risk is one of the most important behavioural lessons this book can give you. There are also loads of real life comparisons that show how our normal behaviour which helps us survive and prosper as humans can be counter-productive in “Wall Street Bizarro World”. One of my favourites involves a series of dates with a potential lifetime partner which is all going very well until the fifth date when the object of your desires turns out to be a duff. Do you go on a sixth date?

This book’s concentration on your own behaviour, something that only the reader can control, makes it accessible to anyone, no matter their current wealth or investment experience.

Fidelity rating:

Fidelity customers who wish to buy this book or any Harriman House title can get 25% off when you order direct through Harriman House (for both print books and eBooks). Use the promo code FIDELITY25 when prompted.




More from our Insights team

The Defensive Value Investor by John Kingham


The Defensive Value Investor

The Defensive Value Investor Published by Harriman House

If I were to simply repeat the book’s subtitle, "a complete step-by-step guide to building a high-yield, low-risk share portfolio", my book review would be done. Because, really, that’s what Kingham has done.

For those of us unfamiliar with the term ‘defensive value investing,’ it’s a hybrid of defensive investing, meaning “buying the shares of high-quality companies that have been around for many years, paying and steadily growing their dividends.” And value investing, which “focuses primarily on whether or not a company’s shares represent good value for money at their current price.”

That’s covered in the preface of the book, so, so far so good. Kingham sets the scene pretty well and I feel myself well-grounded in the book.

But three pages in, I realise perhaps I’m not Kingham’s target audience when he warns, “it’s important you read it in order.” Is this because I usually read every other page on every other chapter...? I keep on reading anyway because the writing flows well and his explanations don’t make me feel like I’m in a classroom and I don’t have to Google things all the time.

Kingham splits The Defensive Value Investor into three parts: analysing a company’s accounts, analysing a company’s business, and managing your portfolio. That’s a good balance between quantitative and qualitative research, which is fundamental in investing—especially in Kingham’s world as this is what can get you lower risk and higher return.

This book is a detailed walkthrough of a strategy he swears by since 2010, when he used his background in computer programming to “turn [Ben] Graham’s rules into a complete and systematic investment strategy.” You learn how to construct your portfolio and manage it in a way that will reduce risk and increase return.

Every chapter ends with a detailed “rule of thumb” (brace yourself though, there’s a quite bunch) but they’re handy rules he uses on a regular basis to guide his decision-making, so there’s comfort in that. He even goes the extra mile of showing how his methods work with real-life examples.

Will I remember every single rule of thumb Kingham has offered in his 288-page book? Probably not (and, hey, I doubt that’s what he was intending, anyway). But it’s very likely the next time I’m reviewing my investments, I’ll be sure I don’t have more than 10% of my portfolio invested in one FTSE sector.

Fidelity rating:

Fidelity customers who wish to buy this book or any Harriman House title can get 25% off when you order direct through Harriman House (for both print books and eBooks). Use the promo code FIDELITY25 when prompted.




Anatomy of the Bear by Russell Napier


Anatomy of the Bear

Anatomy of the Bear, Published by Harriman House

One of my daughter’s favourite books so far in her short life has been “We’re going on a bear hunt”, a tale of how an incredibly irresponsible parent leads his family across treacherous deep rivers, through snowstorms and swamps in search of a bear, of whom part of the repetition so loved by toddlers is that “we’re not scared”.

It turns out that actually they are terrified of bears and have to make the same crazy journey in reverse, just this time at breakneck speed with a bear, erm, bearing down on them.

The lack of planning and preparation for both the journey and the panic induced when actually confronted with a bear could have been avoided had the family read Russell Napier’s book. Not only does it analyse the four most vicious bears in the history of Wall Street but gives you firm pointers as to how to spot them, what they all had in common, and what to do when confronted by one.

Russell Napier is a historian and Professor who has used his ability to analyse the stock market with the most complete and reliable data in history – the US equity market. Some of the data used to explain the backdrop to the 1921 bottom goes back to the 19th century; the Dow Jones Industrial Average (DJIA) was first published in 1896 (the New York Stock Exchange opened its doors in 1792).

The four great bear market bottoms in this book are defined by the returns over the following 40 years had an investor bought shares at the point the DJIA bottomed. Napier concentrates his research on what was happening at those times and more importantly what those great bottoms had in common, and whether the bear would be identifiable when it happens again. To do this he has read over 70,000 contemporary articles from the Wall Street Journal (first published in 1889) to gauge the levels of sentiment.

Taking the two months either side of the four great bear market bottoms as the time to study the WSJ is a great way to use contemporary commentary to illustrate what was going on in the markets and the general economy and what clues we can gain to inform us when the next great bear market bottom might be.

The problem with this method is that it fails to analyse all the times when similar commentary occurred during other periods of economic fluctuation that weren’t part of one of those great bottoms. How are we meant to know that there haven’t been other similar periods of commentary that could have been mistaken for a great bear market?

It is unrealistic to have expected Napier to analyse all the commentary in the WSJ in addition to the articles he’s already analysed as part of this book, and I suspect that the exercise was a worthy one in forming the conclusions he came to; but I find myself thinking about what is being published in the news today and wondering what Russell thinks of it. Is the news bad enough and being ignored enough to suggest we’re at the peak of a bull market?

What can’t be denied is the rigour of Napier’s research or his ability to forecast – the prefaces of the three previous editions correctly predicted the direction of the markets over the next few years, more or less. This latest preface describes why there will be an imminent dramatic decline in US equities and how investors can use the lessons from history to spot the bear at the bottom of the market and benefit from it.

Is the bottom of the bear market that started in 2000 still to be reached? Or will history show it to be in 2009? Either way, read this book to find out how to spot a bear and know what to do once you have got close enough to tickle its shiny wet nose.

Fidelity rating:

Fidelity customers who wish to buy this book or any Harriman House title can get 25% off when you order direct through Harriman House (for both print books and eBooks). Use the promo code FIDELITY25 when prompted.


The Art of Execution by Lee Freeman-Shor


The Art of Execution

The Art of Execution, Published by Harriman House

Lee Freeman-Shor is a fund-of-funds manager at Old Mutual Global Investors, one of the many fund partners available on our fund supermarket. His book isn’t really about investing, instead it’s more of an exploration of human behaviour under different types of stress, and this is what makes the book fascinating.

Freeman-Shor splits his investors into different ‘tribes’ to describe their behaviour. He finds that the same investors make the same mistakes, or do the right things, time and time again. What really matters, the author concludes, is how trades are executed rather than which company is chosen.

The most successful investors, Freeman-Shor argues, understand the influence of human behaviour on their work. The simple stop-loss gets top billing as a very effective way of cutting losses before they become too big to recover from (this tribe is named the ‘Assassins’).

This is where Freeman-Shor excels himself, delving into the science of human behaviour and a suite of biases that affect our decision-making.

A lot of us will recognise these biases in our own lives. Framing bias or anchoring heuristic? These scientific terms mask behavioural traits that we can all relate to, and indeed Deal or No Deal is cited as an example of how our decisions are affected by other decisions we have recently made (recency bias).

Our tendency to hold on to investments when they are falling and to sell when winning is completely irrational. These tendencies are explored and real-life examples as to how the best investors reverse these tendencies – and how the not so good ones get the sack.

Freeman-Shor also touches on how the culture of a fund house can adversely affect its fund managers. If annual-bonuses purely reflect performance a fund manager might be tempted to realise gains of 30% - a decent return – when in fact holding on to the stock could have created a ‘ten-bagger’.

This is the key for successful investing – if you are only winning half the time, when you do win you need to win big. And to win big you need to be brave, to have a large position in a winner.

Freeman-Shor makes the point that a lot of funds are restricted in the position they can hold in one fund – usually no more than 10% in one position.

This is meant to reduce risk, but really all that is happening is you are swapping one kind of risk for another. You’ll see the risk warnings on this site for funds that have a concentrated portfolio, Lindsell Train UK Equity is a favourite example – note how the top ten holdings are all going to add up to far more than 50% of the total holdings; the upside being that if these funds rise in value, it has a bigger effect on the overall performance.

The risk is meant to be that should the shares fall, this will have a disproportionally negative effect on the value of the fund. But the risk of having too small a share in a company whose share price is rising is just as relevant.

This book is written to appeal to all kinds of investors, and is bound to appeal to both the author’s peers and to the inexperienced investor.

Fidelity rating:

Fidelity customers who wish to buy this book or any Harriman House title can get 25% off when you order direct through Harriman House (for both print books and eBooks). Use the promo code FIDELITY25 when prompted.


The Idle Investor by Edmund Shing


The Idle Investor by Edmund Shing

The Idle Investor, Published by Harriman House; 1st edition (2015)

There are arguably two broad categories of investor, each with its own appetite for conducting research, accepting risk, and navigating the complexity of financial markets.

There are those who pore through Investor’s Chronicle and the like, keeping abreast of the markets and building a portfolio of stocks and bonds in the hope of achieving superior returns. Others – for lack of time or the inclination – prefer a ‘hands-off’ approach, investing a portfolio more passively. At first glance, Edmund Shing’s The Idle Investor seems to appeal to the latter. The ‘Seven Idle Investor Axioms’ he outlines at the beginning of the book are little different from the investing mantras propounded by many a personal finance author over the past few decades.

He urges us to harness the power of compound interest, diversify to reduce risk and volatility, and to hold a portion of our portfolio in cash to take advantage of dips in the market. He also warns the idle investor not to follow financial markets too closely in order to remain level-headed and invested for the long-term.

Where Shing’s book distinguishes itself from its peers is in the depth of its analysis. Shing’s advice is supported by over 20 years of experience in research, trading, and portfolio management at some of the world’s most prominent financial institutions.

His expertise as a practitioner is combined with his academic background - Shing completed a doctorate in artificial intelligence before launching his career in finance. The book draws upon a wide range of academic literature, including the work of Nobel Prize winner Eugene Fama.

While Shing’s text is replete with charts and alludes to financial concepts such as the Capital Asset Pricing Model, his explanations are easily understood by the lay reader.

Shing coins his first and most basic method the ‘Bone Idle Strategy,' which is pretty much a reiteration of the classic 60/40 allocation.

The investor is instructed to put 60% of her portfolio into stocks and 40% into bonds, and to rebalance only once per year. Helpfully, he provides a number of easy-to-implement ‘enhancements’ to this base portfolio, much like the upgrades to processing power and storage capacity that are offered when purchasing a new computer. For example, one could increase the portfolio’s exposure to small-cap stocks, which bring greater potential for higher returns - albeit with added volatility.

The author’s ‘Summer Hibernation Strategy,’ however, is where he takes us into new territory. He proposes placing the entirety of the portfolio into bonds during the less-volatile summer months, then capturing stronger returns by switching the entire portfolio into stocks over the winter. The annual rotation into bonds is a new twist to the old adage of ‘selling in May and going away until St. Leger’s Day.’ In order to remain true to this strategy, however, the investor would need an unwavering commitment to rebalance the portfolio at the end of each season, regardless of whether she would realise a gain or a loss. The method is easily executed in theory, but would demand a good deal of discipline on part of the investor to sell in the midst of a longstanding bull market.

Shing suggests a number of specific Exchange Traded Funds (ETFs) as a starting point, providing exposure to UK mid-cap stocks, European stocks with low volatility, and US small-cap stocks. Puzzlingly, none of his portfolios call for any exposure to US large-cap stocks. These shares are typically a staple in any well-diversified investor’s portfolio, owing to the fact that the United States is the world’s largest and strongest economy. The companies that make up the S&P 500 are also some of the world’s largest publicly traded enterprises. Further, some of the ETFs proposed are ‘smart beta’ products which are specially constructed in an attempt to provide performance of a very specific nature, such as ‘low volatility.’ These may be too unfamiliar for most European investors, a large number of whom Shing admits have yet to fully embrace regular ETFs as attractive alternatives to Open Ended Investment Companies (OEICS) and unit trusts.

Unlike the ‘Bone Idle’ and ‘Summer Hibernation’ strategies, Shing opts for a more exotic name for his third and most complex proposal. Investors following the ‘Multi-Asset Trending Strategy’ invest in four areas: the UK, Europe, the United States, and emerging markets. In each of these regions, the investor will rotate between two ETFs – one equity ETF, and one bond ETF. At the end of each month, the investor will check the position of each ETF’s benchmark index – the FTSE 100 for UK equities, for example. If the FTSE 100 is above its two or three-month moving average*, then the investor will place all of the funds she allocated to the UK into the UK equity ETF. At the end of the next month, she would sell her entire position in UK equities and switch the money into the UK bond ETF if the FTSE 100 fell below its moving average.

Shing is shocked ‘to realise not only how much damage can be done to your investment by just a limited number of poor weeks, but also how much of a boost is given by the best few weeks of share market performance.’ Consequently, his trend following system allows the investor to ‘capture the bulk of big uptrends in the share market’ while avoiding ‘the bulk of the downtrends.’ The system he proposes is methodical, helping to remove the emotion which often clouds investors’ judgement. Yet those with a smaller amount of money invested may see their trading costs mount if they have to constantly rotate between ETFs in volatile markets.

As someone naturally curious about financial markets and investing, I read The Idle Investor with interest. Shing has done an excellent job of translating bold, theoretical approaches to portfolio construction into strategies easily understood by the personal investor. The allure of the claim laid out on the book’s front cover is strong: ‘how to invest 5 minutes a week to beat the professionals.’ The author’s research puts forth a strong case as to how such outperformance can be achieved, though the prospect of churning a portfolio’s holdings every month may ultimately prove unpalatable to many investors. The avoidance of US large-cap equities is also a key question that is left unexplained.

Outperformance in and of itself is not the only consideration for those who want to save for retirement and sleep soundly at night. The more adventurous among us may do well to experiment with Shing’s proposals, but the genuinely idle may be better served by looking elsewhere.

*Moving average: the average level of the stock market index over a certain number of days (usually 50, 100, or 200 days).

Fidelity rating:

Fidelity customers who wish to buy this book or any Harriman House title can get 25% off when you order direct through Harriman House (for both print books and eBooks). Use the promo code FIDELITY25 when prompted.