Simple But Not Easy: a second edition of a cult investment classic

A new edition of Richard Oldfield’s popular guide to investment continues to fly the flag for active management and the value style

The value of equities

The book’s disarming tone is established from the outset with a lengthy opening chapter cataloguing Oldfield’s ‘howlers’, the mistakes and formative experiences that have helped shaped his investment worldview. He goes so far as to agree with sceptics that the ‘industry as a whole does nothing useful’, but with the critical proviso that the statement must be interpreted as a truism rather than a dismissal. In developed markets dominated by funds it logically follows that, over time, half of managers will outperform the index and half will underperform.

Keeping faith with active funds

Turning to the active versus passive debate Oldfield is sympathetic to the many investors who put most or all of their money into index funds. He rather likes a ‘Rip Van Winkle’ approach allowing the value of passive investments to accumulate quietly in expectation that good times will outweigh the bad.

Changing times?

Oldfield still holds by that in the book’s afterword, in which he reviews what he wrote back in 2007 in light of the market’s subsequent history. He acknowledges value investing has come under great pressure since then, a period during which — until very recently — growth stocks have surged ahead. But he sticks to the essence of what he said in the first edition, advocating ‘concentrated portfolios managed with individual accountability and no “committeeitis”, and consisting of shares held patiently in companies with basically sound businesses which are at low valuations because of the vagaries of fashion or because something has gone temporarily wrong.’ Writing the afterword last year, when value was still languishing, he believed the tide was about to turn, noting speculative stocks were as overvalued as they were back in 2000 when the tech bubble burst and value reasserted itself. And indeed something like that has happened over the past six months.

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