13th November 2013
A quick online check reveals a score of books aimed at the self-directed investor. Declaring an interest, I wrote one of them – Investing for Dummies.
So because I like to keep tabs on the competition, what to make of “The DIY Investor”, a new book by Andy Bell?
Andy Bell is better known as the co-founder of AJ Bell, one of the country’s leading SIPP providers. From a start in a tiny office in 1995, funded by £10,000 of personal loans, the firm now controls countless billions in self invested personal pension funds.
It has a great title but to take the Do It Yourself bit seriously, is it aimed at someone who has no idea how to bang in a nail or those whose ambitions run to building a new kitchen if not a whole home?
But while everyone knows why they undertake DIY tasks at home – try finding someone to paint a wall or put up a shelf at short notice and reasonable price – it’s less clear why investors should go DIY.
There are constant warnings of the perils of go it alone investment – often from those with an interest in charging for advice. A recent FTMoney piece headed “The Dangers of DIY Investment” said the trend to self-direction could be a “crisis in the making”. It cites figures such as the one quarter fall in the number of financial advisers to 32,690 at last count, and bizarrely, compares that with the number of plumbers, house builders and car mechanics to point up a world of investor risk.
There are also far more health professionals, lawyers, and accountants than IFAs. So perhaps the reason for the reduced adviser count is that demand for their services is lower than for motor mechanics or central heating engineers.
The public has seen adviser scandal after adviser scandal – endowment mortgages, split capital investment trusts, and structured products to name but a few. And there is no evidence that IFAs are any better at selecting investments than pure random despite virtually all claiming to promote the best funds, backed by research. So DIY – or self-direction – is a trend that is unlikely to reverse.
Bell answers: “Why DIY” with a client quote “Because nobody cares as much about my money as I do.”
Advisers and fund managers don’t and can’t care in the same way. They collect fees no matter whether individual picks go up or down – they adopt a portfolio approach which says while some investors may lose, others will win so it is the overall account that matters rather than each person.
To quote a favourite Wall Street book, “Where are the clients’ yachts?”
A few are great, a few are atrocious and most hover around average. Some advisers have given up trying to second guess markets in favour of a low cost easy to understand strategy using simple investment building blocks such as trackers. But if they select funds which perform disastrously, they do not give investors their money back. Ultimately, advised or not, everyone is responsible for their own investments.
What Bell offers is a guide to these basic foundations – it’s at the “what tools do I need and what sort of wood or bricks should I buy” end of DIY advice. The AJ Bell client base is the mass market so there is little other than collective investments and packaged funds. And while there is plenty of focus on how to use these vehicles, readers will find nothing on exotic investments such as wine or forestry – there are only a few passing references to even property – and no guidance on how to pick individual shares, read balance sheets, or how to choose between funds investing in Taiwanese Smaller Companies and Mexican Mega Corporations.
It tells you how to find the paint, and put it on the wall. The colour choice is up to each individual.
Reflecting Bell’s background, there is a hefty section on SIPPs – probably too much at around a fifth of the book – but there is also a good section on ISAs.
Where Bell is at his best is in the mechanics of investing. He gives substantial coverage to calculating costs, puts both sides in the active vs passive debate, warns against spread betting, and produces lists of useful websites.
He also has some hints. Don’t buy shares which have fallen fast in the hope “they will bounce back”, don’t go for short term plays on an index, don’t be greedy, don’t invest in anything you don’t understand, and while not mentioning boiler room scams, “if it looks too good be true, then it almost certainly is”. I would take the “almost” out the last warning but while there are quibbles, Bell has produced an incredibly useful volume from which anyone from beginner to experienced investor can learn.