The Long and the Short of It - Finance and Investment for Normally Intelligent People Who Are Not in

by John Kay

Discusses the complexities of modern finance, both the basics of investment and the sophisticated innovations of the modern financial system. This book explains how the fresh economy bubble and the credit crunch - the follies of finance have threatened the stability of the world economy.

Genres: Finance, Economics, Nonfiction, Business, Personal Finance, Reference, Academic

241 pages, Paperback

First published January 1, 2009

About the author

I was born in Edinburgh, Scotland in 1948, and completed my schooling and undergraduate education in that city: I am fortunate to have lived most of my life in beautiful places. I went to the University of Edinburgh to study mathematics. But, after taking a subsidiary course in economics, I decided that I wanted to be an economist. The notion that one might understand society better through the application of rigorous and logical analysis excited me – and it still does. After graduating from Edinburgh, I went to Nuffield College, Oxford. I worked there under James Mirrlees, who was in due course to win the Nobel Prize for his contributions to economic theory.

On Mirrlees’s advice, I applied for and to my astonishment got a permanent teaching post in the University of Oxford at the embarrassingly early age of 21. Oxford is a collegiate university – members of the faculty generally have both University and College appointments. This post carried with it a fellowship at St John’s College, an association which I have maintained and enjoyed ever since. Through the 1970s I developed a conventional academic career, publishing in academic journals, and writing my first book Concentration in Modern Industry (with Leslie Hannah, an economic historian colleague). My particular interests were in public finance and industrial organisation.

But my rationale for studying economics had, from the beginning, been concerned for application. My career began to change direction when I was asked to join a group to review the structure of the British tax system. This group was established under the auspices of a newly established think tank, the Institute for Fiscal Studies, and was headed by James Meade, another economist who had achieved the ultimate distinction of a Nobel prize. Meade’s rigour was as demanding as that of Mirrlees, (both delivered it with extraordinary personal charm). But the most important effect of my experience with the Meade Committee was that I began to develop a taste for the popular exposition of economic concepts.

In this vein, I wrote (with Mervyn King, now Governor of the Bank of England) a more personal account of issues in taxation, The British Tax System which ran through five editions.

Pursuing these interests, I moved from Oxford and joined the Institute for Fiscal Studies as its first research director. Soon after I became Director of the Institute. IFS developed into (and remains) one of Britain’s leading think tanks, respected and feared by policymakers and journalists for its fiercely independent analysis of fiscal issues.

After seven years, I decided it was time to move on. The success of IFS had been built on serious economics accompanied by a commitment to popularisation and application. If this could be done for public policy issues, could the same be done in the area of business policy? This was the thinking that led me to accept a chair at the London Business School in 1986 and, at the same time, to establish a consulting company, London Economics.

Over the next few years, the application of economics to business issues became my intellectual focus. During this period, London Economics grew rapidly, largely on the back of the wave of privatisation and regulatory change in Britain in the 1980s. By 1991, managing the company had become a major responsibility. I revised my arrangements with London Business School. My new contract was as Visiting Professor but my job as executive chairman of London Economics took the larger part of my time. London Economics grew until, by its tenth anniversary, its annual turnover exceeded £10m with offices in three continents and assignments in over sixty countries.

London Economics gave me insights into the business world. These came both through consultancy work with major corporations and first hand observation of the growth and development of a small business. Other activities have enriched my more scholarly work by broadening the experi

Reviews

[Matt · Rating 3 out of 5]

Man, this guy loves him some Robb Caledon talk. In all seriousness, Kay offers a practical guide to managing ones own financial portfolio without too much interference from financial services professionals. His first key piece of advice is to minimize fees and expenses - use an online broker, stay away from high fee funds, etc. Then, he emphasizes diversification in a way that fund managers are averse to practicing: each investment should significantly diversify the total portfolio, by sector, region, investment type, etc. Most fund managers "closet index", according to Kay, in an attempt to not be second-guessed and fired, but personal investors don't have to worry as much about herd behavior or beating an index. This should free individual investors to more substantially diversify their investments. The "mind your portfolio" approach incorporates leading market theories, such as the efficient market hypothesis and subjective expected utility, but does not hold them as true at all times. Being nimble is more important than holding to static investment theories. This is a welcome addition to the personal finance literature. And remember, if you think you've read the words "Robb Caledon" for the last time in this book, think again.

[Felix Arris · Rating 4 out of 5]

I first attempted this in 2017 in a relatively poor attempt to ramp up for an investment interview. Needless to say neither the reading nor the interview went too well. On a second read and successful completion it was far more enjoyable. A well rounded insight into the world of personal investment. First to pay off the student loan

[Amin · Rating 5 out of 5]

Before this book, I tried to read different books about finance and investment, but I stopped to read them when I was in the middle of them. This book was an exception that encouraged me to read and finish it as soon as possible. Two chapters of the book were complicated, and I would read them again, but the last three chapters were brilliant, which I strongly recommend reading those chapters. Also, recommendations for related books at the end of this book are very useful.
The main outcome of this book for me is although the financial market is a sophisticated market you can achieve what you want by patience.

[Lee Harrison · Rating 5 out of 5]

Prior to reading this book I had almost no knowledge about finance and investment, including the workings of pensions. I found some of the chapters a little hard to fully grasp, but the latter chapters did a good job of recapping and concluding the main points to overcome this. The key messages from the book have really helped me with my own investments by drastically improving my understanding and confidence. In particular the need to take a long-term approaches to investments, to make my own judgements, and to diversify high risk. With this in mind I would say it has been one of the most important books that I have read in recent years, given the void of practical knowledge that it filled. I would recommend this to anybody in a similar position looking to start investments.

[Brian · Rating 4 out of 5]

The book covers investing very well. I liked how the author, John Kay, builds a distinction between what he calls a conventional investor and an intelligent investor. He covers financial theory on valuing stocks in quite some detail and gives his assessment of what he considers useful. He also makes a good distinction between risk and uncertainty, although some of the argumentation was hard to follow. He offers some very good advice on diversification and looking at the risk of a portfolio rather than that of an individual stock.
In addition the book contains some very practical, useful advice.
If someone wants to learn some key concepts for thinking about investing this book is very good. The advice in it could save a lot of money for people who have or are planning to have investments.

[Taylor · Rating 3 out of 5]

A practical guide with sound advice. If you’re new to investing but are ready to dive into a more technical crash course, this covers the essentials. The Risk and Reward chapter was excellent.

[James · Rating 4 out of 5]

I used to know nothing about investing. I don’t have much spare cash and I’m not a gambler by nature. However, the modest success of several friends who have invested has given me hope that maybe I could try it, too. I wanted to learn more, but investment advice is often full of esoteric language and complex models that make your head spin. This book helps to clarify the world of finance by assuming that the reader is educated and intelligent, only lacking the specialist knowledge of the field. It doesn’t talk down to its readers and makes the premise that if you follow a few key precepts, you can guess just as well as professional investment advisers and avoid their expensive fees. The book covers the basic jargon, explains how risk works and how to minimise it, the difference between short-term gains and long-term patience, effective strategies, market psychology, and what a good, diverse portfolio looks like. Unfortunately, some of the calculation examples are not very clear and this takes away a little from otherwise sage advice. Nevertheless, I was heartened by the fact that the book mostly agrees with what my friends say, so it seems fairly sound. Now that I know a little about investing, maybe the next time I get a bit of spare cash, I won’t spend it on beer, but make it work for me instead.

[The Austrian · Rating 3 out of 5]

Enjoyable run through of approaches to risk vs uncertainty, CapM, high level portfolio thinking; but needs to be acted on carefully. On one hand he details the depth of analysis many pro investors use via different models, but then suggests you treat these sceptically and instead act on some pretty subjective approaches, eg focussing on a firm’s competitive advantages etc. He barely mentions passive or near-passive funds, which for most are all that is needed. No specific methods on how to select assets are given, but he does suggest ditching advisors, buying undervalued assets and closed ended funds near / below NAV. That can easily work against most people who don’t have time to monitor their selections, can easily choose poorly and have no ‘second chance’ - better to pay for some guidance or select a diverse mix of well-regarded funds and end up close to your financial targets, than be way off because you’ve messed up!

[Joonas Viitanen · Rating 4 out of 5]

Tämä oli juuri oikea kirja kun oli ehtinyt muutaman kuukauden sulatella Grahamin Intelligent Investoria. Kay rakentaa Grahamin ideoiden varaan ja päivittää käytäntöä 2000-luvulle. Pidin kirjoitustyylistä joka oli persoonallisempi kuin oppikirjassa, mutta ei tavalla joka monissa selfhelp kirjoissa vain naamioi tyhjää sisältöä. Finanssiteorian lisäksi Kay käy kiitettävästi läpi käytännön neuvoja oman portfolion rakentamiseen ja mielestäni loistavasti sitoo teoreettiset käsitteet yksityissijoittajalle hyödyllisiksi.

[Joe Pocklington · Rating 4 out of 5]

Took my time with this one! Combination of life getting in the way and procrastinating from reading it because it’s quite heavy in patches. However, I can’t fault the book as a financial support, it’s given me new ideas to take on board (SEU, “mind my portfolio”) that I will use in future as well as reaffirming previously held ideas (diversification is king, ‘why buy what they want to sell?’). The general message of take control of your finances because you’re the person who cares and should care the most about them is really important and something I hope to do forever.

[George Moody · Rating 5 out of 5]

(I read the 2016 second edition, considerably updated from the first edition, as he makes clear in the text.)

A very clear, practice oriented account of finance and investment. John Kay has written other (excellent) books on the financial sector more generally, and on the sources of long-term competitive advantage for businesses. Here he brings his knowledge to bear to help individuals navigate the retail investment environment. The result is illuminating for anyone interested in finance.

[Bryce Doty · Rating 5 out of 5]

Very short read. I don't know how to invest money. With my 401k I was just doing whatever a co-worker was doing until he retired. After I learned his system I was a little alarmed at how unsophisticated his method was. So I decided to read up to help decide where I should be putting slender pile of shekels. This book helped me out in that regard. It has had a cooling of my nerves effect for which I am most appreciative.

[Jack Scott · Rating 4 out of 5]

Really interesting stuff. A very in depth look at investment and money management with some useful advice and counsel throughout. Be prepared for being thrown directly into more technical descriptions and explanations, they are mostly covered very thoroughly however I was still left with the odd confusion.
Definitely a book I will be checking back in with and rereading in the future, and a must read for anyone who wants to learn more about managing their savings.

[Ivan Balogh · Rating 4 out of 5]

Good starting point for people, who want to know more about the way they SHOULD NOT manage their financial matters. Kay explains how easily you can be ripped-off and pay unnecessarily high commissions to financial advisers. The only downside of the book IMO is that people outside of the business world (education or profession) might find it bit hard to grasp certain arguments and underlying theory.

[Peter Walt · Rating 3 out of 5]

If you're British and want to understand the basic lay of the land of retirement and investing, John Kay's book is for you. A good read, you get to understand enough about ISA's to intelligently approach advisers or ask questions to dismiss the bad ones.

Quite thorough. Would only appeal if you have skin in that game, if you're an American reader I'd recommend Chris Hogan's Retire Inspired.

[Blago · Rating 4 out of 5]

A fantastically and very in-depth written book, giving any person interested in managing their own finances a great deal of knowledge and ideas. A must read for anyone who considers themselves proactive.

[MAK · Rating 3 out of 5]

Informative book, great for a beginner who knows nothing/little about investing. Let down by its lack of proofreading, many spelling mistakes (bunds instead of bonds), incorrect table references and maths errors. Still a useful book.

[Michael Macdonald · Rating 4 out of 5]

Insightful and wise assessment

John Kay assessment of a complex and dry subject is delightful. Questioning the value of conventional wisdom with an intelligent guide to financial economics, this is a fascinating introduction to disentangle bravado and high charges.

[Gemma Hegarty · Rating 3 out of 5]

If you are uncomfortable with finance/maths and are thinking about starting investing, I wouldn't read this book first, nor cover to cover, because you may find it overwhelming. Good content though, good examples...

[Lucian Neag · Rating 5 out of 5]

This was my first book about finance and investment, and although I didn't understand it completely (a lot of new terms) - it was illuminating and gave me some confidence to start investing.

[Robert Pocock · Rating 5 out of 5]

Excellent book. Well written and relatively concise. Lots of valuable advice for anyone.

[Oli · Rating 5 out of 5]

Eminently sensible.

[Jyoti Sharma · Rating 4 out of 5]

‘Inspired’ by Graham and Dodd and in an awe of warren buffet. If you are looking tips for security selection, m afraid it’s a wrong place! But the book does give you a peek in the theories of economics and finance. And decent explanation about the funds and bonds.

[Russrook · Rating 4 out of 5]

Really helpful guide to investment. My friends who are far more expert than me say that some of his advice is slightly out of date but nonetheless a really engaging and accessible survey.

[Alex Osz · Rating 2 out of 5]

Decent book but could be a quarter of the length. To be honest you should only read the last 2 chapters

[Nic · Rating 4 out of 5]

I have a feeling this is the 1st of many times I read this one.

[Fahd Younus · Rating 5 out of 5]

Brilliantly simple book on wise investing. A must-read for all those intending to invest in equity, bonds and/or real estate. John Kay is a lucid writer with well-rooted principles in economics which cut through the thrill and glitter.

For me the best takeaway was the essential concept of 'illuminating but no true'. The concept is useful beyond what I can express...

[Theo Kokonas · Rating 4 out of 5]

Great book. Written by an influential economist, it goes into the nitty gritty of explaining how finance and investment works for the lay (i.e me). I read the book twice to be honest - I picked up a year ago and finished it and got some useful info out of it. I reread it again now as I was in the process of putting together a UK Pension plan so I wanted a refresher and to pick up on some of the things I missed last time. It's not short of detail, hell no, there is no waffle in there at all. At specific points it does make certain assumptions about the level of basic finance understanding the audience has which is higher than my level - I didn't actually 'get' certain things. However this doesn't detract from the fact that it's well put together and I'm looking forward to an updated edition.

[bookreader]

Kay believes, with good reason, that today's financial services industry delivers poor service to its retail customers. He aspires to teach lay readers how to be their own financial advisers. But there's a problem for his intended audience: they're far more likely to understand the precepts of Suze Orman than the thorny prescriptions of a learned economist. Writing like the CIO (which he is) of Oxford's richest college, Kay presents an ingenious case study (in the form of Robb Caledon, a British shipbuilder nationalized by Parliament in 1976) in thinking about investments probabilistically, in expected-value terms. He engagingly explains recondite investment topics like market efficiency, structured products, and portfolio correlation. Much as I enjoyed Kay's book, however, it's written for investment practitioners; it's way beyond the ken of his target reader.

[CB · Rating 4 out of 5]

Very good content, although dated a bit as it was written at the beginning of the financial crisis. The textual approach (long chapters) was not very helpful to remembering the key takeaway points - a summary or recap at the end of each chapter, or even a checklist of things to think about as an epilogue. E.g. there is a detailed discussion of cost averaging, but by the end of the book you may have forgotten about the need for this amongst all the other advice.