Book Review: 'Smarter Investing' (3rd Edition) by Tim Hale
Updated: Jun 20
Tim Hale is a popular figure amongst the financial planning community – he runs Albion Strategic Consulting, which provides investment consultancy services to many financial planning firms throughout the UK.
‘Smarter Investing’ was first published in 2006, with the current, 3rd iteration being released in 2013 (more on that later!). It aims to help you create an efficient set of rules to build an investment portfolio and contains discussion around behaviour to help you stick to your plan.
Investing can be simple
The book begins with an overview of how investing can be simple, but it is never easy, referencing the oft-quoted DALBAR report, which compares (private) investor to investment returns. This analysis indicates that private investors have generated lower returns than the actual funds they hold. This underperformance is sometimes known as the behaviour gap and can be for many reasons, including:
Attempting to time the market.
Investing in fund managers with recent strong performance.
However, private investors cannot be too hard on themselves. Tim points out that most active managers also tend to underperform the market after costs and that picking future outperforming fund managers is very difficult.
Changing investing landscapes
Tim covers how the investment landscape has changed dramatically, with traditional stockbrokers becoming much less popular and index funds challenging active funds for market share. He covers the importance of filtering out the noise, making your investing experience more relaxed.
Portfolio building blocks: water and whisky
The next part of the book looks at the building blocks of a portfolio, starting with asset selection, risk and diversification, and what that means in practice. Equity ‘factor’ risks (small and value) are covered, as are bond risks (term and credit). Consideration is given how much of these 'tilts' you may want to include in your portfolio and, in addition, whether you want to 'tilt' towards emerging markets.
Once the building blocks are selected, Tim looks at the construction of the ‘Returns Engine’. He uses James Tobin’s Water and Whisky approach and gives guidance regarding which of these portfolios might suit an individual’s needs based on their particular requirements.
Implementing the portfolio
The book then looks at the implementation and evaluates what funds might be used for the portfolio. If there is one criticism, the book is now eight years old, and the investing offerings have transformed over that time. Many of the funds referenced no longer exist (although it's interesting to see for the funds that still exist how the fees have fallen!).
The perennial discussion around hiring an adviser vs DIY is covered, along with the items that will need to be addressed (rebalancing, tax etc.) if you are to go it alone.
The final part of the book looks at the historical returns of the various asset classes that should be considered, including what the biggest falls have been historically (a point that is often overlooked). Linked to this is a discussion around asset classes that Tim thinks should be avoided and why.
This is a comprehensive book containing detailed, technical discussions. It's, therefore probably unsuitable for investing beginners (Robin and Ben’s book is a good place to start). However, for the more experienced investor, this book would be my first recommendation. A fourth edition with an updated list of funds would be very desirable. In addition, a refresher on the potential downsides of factor investing would be useful, especially considering how the value factor has performed over the last decade.
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Although best efforts are made to ensure all information is accurate, you should not rely on this blog for your personal situation or planning.
The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.