Review of "Free Capital: How 12 Private Investors Made Millions in the Stock Market" by Guy Thomas

A few months ago, I received an unsolicited email which is reproduced in the box below.

I thought the email was particularly well written and glanced at the free chapter.  Once I saw that the author had persuaded John Lee (now Lord Lee) to give him an interview, I went to Amazon and bought the book. The reason is that I know John Lee personally although not closely, and have been reading his Financial Times columns for many years. It was a great coup for Guy Thomas to get a detailed interview from him.

I also wrote to Guy Thomas and congratulated him on such a well written marketing email. He replied by reminding me that we had corresponded about a year previously when I had reviewed his paper on the investment implications of tax privileged investment accounts, something that I had forgotten.

I read the book shortly after purchasing it and found it almost impossible to put down.

Overview of the book

The book consists of profiles of 12 private investors, based upon interviews. Each of them has accumulated at least £1 million and in many cases much more from stock market investment. The profiles cover the investors' backgrounds and how they first became interested in the stock market; how the interest progressed to the point where they gave up their day job; and how they spend their days now. Each describes their current investment approach and reflects upon lessons learned from life as a full-time private investor.

Two of the individuals are identified; John Lee (now Lord Lee) and Peter Gyllenhammar (a relative of Pehr Gyllenhammar.) They are identified because they are so well known that it would be very difficult to write anything meaningful about them without revealing some identifying information.

The rest have pseudonyms. However the author stresses that biographical information which influenced the interviewees' psychological development is generally accurate. However other details such as hometowns and former employers have been modified or left vague to protect the anonymity of the individuals. The author took care to maintain the veracity of all investment details.

The investors have very different backgrounds. Some are highly educated, some are not. Many had careers in finance or banking, whereas others had no previous relevant experience. They also differ in their investment holding periods, with one being a day trader while several are long term investors. However they have some common features:

• All of them take investing seriously. That means spending most of each day on investment related activity, being as serious as going to work. That does not mean spending the day buying and selling. For the long term investors most of each day is spent studying the existing holdings or evaluating potential new holdings, not engaging in investment transactions.
• Each of them is very self-reliant when it comes to investment decisions. They do their own research and analysis, rather than relying upon published “tips.”
• They have particular styles and areas of focus, and stick to them. They have recognised that the goal of investing is to make money, and that does not require them to understand everything about every type of investment. Instead they specialise.
• Their holdings tend to be concentrated; if your holdings are spread over the whole market, you will by definition make market average returns.

What does this mean for you?

As with many other things in life, in investing the financial rewards mainly depend upon the skill and effort one applies. You cannot be an outstanding investor without the level of dedication these investors show, and believing otherwise is financially dangerous.

As Warren Buffett has written elsewhere, if you are not prepared to put in the effort and learn, then the safest thing is for you to put your capital into a low cost index tracking fund. Simply by avoiding the high charges many investors suffer, you will achieve returns slightly higher than the average investor.

If you are prepared to put in the effort to learn, and prepared to be hard working and disciplined, then it is possible to make good returns, and sometimes quite exceptional returns, as these investors have shown.

Concluding comments

Reading this book will not teach you about investing. That is not its purpose.

However it is very well written and very interesting to read. Reading it may inspire you to learn more about investing, and to take greater responsibility for your financial future. I recommend it to everyone who is already an investor, and also to those who are not.