Book Review: Investing Through The Looking Glass

Tim Price takes on the financial establishment in Investing Through the Looking Glass: A Rational Guide to Irrational Financial Markets (Harriman House, 2016).

He skewers banks, central banks, economists and financial theorists, fund managers, and the financial media. He also exposes what he considers to be core delusions of the bond and stock markets: that “bonds are safe assets that rightly form the cornerstone of long-term savings schemes” and that “the stock market always rises over the long term and is therefore the best place for your savings over the long run.”

The following passage illustrates both how cleverly he writes and where his heart lies.

The downfall of the Western financial system began during an episode of Bonanza. Speaking to the American nation on television on 15 August 1971, interrupting the popular western series in the process, President Nixon announced that the US dollar would "temporarily" no longer be convertible into gold. (The temporary prohibition lasts to this day.)

Price elevates Mises over Keynes, Mandelbrot over Markowitz (who “conjured up a square theory in blissful intellectual isolation and then hammered it into the round hole of the market, with little bits of relevance flying off the theory each time”).

Price is not content to define problems. In the second half of his book he offers solutions. First, he suggests that “value investing is one of the few investment approaches that still makes sense.” He finds Japan particularly attractive, since almost 40% of the Topix stock index trades below one times book value, and over 50% below 1.5 times book value—“Ben Graham’s preferred cut-off demarcating attractively valued businesses from the rest of the market.”

Second, he advocates investing in rules-based, trend-following funds. Trend following “can be like coming in to work for a fortnight and getting your arm broken, every single day. But the rewards can be astonishing.” Of the 11 funds/companies (Berkshire Hathaway (NYSE:BRKa) was included as a company) that have been in business for an unbroken period of at least 20 years and have generated, on average, over 20% annualized and audited returns, six of them are systematic trend-following funds. Investing in trend-following funds not only holds out the promise of outsize returns but these returns “will likely be delivered with more or less zero correlation to the stock and bond markets.”

Third, gold is “a must-own asset to help ensure the preservation of our purchasing power.” Gold is not, as Keynes suggested, a barbarous relic; “it is the leaders of the world’s central banks that are the barbarous relics here.”

One doesn’t have to agree with Price to appreciate this book. He makes his case in razor-sharp prose.