Peter Sharkey

I’m not sure if I’ve become easier to buy Christmas presents for or not, but socks and ties were conspicuous by their absence as gifts were unwrapped en famille last weekend.

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I watched a BBC programme presented by Alan Yentob a few weeks ago which suggested that books could be obsolete within a couple of decades, but there’s no chance of that in our house. I have plenty of reading material to keep me entertained for the time being and given the volume of investment-related books I gratefully received on Christmas morning, I’m wondering whether this is the time to start a Masters in the subject.

Two publications immediately found their way to the top of my burgeoning pile: The Warren Buffett Stock Portfolio by Mary Buffett and David Clark, easily readable in an afternoon, and Thinking Fast and Slow by the Nobel prize-winning Daniel Kahneman.

Who wouldn’t want to discover the traits Warren Buffett searches for before investing in a company? While Mary Buffett and David Clark do not weigh readers down with masses of complicated formulae and detailed examples, the half dozen or so points that emerge from their book are extremely useful.

Constantly re-iterating Mr Buffett’s advice to buy companies that enjoy a “durable competitive advantage”, the book is laden with some eye-popping examples of his investment prowess and straight forward explanations showing how investors can follow suit.

Thinking Fast and Slow is an enormous tome, though Daniel Kahneman’s masterful ability to weave a wonderfully rich and compelling narrative make it an absolute joy to read. No wonder it boasts a list of credits as long as your arm; I’ve rarely read a more engrossing book.

Yet it cannot be described solely as an investment-related textbook, focusing instead upon our conscious and unconscious thinking and highlighting the tricks our mind plays when making investment decisions (amongst others), as well as the techniques we may apply to circumvent them.

For example, Kahneman shows that even when confronted with unequivocally hard facts relating to flawed investment decisions, private investors are reluctant to change their entrenched strategies. Accordingly, it’s the author’s belief that much investment performance owes more to luck than skill.

To prove his theory, Kahneman tells us of the researchers at the University of California, Berkeley, who analysed the equity trading accounts of 10,000 investors over a period of seven years. In particular, they examined the occasions when investors had sold one share and almost immediately bought another and the subsequent performance of both shares over the subsequent two years.

Remarkably, the shares that had been sold out-performed their replacements by an average of 3pc a year.

Indeed, few knee-jerk investment decisions (“I’ve sold x, so I must immediately buy y”) rarely result in success and Mr Kahneman re-iterates the merit of looking before leaping and potentially losing money.

“For the large majority of individual investors,” he comments after describing the average investors’ behaviour and entrenched attitudes, “taking a shower and doing nothing would have been a better policy than implementing the ideas that came into their minds.”

This is a marvellously thought-provoking book capable of providing a solid cornerstone to this and any other new year’s investment resolutions.