This is an easy-to-read book.
In fact, I put aside Nick Offerman’s autobiography, Paddle Your Own Canoe, in order to read Clueless, thinking it would be a task, but it was not.
Mr Dennehy is very fond of short, sharp sentences and makes it easy to dip in and out of the book.
It is therefore readable and understandable by the consumer as much as the investment professional.
He sub-titles the book: “An elegantly simple strategy to help you consistently pick winners and transform your portfolio, [self-invested personal pensions] and Isas.”
Mediocre at best
His challenge to the investment community is the assertion that “92 per cent of funds are mediocre at best”. Wow, that is some assertion.
So how does Mr Dennehy arrive at that viewpoint?
He has split available funds into three categories; vintage (the ones that fall into the 8 per cent), mediocre and ugly – I like that title – and describes how his research identifies that vintage-rated funds grow more than twice as much as ugly funds.
Some of the tables that he uses to show the monetary impact of this are over very long periods of time, but none the less quite dramatic.
Lazy or stupid?
So why do these mediocre and ugly funds exist?
Mr Dennehy poses the somewhat cruel question: “Are fund managers stupid or lazy?”
I will leave them to answer that question, but I suspect that they are neither.
Mr Dennehy describes the different methods of investing and concludes that “value investing, buying what can be identified as cheap without good reason, is hard work for private investors, but momentum investing, buying winners based on the assumption that they will continue to do well for a certain period of time, isn’t”.
So his proposal is to buy the three top rated UK growth funds, sell these six months later and then buy the three top rated funds of the most recent three months.
Repeat this every six months. This strategy is based on the dynamic fund ratings created by his own company.
This is a book worth reading by both investors and investment professionals. Indeed, Mr Dennehy hopes that an investor reading it will help them to engage more positively with their adviser.
His “start this plan now” chapter, together with the appendix setting out the questions for advisers and their clients, may well help this engagement process. A worthwhile read.
Nick Bamford is a chartered financial planner at Informed Choice
Published by Brian Dennehy