How to Own the World by Andrew Craig [Book Review]

How to own the world - Andrew CraigWhen hearing about financial independence and early retirement you usually end up owning a global low-cost index tracker. More stocks than bonds if you want it risky, less if you’re risk-averse.

Having read so many books on the subject, that’s what I was expecting to find upon reading “How to Own the World” by Andrew Craig after a reader recommended it to me. It’s in the title anyway!

But no. I mean yes, apart from that, this book has opened my eyes in many different ways. Although you cannot time the market you can do better than the average investor by being proactive to undervalued assets (oh damn, did I just paraphrased the word active investing? sneaky!).

I’m the biggest proponent of passive low-cost investing and this is the strategy I have followed and will follow for years to come. But it’s interesting to see what tilts are out there. This is where most of the learning in life comes from anyway.

Let’s take one step back and see what this book is all about.

DIY investors or want-to-be DIY will love How to Own the World as it teaches you why you will handle your finances better than many professionals. Fear not! Education is the key to success in anything you do.

As expected, owning the world means owning all companies and bonds in all countries via a global fund. The rationale behind this is simple: The world’s economy keeps growing, which along with inflation gives us a positive return on our money.

There is no reason to single pick stocks that you think will do better than the average. That’s because this is a zero-sum game and you can lower your risk by owning all stocks. By owning a chunk of the world’s economy, you are guaranteed to do well enough long-term speaking.

On Inflation

I was surprised to read the book’s theory on inflation. To summarise, Craig thinks there is significant inflation in the world, much higher than the 2-3% the media and government report. That’s because inflation is measured in different standards than what it used to be 20 years ago.

Basically, unemployed people more than one year no longer count in the statistics, governments substituting higher priced products with cheaper alternatives (e.g. cod with farmed salmon) and “hedonic adjustment”. This hedonic adjustment actually struck me. Governments will add a product at a reduced price for the purpose of calculating inflation if you are getting more for your money as technology improves.

For example, getting the new iPhone may still cost £800 but it counts as £600 since you’re getting more for the same money this year. That applies to almost 50% of the total products!

According to the old definition, today’s inflation would be somewhere between 8-12%. Not sure if all these are a conspiracy theory. At first, I was very sceptical but it’s definitely worth thinking about it deeper.

Why and When to Own Gold

A good chunk of the book focuses on explaining the purpose of gold and inflation in the modern society, how to own it and why. And that’s not necessarily a bad thing.

Gold prices go hand in hand with inflation.

Prior to reading this book, I was reluctant at owning gold and considered it a pure speculation. Although I believe gold is risky and very volatile, I can see why one can make it part of their portfolio.

To explain, owning gold is like owning inflation. We have seen how governments are printing money in the past 5 years. The sophisticated term is called Quantitative Easing (QE). In other words, countries invent more money to fuel the economy and give it a boost. They’re doing so by buying their own bonds.

But all things being equal, having the same amount of goods and more money mathematically leads to higher prices. The everyday goods become more expensive, property and gold included. That’s why gold is considered a hedge against inflation.

It has always been part of history as a store of value. Given the price levels of the stock market, gold serves as an insurance against a portfolio downturn.

But not all times are great for buying gold. Assessing gold’s price is important in order to find good opportunities. Comparing gold to stock price is a first smart move. Simply taking the Dow Jones levels and comparing to gold price gives a rough estimate.

As of 20th April 2018,  Dow Jones is trading at $24,664 and gold at $1340. The ratio is about 18.5 to 1. This ratio has been 2:1 in the past and 7.5:1 when the first edition of the book was written in 2011! High-interest rates will drop the price for gold, but we are far from this case at the moment.

Also, gold’s supply is fixed with minor additions every year. I certainly didn’t know world’s gold can fit into two Olympic swimming pools 🙂

Silver is also mentioned as an alternative to gold since it has a higher industrial use and it can supplement a precious metals portfolio percentage.

How to buy Gold

Craig suggests buying gold using BullionVault, a company that holds gold, silver and other commodities in physical form. I did a bit more research and their expenses are not that bad. For gold: 0.1% annual storage fees plus 0.5% transaction fees if starting out (first 75,000$) then 0.1%, including insurance.

Two other hassle-free ways I found are the iShares Gold Trust Fund (IAU) (0.25% fees) and the GLD ETF (0.40% fees).

Careful though, because selling gold will occur capital gains taxes if outside of an ISA. However, the first £11,700 (18/19) gains here in the UK are tax-free, regardless of your income.

On Property

I wouldn’t expect to read this book without a mention about property, and I was right. Craig hits the nail on its head and explains all the different ways you can evaluate property investment.

As we have seen in the recent How to tell if the property market is on sale the most common ways to assess a property market are the rental yields, potential house price increases, the cost of money (aka interest rates) and average house price compared to people salaries.

Don’t fool yourself that property prices always go up, because from 1900-1960 property prices didn’t appreciate at all! You can’t go wrong with bricks and mortar can become an expensive lesson if you don’t assess the fundamentals.

Property as an asset class wasn’t something entirely new to me, but it’s good to think of the relative wealth as opposed to absolute wealth. Owning a house with a stagnant 5-year price tag while everything becomes more expensive is like losing wealth. That is why thinking in terms of relative wealth is helpful. Having somewhere to live though always feels better.

I don’t think I’ll be able to time the property market 100%, but rough timing is good enough for me. I want to have a great house, spare cash and maybe a buy-to-let. Well, who wouldn’t? 😉

Shares, bonds and all things investing

If you, like me, live in the UK and read most of the personal finance books they all talk about IRAs, 401k etc. Although it’s good to know what’s around if I relocate to the US, I’d like to know what’s available in the UK!

Given the book is written from a UK perspective, I quite liked the mentions of ISA accounts, Shares examples using Tesco and Sainsbury’s and bonds in £££.

In fact, the book scratches the surface on simple stock fundamentals such as Earnings per share (EPS), P/E ratio and earnings growth. To be honest, that’s all I want to know as I won’t try to become the next best financial analyst.

Understanding the basics of stocks and bonds will definitely give you enough confidence to put your money to work. Well done Craig here, indeed!

Going deeper into global index investing, Craig suggests you keep things simple by owning a global tracker fund. Different portfolios are mentioned such as The Permanent Portfolio (25% bonds, 25% stocks, 25% gold, 25% cash) which surprisingly has done really well in the past 40 years.

Not everything in this book is great. In particular, I signed up for the DailyWealth newsletter after reading the recommendation. The Stansberry research newsletter sole purpose is to upsell you the paid services. I understand this should be a part of it, but I’d expect to get some value out of it.

I have yet to sign up for MoneyWeek newsletter. The first 6 months are free so plenty of time to evaluate if it’s worth continuing!

The book also recommends investing a lump sum in the “dollar-cost averaging” way. This means that you should split your lump sum into 12 or so chunks and invest over time. Although this will spread your risk and smooth out the volatility, 2 out of 3 times you will be worse off. In other words, it’s good for your emotions but not for your returns.

By the way, if you have some spare time to get into technical analysis and want to trade, then there is a small chapter dedicated to explaining the basics with pointers to books and resources.

How to Own the World book – Should I read it?

How to Own the World by Andrew Craig is a great book overall. Despite not agreeing with everything Craig says, I highly recommend you buy it and read it. Twice. Kindle really helped with taking notes and highlighting the important bits!

Fundamental analysis is key to investing. Craig helped me understand and evaluate each asset class better and suggests practical steps to implementing an investment approach. Is oil too expensive? What about stocks, gold and property?

I know I will not be investing 20-30% in gold and silver. That’s just too high for me.What do you think? But the book helped me open my horizons. Maybe I’m too risk-averse or too sceptical. I’ll dig deeper with two related books: The Ascent of Money: A Financial History of the World and The New Case for Gold.

I guess allocation changes with your age too, the younger you are the more risk you can take. But even now that I’m 32 years old, 30% in precious metals feels just too high. I will steal the expression from the book:

As you get older you should worry more about the return of your money rather than the return on your money.

The final verdict is that investing in all asset classes has a positive return on your money. It has done so historically for a very long time and it’s set to do in the future. The rich have grown their wealth for centuries, it’s time for the middle class to take action.

Happy Reading!

Disclaimer: This is not investment advice. Always do your own research. This post contains Amazon affiliate links which means if you purchase through the link I will make a few pennies at no extra cost to you. And thanks!

4 COMMENTS

    • Ah… this list… Mine keeps growing faster than I’m able to consume it. But I guess that’s a good thing – I’ll never run out of good books to read 🙂

      Thanks, Fumonchu!

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