Book Review: “Slow Finance” by Gervais Williams (Bloomsbury 2011)
Gervais Williams has been a successful UK small-cap fund manager for over 25 years. He has written this book in response to the global financial crisis and in order to advocate what he calls: “Slow Finance.” He starts by providing some helpful perspective on the financial crisis and its causes. He explains that over-the-counter derivative contracts now exceed $14tn – a vast number, way in excess of the US debt ceiling. He talks about the credit boom and the high levels of individual and government indebtedness. He then uses the food industry as an analogy and describes the backlash against ‘fast food’ with the emergence of the ‘Slow Food’ movement. (p35) This ‘Slow’ idea has extended more generally to advocates of Slow Travel, Slow Parenting, Slow Fashion, and generally of slowing down. Williams picks up on this trend to propose Slow Finance. He describes the principles of Slow Finance as: avoiding complex instruments and high levels of debt, going for companies with careful sustained business plans, preferring small companies to large ones, preferring businesses which demonstrably benefit the national community, and actively picking stocks rather than following a benchmark. (p38-39) Much of the rest of the book is then taken with defending a value based style of investing in small-cap companies which pay dividends, with extensive reference to the various studies of Dimpson and Marsh, and Benjamin Graham’s classic work “The Intelligent Investor”.
I find myself in sympathy with much of what Williams says. I would also like to advocate Slow Finance, but would like to extend and modify the principles that he proposes. I certainly agree with avoiding complex instruments and high levels of debt. Our mantra at WHEB is ‘Long-term, long only’ which fits well with the Slow Finance idea. I would extend Williams’ ideas about careful business plans to include businesses that are well governed and that have ‘sustainable’ business plans – in every sense of the word. I like his focus on businesses that benefit the community. Here at WHEB every business we invest in is benefitting people or the environment by providing a solution to a sustainability challenge. Indeed – it almost sounds like Williams has become a recent convert to SRI.
In face he does briefly discuss what he describes as “Socially Responsible Investing” (p40). In his discussion he admits that: “SRI shares the same ideals as that [sic] of Slow Finance.” His assessment of SRI is that: “There may be excellent arguments as to why it should be pursued, but these are mainly intellectual. In the absence of an emotional drive, it doesn’t get a lot of buy-in from the decision makers in the financial world.” (p40) Perhaps Williams hasn’t met the people in the SRI industry that I have! My experience is that they are much more passionate about their work and the whole SRI agenda than mainstream investors are about what they do. However, he does correctly point out that SRI principles are often: “not truly integrated within the investment process.” (p41) Whilst this is generally a fair assessment, it does not apply to every SRI fund.
Integration of SRI into the investment process is now a rising trend and we at WHEB are very much at the forefront of this. Williams seems unaware of latest developments in thematic and sustainable investing, whereby environmental, social and governance research is fully integrated into analysis of companies and a key factor in determining their long-term potential and risks. It is also a shame that Williams does not discuss shareholder engagement or voting at AGMs at all which we consider to be a crucial part of our stewardship of investments.
In the book, Williams introduces the concept of ‘Investment Miles’, which again picks up on the idea of ‘food miles,’ which has been extended to ‘fair miles’ in the food industry. He advocates minimising Investment Miles as a way of minimising the gap between the investor and the business as well as helping to boost one’s own local economy. (p107) His formula multiplies the number of miles from the investor by the market cap of the company and divides this by the number of employees. A smaller number is better, so this prefers small local companies with a large number of employees. I think this idea would be more suitably applied to venture capital investment than to listed equity investment. In my experience I sometimes have better access to information and management of overseas companies than UK companies. I would not want to only invest in local businesses in a listed environment. I sympathise with the points he makes about the risks of investing in emerging markets though (p97-99), and note that his own analysis found that the German market outperformed the Chinese market between 1985 and 2009.
Williams has written a timely and interesting book which is well referenced and complete with an index. I like the idea of Slow Finance and I think it deserves to gain momentum as a concept. Surely Slow Finance should also include the idea of longer holding periods for investments – something Williams fails to mention. My view is that funds should be forced to disclose average holding periods so that their investors can see just how fast or slow their investment managers are. It seems to me that Slow Finance when taken to its logical conclusion will lead more people to move into sustainable investment – investing for the long-term in companies that are providing solutions to sustainability challenges. Indeed, sustainability should be right at the heart of Slow Finance as people think more about the long-term effects of their investments.