26 February 2019

Book Review: Clueless by Brian Dennehy

When investing for the future, there is debate on how much significance should be placed on the past.

by Laura Langton

Investment Management Trainee


As with all things, hindsight is a wonderful thing and the “what ifs” can cloud judgements going forward. This month’s book club choice, “Clueless” by Brian Dennehy, is particularly strong at highlighting the potential from historic events, with some alarming statistics that grab the reader’s attention.   

Clueless focuses on one of the four main investment strategies; Momentum investing. Momentum investing, as explained by Dennehy, is a system of buying funds that have had high returns over the past six months and selling those that have had poor returns over the same period.

Dennehy discusses how Momentum investing removes the emotional judgements from decisions, focussing on specific mathematical views to draw conclusions. Dennehy is a clear advocate of this and throughout the book there are examples of the returns that could have been realised if an investor had adopted a Momentum strategy in previous years. However, there are issues that can arise from using mathematical logic as an investment process as the markets are not a purely logical and mathematical setting. There are a variety of reasons why we make the investment decisions in practice rather than using theory and the success of businesses can be determined by the nature of management and customer sentiment, something that cannot be valued through a mathematical theory.

Clueless does reiterate key themes for any investor however, including the need to evaluate your “gut” feeling and ensure you are not making rash decisions because of others or sentiment. Alongside this, investing is not a “quick win”; it requires longevity and the ability to ‘sit on your hands’, or as Dennehy refers to it, “glorious inactivity”. The main theme that I will take away from Clueless, as someone just embarking on their investing career, is that sometimes doing nothing is better than doing something. Dennehy refers to Daniel Kahneman’s “Thinking Fast and Slow”, which we read and reviewed several months ago. Kahneman explores the two systems in the brain; the fast element which makes instinctive and automatic decisions, and the slow portion of our brains, which requires active thought and uses calculation and deliberation in order to come to conclusions. It can sometimes be attractive to rely on the fast element of your brain, however taking the additional time to engage active thought could lead to a different conclusion, which may be more beneficial.

Clueless provides the reader with an insight into Momentum investing as a process and the benefits that could be seen from this. However, there is never only one recipe for success and although there are evident benefits from using Momentum investing as a strategy, there could be a better strategy to adopt depending on your personality and circumstances. As Dennehy says himself, “you must focus on an investment process that is practical for you, apply it over years with discipline and your success should be assured.”

The JM Finn  Investment Book Club was convened in the hope that, month by month, some of the wisdom of investing gurus such as Warren Buffet, Charlie Munger, and Mohnish Pabrai might rub off on the participants eager selves.


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