Introduction

I never imagined I would write a book. Less still one on investment. But life has surprises in store for us all, and it's best not to squander them. It may sound obvious, but you have to turn problems into opportunities. Do so naturally, as a reflex and across all aspects of life - whether personal, professional (as an investor making the most of market turmoil) or more generally in the world around you.

When I first read Peter Lynch's One Up On Wall Street1 at the start of my career, it seemed to provide such a clear and simple explanation of how to go about investing that there wasn't much more to add. The experience of various years did little to change my opinion. Other books that I encountered along the way, especially the classics, appeared to complement and reaffirm this view. It seemed that the path was already well trodden.

However, gradually - almost imperceptibly - things began to change. Perhaps because of experience, or a touch of vanity. Either way, in recent times it has struck me that none of these books were an exact reflection of the principles or the way of working that we bring to investing (I say 'we' because while this book represents my ideas and experiences, I have not been alone on this journey. My approach to investment has been refined and implemented alongside a team of colleagues with whom I have had the good fortune to work over the years, first at Bestinver and now at Cobas.) For example, they seldom ever talk of the right way of viewing the economy. A people-centric approach can be especially useful at certain crucial points in time. And so, gradually, the germ of an idea began to take root in my mind.

By coincidence, in October 2010 I was invited to give a talk to the Value Investing Congress in New York. I accepted, glad to have the opportunity to talk about our adventures in the cradle of modern investment. In preparing for that conference, I was forced to reflect on how our approach compared with that of other value investors. In the United States this style of investing is more common than in my home country of Spain. In doing so, I was able to pinpoint some differences, which form the hallmarks of our approach to investing. Many of us go by the title of value investors, but none of us are doing exactly the same thing.

The conclusions from that analysis, which I explained in the conference, form the basis of our approach to investing. And there are indeed some significant differences from the rest. Perhaps most importantly, our guiding framework is based on an Austrian view of the economy and we take patience to the extreme, one of the key traits for investing.

However, had it not been for circumstances, this germ of an idea for a book would probably have remained just that, since I lacked sufficient time to take the project on. Being an investment manager is a full-time job and the effort involved in writing it would have meant spending time away from my family, something I have never been willing to countenance.

However, an enforced two-year 'gardening leave' following my departure from Bestinver provided a window of opportunity. Friends soon encouraged me to start writing and I began to give it serious thought, although it wasn't a straightforward endeavour. In addition to being rather shy, writing has never come easy to me - despite my lifelong love of reading.

However, I received two visitors in London at the start of 2015 who kindled the spark to embark on this project, although I was still unsure whether I would end up publishing it. Modesty is not easily overcome, especially when it is one's first foray into the literary world.

The first visitor was the son of a former client, Ángel Pardo junior, a philosopher, writer, and investor. We dined in a stunning brasserie in Chelsea, crystallising - albeit not in Stendhal's sense - the idea for a book and striking up a long-distance friendship which proved to be both profound and essential. He suggested that I free myself from the constraints and not worry about forcing the words. I should just start writing about what was going through my mind, letting the ideas flow; the book would come together later, of its own accord.

I liked the idea. A book on investment doesn't need a grand beginning or end, nor does it need a thesis, not even a murder. What's more, as somebody for whom writing does not come naturally, it freed me from the torment of an empty page or iPad screen. I would simply write what occurred to me, without any expectations. In fact, I had already sensed that the 'book' would come in handy for me, even if I didn't end up publishing it. It would serve as a collection of ideas, forgotten events, reactions, etc., helping to breathe new life into my investment outlook.

Ángel has played a key role in this endeavour, and I am greatly indebted to him. Not only did he light the fuse, but he also provided invaluable support from the side lines, proffering advice and, especially, a guarantee that somebody would read the manuscript and give their thoughts on it. Without his endorsement and my wife's, who was obviously the first to read it, the manuscript would never have seen the light of day, remaining little more than a few personal scribblings.

The second visit came from a possible editor, Roger Domingo, from Ediciones Deusto (Grupo Planeta). Daniel Lacalle had put me in touch after having successfully published several books with them. Not only was his publishing house the best fit for my venture, but Roger shared a similar approach to investment and the economy, which would help to smooth over any discrepancies that might arise. Furthermore, he was happy to let me write the book how I wanted, both in terms of structure and marketing. I had the reins, even the option not to publish, which was an essential prerequisite. Moreover, he offered me the option to publish an English version with John Wiley, which seemed like the perfect match, given their long history in the classics of investment.

Inspired by their support, I got down to writing and soon had a clear structure in mind, which has turned out to be a tribute to one of the most important books of the Austrian school (in every sense), Ludwig von Mises' Theory and History.2

The first part of the book discusses the backstory, my education and journey as an investor. The events that took place and how my colleagues and I responded to them. When all is said and done, I have lived through the end of the longest bull market of the twentieth century, the tremendous tech bubble at the start of the twenty-first century, and, alongside my colleagues, the biggest housing market and credit bubble in Spain's history and the subsequent bust along with other markets, amid the biggest global stock market crash since the 1930s.

This is a story that may prove of interest to others wanting to learn from the past. However, it is of relative value since ultimately, it's a personal tale which shouldn't serve as a precedent for anyone. For me it was also a good opportunity to reflect on forgotten events, some 20 years later.

In hindsight, perhaps the greatest achievement was managing to make the most of the almighty bull markets of 1996, 1997, and the start of 1998, with the Spanish stock market tripling in value in 36 months. Not only did we succeed in posting similar returns to the market, but we did so taking on very limited risk (holding high amounts of cash, some 20%), which enabled us to steer clear of the problems that were to come in the hangover from such a pronounced bull market.

The second part of the book explains the underpinnings of our investment process; the theory, in von Mises' words. After giving it some thought, the first chapter of this section - Chapter 4 - is dedicated to economics: the Austrian School of Economics. It's not a typical approach for a book on investment, and chronologically it's not the first that comes to mind either, but now that I sit down to summarise these ideas, I believe it does make logical sense to start with the foundations.

A building is built from its foundations up and having the right economic reference framework is always advantageous. It won't always come into use in the investment process, but it provides peace of mind in terms of having some idea of the possible alternative economic scenarios - despite never quite fully knowing which of these scenarios will come to bear - and sometimes, only occasionally, it will help us predict what's going to happen.

The first floor of the building gets stuck into investment proper: Chapter 5 enters into battle, explaining the difference between real and monetary assets. Real assets are the only sensible option for the long-term investor. And as I explain, among the different types of real assets, there is a major advantage to investing in listed shares. If we are willing to accept the logical and empirical evidence, reading this book could be a turning point for those who are sceptical.

Some real assets, such as gold, have performed worse than monetary assets over the long term. However, the peace of mind that comes from knowing that real assets will always maintain our purchasing power is such that even the worst examples are preferable to the best monetary assets.

We dive into the world of stock market investing in Chapter 6, explaining how investors need to choose between passive, semi-passive, and active investment. The latter can be done through mutual funds or by investing directly in shares. It's no easy choice...