Isaac Newton was, by all accounts, a fairly bright spark. Responsible for deducing the laws of gravity, he was a key figure in the scientific revolution that eventually led to today's ongoing wealth revolution. But while his famed intelligence certainly made him unique, Newton's gifts were ultimately useless when it came to investing. Like many local people, Newton was burnt badly on the stock market, in his case losing all his money in the infamous Great South Sea Bubble. That was almost 300 years ago and little appears to have changed. The similarly infamous 'dotcom bubble' claimed a number of victims when it burst. Why do intelligent, successful people fail so often on the stock market? A new book, Fortune Strategy attempts to fully decipher this riddle and provide the answers that potential investors are seeking. Subtitled Portfolio Management for the New Economy, the book is written by Arun Abey, Clifford German and Ean Higgins. According to Mr Abey, executive chairman of ipac Securities, most people basically fall into one of two camps. Those who invest with insufficient information and those who are overly cautious and choose not to invest. It is the first group that particularly require guidance, believes Mr Abey. 'There's incontrovertible evidence that people fail on the stock market,' said Mr Abey. 'People do it for the wrong reasons.' In this regard, an investment plan is mandatory. 'People go in without a plan or a strategy and its the result of an ad hoc decision.' Regardless of the initial outcome of the investments, believes Mr Abey, this is a sure-fire recipe for disaster. 'If they get in at a relatively early phase of a cycle - that ad hoc decision might pay off on paper,' said Mr Abey. 'Then it results in another series of ad hoc decisions and the portfolio ends up being highly skewed to whatever is in fashion.' Devastating losses are the usual end result, and Mr Abey believes this gives the share market a bad image. Particular emphasis is placed on the role of portfolio theory, which is where readers may find the going tough. It is of crucial importance for investors, though, if they are to put together a successful investment plan. 'There are a number of paradoxes in portfolio theory which need to be understood,' said Mr Abey. 'For example, a high-risk investment might actually reduce the total risk of your portfolio.' 'The stupid thing to do with investment is to take risks which you don't get rewarded for,' said Mr Abey. 'The most important thing is to make sure that risk works for you.' Another key consideration to take into account is time. 'The probability of loss in the equity market with a well- diversified portfolio over 10 years is miniscule,' said Mr Abey. In an approach bound to win over Hong Kong readers, portfolio theory is explained by using the example of horseracing. However, the book is by no means a simplistic analysis of investment and is far more weighty than the more 'basic' investment guides that are currently available. As for the second camp of people, those too cautious to invest, Mr Abey feels that they too are making grave mistakes.
