Some Intelligent Books for the New Year
This year make some time. Otherwise you will be cheating yourself. It's important for the informed trader to read some of the history of the securities business.
Since this is a small column, I do not purport to present a comprehensive list of must reading. But all the books here business and investment classics – share one characteristic: An intensive study of them can save a financial professional from disaster.
One should realize that this business has gone through cycles that keep repeating. Financial professionals and investors inevitably get carried away by their exuberance and make the same mistakes over and over. One can find evidence of this myopic thinking in a 1999 book, "The Market's Measure," a book about the history of the Dow Jones Industrial Average by the Dow Jones Company. The book whooped up the Dow as though it had outlawed bear markets just as the market started a three-year dive.
The Intelligent Investor
by Benjamin Graham
A few years ago value investing – buying securities on the cheap and when they're out of favor – was dismissed as old hat. Today, almost everyone claims to be a value investor. Wouldn't you avoid a lot of trouble if you learned these hard lessons before the next disaster?
Those who have read this classic little 1949 tome – written in a clear style – never had to change hats. Graham goes through the steps of how one separates the junky companies from the pretty good companies and then finds the superior ones. A few extraordinary ones are all that Graham wants, which is why Graham, as well as his most famous student, Warren Buffett, became two of the most successful investors ever.
A Random Walk Down
Wall Street
by Burton Malkiel
The fancy theories of active management come and go, but the market – in its cumulative wisdom – is smarter. Here is one of the bulwarks in the case for passive management and for index funds. Malkiel, in this fascinating book that was updated in a 1995 edition, shows how relying on past performance for selecting the correct investment is usually a bad decision. Better to stay fully invested across several different lines than to try to pick the next hot manager, stock or category of investing. Finally, Malkiel reminds the reader of something that should be remembered, not just in trading, investing and football picks, but also in almost other every aspect of life: The experts are often wrong.
"It was the steady investors who kept their heads when the stock market tanked in October 1987, and then saw the value of their holdings eventually recover and continue to produce attractive returns," the author writes. "And many of the pros lost their shirts during the mid-1990s using derivative strategies they failed to understand."
As one wag says of the football picking experts – in an assessment that could also apply to the experts of the investing world: "Listen to who they are picking, then go the other way."
Common Sense On
Mutual Funds
New Imperatives For the Intelligent Investor
by John Bogle
He's the Lt. Columbo of the mutual fund world. He knows where the bodies are buried. How the gimmicks are passed off as "investment wisdom." Where are the worst excesses of the fat and sassy fund industry? Today we read about them every day. But many of the unpleasant truths of the investment company business were detailed here years ago. And there are many in the business who would prefer that you not read and re-read this book and ask so many unpleasant questions. (Why is the expense ratio of certain funds so high? Why do funds so infrequently beat indexes? Why must we suffer through 12b-1 fees? Why do fund companies, in their ads, pick such odd reporting periods?)
This book is well worth your time because Bogle so entertainingly throws spitballs at the industry that has fed him. Traders reading this book will understand why outraged investors are becoming disgusted with consistent sub-par performance.
The Money Masters; Nine Great Investors: Their Winning Strategies And How You Can Apply Them
by John Train
This book is a kind of "Plutarch's Lives" of modern investment masters. These mini-biographies are fascinating because the author is an investment counselor who has selected excellent representatives of various styles: John Templeton, T. Rowe Price, Paul Cabot, Warren Buffett, Benjamin Graham and Larry Tisch.
If one doesn't have the time or the inclination to go through the books on each of these giants, then here is a shortcut that won't make the reader feel guilty. And reading this book might also encourage the reader to go on to the original, more challenging, texts.
Stocks For The Long Run: A Guide to Selecting Markets for Long-Term Growth
by Jeremy J. Siegel
An essential book for traders, advisers and other financial professionals. That's because it gives them the long-term perspective required for intelligent thinking. What can one expect from equities? How have they performed in tough and good periods? What are their strong and weak points? It's all here. And, more importantly, the reader can see how equities perform in disappointing times, suddenly a topic of great interest for many investors who used to think there was a divine right of the stock market going up.
The Art Of Speculation
by Philip L. Carret
Philip Carret saw several depressions, recoveries and booms. He saw the cycle turn many times. "The silk-shirt era of 1919 and 1920 was followed by the painful depression of 1921. So it has been throughout the history of the world," Carret wrote. Both as an observer and player, Carret, who lived to a ripe old age, was a legend. In 1924, for example, he started the Fidelity Investment Trust with some $25,000. Some 70 years later the fund, which became the Pioneer Fund, held some $2 billion in assets.
A last word before I shut down: Why read any or all of these classics? It's easier to watch the tube. It's less taxing to buy and read some investment gimmick book that is scaling the best seller list, which is also infested with so-called books such as "How to Make a Million Dollars by Selling Commodities Funds" or "How to Lose All the Weight You Want by Drinking Malt Liquor."
Why, for that matter, read any quality books? Because would you or would you not like to pick the brains of Benjamin Graham or John Bogle? Reading their ideas is the next best thing to doing that.
These are the thoughts of sages. Thinking people will still be reading these books when we're all dust. Great minds and great thoughts are timeless. Ultimately, the reason to read is a selfish one: You enrich yourself and make yourself a more intelligent trader or just a more interesting human being when you read any of these works. It is a kind of investment education, but it is also a fascinating, enjoyable experience.
Bon appetit.
