"In my whole life I have known no wise people (over a broad subject matter area) who did not read all the time – none zero. Investing requires a broad knowledge. My children think I’m a book with a couple of legs sticking out” - - Charles Munger
I had been trying to get this in order but it never seemed to end. I am not a bookworm who reads a new book every week. I would rather go back to my old library and read any of the books or a chapter from a book rather then read something new. I must have read all these books at least twice some even up to 10 times (arbitrary figure since I did not count). I have tried writing a bit about the top 12 books. Why 12? The answer is one book in a month for about a year to read these pieces of experience. They should be read like a text book of English literature rather then a novel. As usual relevant sections need to be underlined highlighted so that it facilitates as a quick reference later on. The books listed are not in the order of my personal liking but I just kept putting them as they came to mind.
Peter Lynch: “If one could tell the future by looking at Balance Sheets then Accountants and Mathematicians would have been the richest people in the world”.
1) One up on Wall Street – John Rothchild
Lynch teaches the power to use the common sense which is the most uncommon thing in the world. The book is very well written with references to events and situations that make investing so easy. Some people try and do the unusual things that are why they miss doing the usual ones is the mantra that reverberates throughout the book.
2) Beating the Street – John Rothchild
Slightly more elementary Lynch teaches the virtues of being invested in equities. He compares equity to other assets and proclaims the advantages of the riskiest asset as the best one. Particularly interesting is the haircut he had at Supercuts (before he bought the stock). Inspite of the haircut not being on the mark (he had his sideburns cut off) Lynch bought the stock and made money on it. This book has specific chapters to evaluating Retail Stocks, mortgages etc.
Benjamin Graham- “While enthusiasm may be necessary for great accomplishments elsewhere, on Wall Street it almost invariably leads to disaster”
3) The Intelligent Investor – Benjamin Graham
Lot of theory but it is more of a reference book that you would need before the exam. Makes for some very interesting reading. Graham wants to buy companies for free. Had you followed his words you would have been out of the market in 2004. A pure value play. These books could be looked at in absolute bear market bottoms. I am not sure if Graham could have found many companies to buy in India right now!
Warren Buffet: “Never count on making a good sale. Have the purchase price be so attractive that even a mediocre sale will give good results”
4) Buffet: The making of an American Capitalist - Roger Lowenstein
The language is tough and if you have read One up on Wall Street you would find the method of communicating very different. The inner content is very strong indeed. I liked his style of explaining how and why he turned an old textile mill into an insurance company that was later known as “Berkshire Hathaway”. When American Express showed a loss for one particular year as it had given out a loan that turned bad Buffet said “ Let us think of it as a dividend check lost in transit. One offs did not worry Buffet as he put in half of his corpus into American Express.
n Separated bottle corks from the garbage so that he could know which company sold more cold drinks
n It took him about 2 years to figure out that his room was painted in his absence as he just looked at books inside the room.
n Although he owns a private jet he preferred to stay away from Wall Street in a small town and declined to invest in a company whose CEO took out a brand mew letter pad to explain the company’s plans
n He once invested in a company located on the seashore which had only three sides of its building painted. The side facing the sea was left without paint.
n When his wife spent US $ 15,000 on home furnishing his first comments to a friend were” You know how much that is worth if you compound it for 20 years.
5) The Warren Buffet way – Roger Hagstorm
This provides a critical analysis of Buffet’s investing strategies. What the master looked for before investing in a business (cannot use the word stock). Particularly interesting is Hagstorm’s study on diversification where he tries to show how a concentrated portfolio outperforms a diversified one.
Philips Fisher: “I do not want a lot of good investments I want a few outstanding ones. If a job has been correctly done when the common stock has been purchased, the time to sell it is almost never”.
6) Common Stocks and Uncommon Profits - Philips Fisher
Some how I like these common things and Fisher is no exception. He talks about the scuttlebutt – news that an investor can infer from the suppliers, the vendors, the customers of a company. Fisher is among the few great investing legends who made money from technology stocks (Texas Instruments). This book is a must read for someone who is always upbeat in booking profits. Fisher says if a stock runs up ahead of valuations investors should not try and sell out planning to get in later. There are many instances when an overvalued stock hits the market with positive news that investors were earlier unaware of.
7) The BULL – Maggie Mahar This is the best book to read in times of euphoria and optimism. The book is a classic read on the great US bull market of 1982 – 2000. The references as to how retirees went back to work after losing money in the technology crash of 2000 sends reverberations down the spine. Any investor could get nervous (at least once) after reading the book. At least I did. The book also shows how it suits the business channels to keep the bull market in place; the framing of questions are done is such fashion that they get only positive answers.
Jesse Livermore- “Men who can be both right and sit tight are uncommon. I found it the hardest things to learn. But it is only after an investor has firmly grasped this that he can make big money. It is literally true that millions come easier to a trader (investor) after he knows how to trade then hundreds did in the days of his ignorance”
8) Reminisces of a Stock Operator – Edwin Lefevre
I call these sentences the thirteen commandments. Every investor, trader needs to go through them. These gospels from the master trader summarize the book.,
· Never act on tips.
· Never buy a stock because it has had a big decline from its previous high.
· If a stock doesn't act right don't touch it; because, being unable to tell precisely what is wrong, you cannot tell which way it is going. No diagnosis, no prognosis. No prognosis, no profit.
· Don't blame the market for your losses. Never add to a losing position. A losing position means you were wrong.
· Stocks are never too high for you to begin buying or too low to begin selling. But after the initial transaction, don't make a second unless the first shows you a profit.
· Always sell what shows you a loss and keep what shows you a profit.
· Don't argue with the tape. Do not seek to lure the profit back. Quit while the quitting is good--and cheap.
· There is only one side to the stock market; and it is not the bull side or the bear side but the right side.
· The speculator's chief enemies are always boredom from within.
· A man must believe in himself and his judgment if he expects to make a living at this game.
· Bulls and bears make money, but pigs get slaughtered
· Markets are never wrong. Opinions are!
9) Stock Market Wizards – Jack Schwager
If we thought that no one could make money trading, this is one book to read. I found the chapter on Dana Galante very interesting. Dana ran a fund which used to short a market and she notched up annualized returns of 15% plus when the NASDAQ went up 32% CAGR during 1994-99..
Now this would have the same meaning as a person who notched up a 15% gain being long when the index went down 32%. Dana’s strategy on what to look for before shorting a company is very important.
10) Money Masters – John Train
Now if you did not have time for all this but still wanted information on each of these legends indicated above (and more) John Train’s book is an absolute must. Train writes eloquently and with flowing style covers the life of each of these greats with events that would matter to an investor.
Marc Faber- “Follow the course opposite to custom and you will almost always be right.” “
11) Tomorrows Gold - Marc Faber
Faber has collected loads of historic financial data ranging from the Tulip bulb mania to the 1929 great depression. Faber’s theory is based on the premise that anything that goes up must come down and vice versa. There are no direct ways to make money from this book but investors would surely benefit understanding economic cycles by reading from this book. For instance Faber shows that even after the great rail road rush in the US investors finally lost money in infrastructure and construction companies.
12) Market Wizards: Jack Schwager
Jack Schwager’s books removed the doubt in my mind that money could be made through trading. I do believe that money cannot be made through intra day trades but positional traders can make a lot of money.
The most interesting experience in the book was of a tarder”Michael Marcus” He had been wiped out umpteen number of times and made his big money in a matter of 10 minutes. When the Afghanistan war broke out New York was sleeping and no one knew about this news in Hong Kong. Marcus who was operating from California called up Hong king and bought 200,000 ounces of gold. In about 10 minutes as the news of the war spread gold jumped up by US $ 10 and Marcus was up by US $ 2 million. Morale of the story:
1) Do not wait for others to buy first; most of us would not have bought it thinking that it could not be so easy.
2) When ever you bet, bet so hard that a correct result makes a meaningful difference to your Balance Sheet.
13) When Genius Failed – Roger Lowenstein
An excellent blow by blow account of how Long term Capital management failed. The firm was headed by a group of “eminent” professionals that were Noble prize winners, PhD in mathematics among others. They used to arbitrage on the spreads and once their spreads did not revert back to the mean the fund closed down. This brings me back to my favorite quote “Markets can be irrational longer then you can stay solvent”.
13) Rich Dad Poor Dad – Robert.T.Kiyosaki with Sharon.L.Lechter
This is more of a personal finance book where the authors provide insight into common thinking. They argue how a car that many of us consider as an asset is really a liability; so is our house. The authors argue that a person should learn to distinguish between his assets and liabilities and only once that is done can he make money and achieve financial freedom.
14) I read "The Dhandoo Investor". Mohnish Pabrai: a fantastic money manager. His writings spreads across four major themes:
a) Portfolio Concenjtration and the benefits from that.
b) Limit downside risks from investment - Heads I win Tails I
do not lose much.
c) Moats, competitive advantages, circle of competence benefits
of being a copycat when it come to bsuiness models etc
d) Compounding.