Some recommended reading

I said I would do this quite some time ago so finally wanted to write down some thoughts on some books I have read over the last few months that others may find interesting.

I will create a new category on the blog for this, after which I shall try and list about 20 books that I have enjoyed the most. (You can skip the first reviews if you wish and go down to the end of this post here to look at the 20 or so titles). I welcome suggestions to add here, as I am sure there will be more than a few that I read and should have made this 20, yet simply didn’t spring to mind when writing this. As a bit of a “minimalist” whose possessions consist of not much more than the 20kgs I travel with, I couldn’t go back and look at my old book shelf to make sure I didn’t miss anything.

Firstly, some brief comments on some recent new reads or re-reads the last few months for me.

As promised a while back here, I am going to list a few books that at least challenge the notion that we should always search and limit ourselves to companies that have low debt, a solid ROE and good growth prospects. Below I will mention 4 books I would place under this category. I also re-read the Intelligent Investor from Benjamin Graham but figure enough has already been said about that. Yet for those that haven’t read this I would consider this a must read.

The first book I read recently was “The Most Important Thing” by Howard Marks.

I had noticed many investors were recommending this as a good read and was surprised I had not come across it before. It is not all that old, having been published in 2011. It focuses on a value approach and the psychology needed to succeed. What I enjoyed was it didn’t come from the typical angle that you too can easily employ these methods and have instant success. It realistically focuses on the fact you need to be a step ahead of the competition and think a little differently at times.

It also dispels a lot of myths in the market that the media tend to run with. I wouldn’t personally say I got a huge amount of new info from this book, yet at the same time agreed with it and very much enjoyed the read. It is good to remind yourself of certain ways of investment thinking. I think the book would be a particular excellent read for investors that perhaps have just been playing the markets for about 5 years and maybe not dealing with significant amounts of their wealth yet. It could well save them some common investing mistakes in the future.

The next book I recently read was from Seth Klarman written some time ago, back in 1991 called Margin of Safety. In fact, I believe it is out of print and I had a lot of trouble finding it, but do now have a pdf version. It is the first of two different books around this time that I will lump together when discussing them. The other is called You can be a Stockmarket Genius. Now don’t laugh about the title there, this is a great book by Joel Greenblatt published in 1997, who enjoyed an amazing record managing money between 1985 & 1995.

The reason I have lumped them together is they are both books from the 90s that write a lot about what many would describe as “event driven” investing. It is where you look for certain events taking place that produce positive impacts on the stock price. They may be areas that others find boring, and not that many specialising in, thus produce some attractive risk/return set ups. A few brief examples may be takeover arbitrages, discount to assets or cash, demergers and spinoffs, rights issues, bankruptcies etc. I have always explored this area more closely and later on in a separate blog post sometime will write more about some interesting areas to search for buy opportunities that I often gravitate to. I enjoyed reading both of these books very much as I have spent a lot of time focused on the same areas.

Margin of Safety spends a lot of time in the book laying out why in the traditional approach a lot of investors take they are placing themselves at the mercy of Wall St fee grabbers. Later on he explores clever methods to put the odds in your favour by looking at certain special situations.

Joel Greenblatt’s book can be read in the context that he is actually laying out a huge part of the methods his managed fund actually used to achieve magnificent returns. Joel’s book was a re-read for me so clearly I liked it. He also has some other books and stock screening methods that many still follow if you want to dig a bit deeper. Since Margin of Safety is out of print, if you would like me to send you the PDF let me know. There is probably a lot of download areas via google where you can do the same, but I personally worry about free downloads off the net sometimes. So would understand if you just want me to email it directly.

I also re-read another book from the recent past, published in 2014. It’s called Deep Value, written by Tobias E. Carlisle. This book I noted a few activist investors recommending. The backdrop is gathered from the Benjamin Graham value investing approach. It then goes on to explore why this “deep value” investing style still is likely to be the best approach to investing. He begins by exploring Carl Icahn’s career and how activism and deep value blend in together. It also touches on Warren Buffett’s style and how it evolved and changed as we went through the 60s,70s and 80s. What makes this book stand out amongst some of the value investing books I have read is it combines methods that seem intuitive with some compelling data at times that argue persuasively for a deep value investment approach. There are also plenty of examples throughout the book and including on how activism unlocks value in the stock market. Obviously this is an area I agree with and try to embrace through my own investing.

Some books on other blogs that I discovered I haven’t read yet but I have now and am currently about to get through include, “A Random Walk Down Wall Street”, “The Myth of the Rational Market” & “Winning the Loser’s Game”. I’ll let you know if I find these are as good as my top list below.
Ok so just to add to the thousands on the internet who have tried to note some of the better investment books going around, here is my 2 cents worth. These are in no particular order whatsoever.

 

Recommended Reads

Intelligent Investor – Benjamin Graham

Margin of Safety – Seth Klarman

You can be a Stockmarket Genius – Joel Greenblatt

Deep Value – Tobias E. Carlisle

The Most Important Thing – Howard Marks

Popular Delusions and the Madness of Crowds – Charles Mackay

Manias, Panics and Crashes – Charles P. Kindelburger

This Time is Different – Kenneth Rogoff, Carmen Reinhart

The Warren Buffetts Next Door – Matthew Schifrin

What Works on Wall Street – James O’Shaughnessy

Stocks for the Long Run – Jeremy Siegel

Tomorrow’s Gold – Marc Faber

Market Wizards (all versions) – Jack D. Schwager

Masters of the Markets – Geoff Wilson, Anthony Hughes & Matthew Kidman.

Bulls, Bears and a Croupier – Matthew Kidman

Investment Biker – Jim Rogers – (not all about investments, travel book also)

Adventure Capitalist – Jim Rogers – (not all about investments, travel book also)

The Alchemist – Paulo Coelho – (not about investing, but if you are passionate about investing it is about backing yourself)

The Big Short – Michael Lewis

Motivated Money – Peter Thornhill

Hedgehogging – Barton Biggs

 

Ok there you go; I might be a book geek as I think I went just over 20 there.

I just realised I left out a few of Meb Faber’s books I found very useful.

Books By Meb Faber

I have read Invest with the House, Global Asset Allocation, The Ivy Portfolio, and Global Value, and feel they are all very worthwhile.

 

UPDATED JUNE 2017 FROM ADDITIONAL READING

Last year I ended the post mentioning 3 books I had planned to read, they all tackled the debate about efficient markets.

The books were:

A Random Walk Down Wall St – Burton G. Malkiel

Winning the Loser’s Game – Charles D. Ellis

The Myth of the Rational Market – Justin Fox

I think these are good books to read if you have been trying your luck picking your own stocks for about 5 years. Especially now in a bull market where some investors earlier in their journey may have a sense of overconfidence in beating the market. The first two books above have a similar approach and I didn’t gain much by reading both, one would have been more than enough for me. The third book above took more of the opposite stance and pointed out some weaknesses in the efficient markets theory.

My view is it is wise to pay a lot of attention to the likes of the Random Walk Down Wall St and an indexing approach could be a starting point, by which you should only try to outsmart after plenty of considerations as to why it may be so difficult. Although, I have a different take to those that think they are going passive by buying an index ETF on one market in one country. To me that is an active view. I would favour equal weight ETFs diversified across global markets but that is a topic for another day.

A diversified passive approach globally across different asset classes and rebalancing once or twice a year I consider sensible for the majority. I just find these books with strong arguments against active management give a little too much credit to the point that markets are full of highly intelligent participants working all their time exploiting inefficiencies, meaning the individual has no chance. Whilst I don’t doubt the intelligence of many in the industry, the argument falls down by all the agency problems. The industry is very short term focused with incentives, and many can’t afford to be contrarian with “career risk”, and the successful big players become oversized and move away from smaller opportunities, surely creating chances for the individual managing smaller amounts?

An example of this was a recent survey about reasons investors participated in the Nasdaq bubble. Towards the end the majority were fully aware it was a bubble. They just bought on the basis the bubble should get larger as fund managers had to participate because the risk of underperforming the indices over the next one or two years were too great for their career.

Here are some other books I have read since I made this blog post in October last year with some very brief comments.

 

Undoing Project – Michael Lewis

Michael Lewis is well known for many books with a link to finance and investing. Initially the link may not appear as strong with this read. I really enjoyed this though and as I got into it I began personally forming my own links to market behaviour. It is full of strange little examples of how the human mind will make irrational choices because of biases and incorrect perceptions.

 

Sapiens – Yuval Noah Harari

I like to read about history occasionally but have found other books more of a chore to get through, so was pleasantly surprised to the contrary with Sapiens. I saw the occasional bad review of this more from hard core history buffs saying it was too light and opinionated. These reviews to me just sounded like they want to consider themselves of above intelligence to those that may not make studying history their full-time endeavour. I finally found a history book here that made things so clear to read and thought provoking. I realise many of the theories are just the writer’s own views and perhaps cannot always be backed up with hard evidence, but many of the views made sense to me and were interesting to read. If this is considered a simpler history book to read, well I unashamedly acknowledge I am simple and enjoyed it!

 

Passports to Profits – Mark Mobius

At times, I thought this was a little self-indulgent, but I consider it well worth my time reading. I have occasionally invested in emerging market indices and stocks so must respect the experience Mark has gained over decades of travelling back to the same places and witnessing change through an investor’s mind. Not many in the industry have such experience.

 

The Value Investors – Ronald Chan & Bruce C. N. Greenwald

As a value investor geek, I really enjoyed this. It was kind of in an interview style format which I like, and covered a long list of great value investors. This book is fairly recent and many of the investors featured I had not read a great deal about. It wrapped things up well with the conclusion of key takeaways.

 

Inside the House of Money – Steven Drobny & Niall Ferguson

This was more of a markets wizard style nook based on macro hedge fund investors. I find this style interesting to read but come away thinking that maybe some of the great investors of this style are more to do with the law of large numbers. Perhaps I am biased, but the value investing philosophies come across as more consistent and potentially repeatable in future decades. The tales of great macro investors of the past seems a little hit and miss to me.

 

A Man for all Markets – Edward Thorp

I heard Edward Thorp on a podcast of late and had read a bit about his career. Many decades ago he started out card counting at casinos and wrote a book about this, then went on to a great investing career.  After that I was very pleased to come across this book and had high expectations. Perhaps my high expectations were the reason I didn’t really enjoy the book as much as I expected, but his credentials are such many should give the book a go.

 

Dear Chairman – Jeff Gramm

I have only begun this book, but have enjoyed the start and am sure I will like the rest of it. It is a long look back at history at shareholder activism. Not just the last few decades, where the media may have you believe this is a relatively new phenomenon. They go back to before the Great Depression, and look in-depth into certain activist case studies. My investing style takes a very close interest into this type of investing so perhaps that is the main reason I am enjoying it thus far. Anyone else that has the same interest I think should definitively try and read it.

 

So there you have it, 10 more books to consider. Out of this list I would potentially put The Value Investors and Sapiens towards the original list of my 20 odd preferred reads. Maybe even Dear Chairman but I should finish reading it first to make that comment.

 

 

 

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8 thoughts on “Some recommended reading”

  1. Thanks for your recommendations, Steve and for your blog too, I’m only a recent follower but enjoy every post. There are quite a few there that I haven’t read, but will now. One book I got my money’s worth out of was Valuable by Roger Montgomery – not for most of the book, and particularly not his “valuation” formula – but a little quick & dirty, back of the envelope calculation he gives to judge the “real” cashflow of a business and he uses ABC Learning as a cautionary example. After reading it I went through and checked my holdings and it threw up only one red flag SGH (this was back in 2012). I got out with a 50c/share profit and quickly consigned them never touch again status – that was a bullet dodged and well worth the cover price of the book.

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    1. Hi Trev,

      Thanks for your comment and a very interesting story. As I said a lot of my books were the actual physical ones which I gave away a while back so couldn’t refer back. Valuable was one such one, and if I had of thought of that there is a good chance I would have included it in the list.

      I remember watching SGH closely for a pullback to try and buy below $4 from memory only a few years ago but it never occurred. Then it ripped higher to nearly $8. I always wondered if I would have sold had I owned it. Harry hindsight probably but I’m hoping I would have got out. I consider any company making an acquisition a bit of a red flag to at least check they know what they are doing rather than empire building from rights issues.

      Roger’s funds seem to do well as I understand it. He focuses on quality businesses and I personally find it difficult to identify the ones on a growth spurt as he seems to be able to. It could be a state of the current markets where it feels you have to overpay for any quality company and introduce risk of a slight profit warning. eg TPM recently. So I can’t relate as much to his style lately so haven’t watched his picks for a while. Strangely I used to think many of his picks ended up being a bit more growth/earnings momentum style rather than value.

      He has the runs on the board so far though for his recent product offerings.

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  2. Exactly Steve, just prior to the end of the mining boom he was quite bullish on the mining services sector, MCE & FGE spring to mind.

    Re TPM, I haven’t followed the junior telcos I’ve always thought they were too frothy and too susceptible to the tech hype, but just had a look at TPM for the first time and thought wow 72% increase in profit with a 37% drop in share price – has to be worth a look – and it is but for the “real” cashflow – it’s been sucking in cash from shareholders & lenders pretty much continually over the last 10 years.

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    1. Yes Roger I think did well in mining services and got out at the correct time, but cutting it fine. Likewise I remember him doing well in Silverlake resources in the gold sector, and maybe Northern Star, and then also got out before the sector was smashed after 2011. I found it a bit strange from someone who quotes Buffett’s style so much. Still his book is good and also his performance.

      The TPM headlines also made me think that I should take a look but I haven’t yet. I put SOL on my watchlist maybe to get exposure via them, but felt SOL did not sell off as much as I expected. So I never really looked at the TPM results closely.

      Have you read much of Roger’s picks lately? I haven’t really looked at his blog over the last 3 years I’d say.

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      1. Yeah the “problem” with SOL is that it trades at such a premium to its NTA. I haven’t read Roger’s blog in a few years either – I couldn’t reconcile his recommendations to his value philosophy. Lately it’s been Forager with their Bristlemouth blog, and Gabriel at Sandon – actually it was researching one of his picks that turned up your blog in a google search.

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      2. Same here. I think Forager have been excellent and admire Steve Johnson for recently ceasing accepting applications so the fund doesn’t get too large. I clearly watch Sandon closely, was a bit disappointed because I’ve had my eye on buying Tatts all year around the $3.50 mark but missed out.

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      3. I have some reservations with the change to a closed listed structure, however, if they (Forager) manage it through capital raisings and capital returns/special dividends then it should all be good, time will tell. MVT is shaping up to be a fun holding, I think it’s going to be a great pairing (Sir Ron & Gabriel). The RIS deal looks like a great play – from a cursory look it was acquired for $15m while holding $14m cash and generating $1m free cash/year.

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      4. Yes Mercantile have had some smart ideas in recent years. I just wish I could have bought RIS. Did have some orders well below 20 cents a while back but the stock wasn’t very liquid so another one that got away.

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