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Sunday, April 21, 2013

Reading to Profit

One of the more frequent questions I am asked by readers is what to read that can help make them a better investor. My stock answer is everything. I am in the Charlie Unger camp on this on and think that one of the keys to a successful life is to read often and always. I read at least two newspapers every day to gain a sense of what is going on in town and around the world. On weekends I plow though the daily papers as well as the Weekend Journal, The Sunday NY Times and Barrons. I read several magazines relating to the banking and real estate industries since these two areas influence so much of what happens in the rest of the financial world. Of course I also am a voracious reader of fiction and all things baseball as well. I keep up with what’s being released in business and finance books but most of the newer ones seem to be a rehash of the good old stuff. With that in mind here is my list of books that should help make you a better investor and can even improve your trading.

I do not care how you approach the markets everyone everywhere should read Ben Grahams The Intelligent Investor. In addition to the basics of value investing Graham teaches how to differentiate between speculation and investment, something all too few seem to recognize today. The book also outlines both the defensive and enterprising approach to investing and help you determine which classification into which you fall. We are also introduced to the critical concept of margin of safety and introduced to the maniac Mr. Market who can be your worst enemy or best friend.

Martin Whitman’s Aggressive Conservative Investor also makes the grade as a must read. The concept of maximizing returns through minimizing risk through security evaluation in selection has been at the heart to of my career. This was the first book on investing I ever read and the concepts and techniques have served me well over the decades. Although the book was released in 1979 be sure to get the edition released in 2006 as Whitman updated the text to adjust for changes in the financial world. Whitman’s Distressed investing Principles and techniques should also be read be serious investors adopting the value approach to the markets.

The Little Book of Value Investing by Chris Browne is also a must read in my opinion. I must issue the disclaimer that I had a hand in the writing of this book and Chris Browne is one of my favorite people in the history of Wall Street. He was intelligent, witty, articulate and a real gentleman. I learned more from Chris than anyone else in the course of my investing career. The book teaches the basics of the game, how to find cheap stocks, analyze them and manage a portfolio of them.

As an aside I have always felt that it is critically important to understand all approaches to the market and not just the one you favor. The Wiley Little book series is a Phd course in market approaches that allows you to quickly learn the various schools of thought from the best practitioners. Serious investors and anyone offering financial services to the public should  buy, read, and keep the entire series.

This will come as a surprise to a lot of people but I think everyone involved in the markets in any fashion should read the Education of a Speculator by Victor Niederhoffer. The book gives insights into the successful speculative mind that simply cannot be obtained elsewhere. The life lessons derived from sports, gambling and board games can be applied to both life as well as the markets. Investors and traders alike who have not done so should read it sooner rather than later.

James Montier is an articulate insightful writer whose letters and article have been a must read for year. So is his book Value Investing: Tools and Techniques for Intelligent Investing. This book give insights not just into picking stocks but how to think about stocks and market to increase your chances of success. Any book recommended by Seth Klarman has to be on your reading list.

Speaking of Mr. Klarman if you can get your and on a copy of his Margin of Safety you should do so. The only problem here is that used copies can fetch upwards of $1000 and is out of print. Klarman has refused entreaties to republish the tome but you can sometimes find a copy by digging around the interwebs.
If you do not understand arbitrage at some point in your life you will lose a bunch of money to someone who does. Keith Morre and Guy Wyser Pratte have written fabulous books on risk arb that will give you a deeper understand of this complex corner of the market. You need to read them.

I rarely suggest new books but I am impressed by the wealth of information in Quantitative Value the new book by Tobias Carlisle and Wesley Gray. They do a great job of testing and explaining various approaches to the market and using quant model to pick value stocks.

That’s my starter list of things you must read to make you a better investor but my best advice is to read everything.

1 comment:

John Huber said...

Excellent list Tim. I'd add Buffett's Partnership letters and Berkshire letters to this foundation, as well as Greenblatt's Little Book that Beats the Market.

Great reads... I still need to read Whitman's book.