I used to have bad results investing, actually I had a relatively big (for a young professional) loss during the internet bubble. That loss made me go to the bank and ask for a loan to be able to go abroad and study.
All changed when I decided to learn. So I took a model. I reasoned that I had to THINK like someone who did well investing. So I chose Warren Buffett, I wanted to mimic the way he reasons about investing! So I started by reading all his shareholder letters and there he mentions 3 books notably as the best you can read to get practical and fast results. I jumped to amazon and ordered them (fast delivery), read them in less than two weeks. After that my life changed, I started making money, before that my results were at best mediocre !
Books changed my ideas and my ideas changed my investing results. You can find here a list of books, many written by value investors, that I read or are on my read list. If you want to discuss about them please feel free to email me at [email protected], I like exchanging views and ideas about them.
Here below are the essential must read books:
- The Intelligent Investor, by Benjamin Graham
- Common stocks and Uncommon profits, Philip A. Fisher
- Security Analysis, Benjamin Graham and David Dodd
The Intelligent Investor teaches you that what makes you earn money is highly dependent on your attitude and character, specially your attitude toward stock market fluctuations. There’s two chapters in The Intelligent Investor, chapter 8 and chapter 20, they’re more important than anything that’s been written on investing. There’s no specific technical knowledge in the book. It just tells you what frame of mind to be in when you come to the game.
For the second book I found a resume online (pdf file): FIL_Common-stocks-and-uncommon-profits.pdf
Note that the authors were investors not academics. GREAT investors. Even though the 2nd book is much less known it is just amazing, maybe the best book ever written on the subject of investing in general (note that Philip Fisher is not necessarily considered a “value” investor).
Finally it is worth mentioning other books that made an impression on me and certainly helped to shape my investing philosophy:
Snowball, Warren Buffett and the business of life by Alice Schroeder
It is a great book in very deep detail and very long (1000 pages) about the life of Warren Buffett. The author took a five year leave in order to investigate it and write it. She contacted and interviewed several times hundredths of persons. It helped me to really understand Warren Buffett and how he thinks about investing. Learning the way he thins has been a very great tool needed in order to make good investments.
Memoirs of Extraordinary Popular Delusions by Charles Mackay and the Madness of Crowds
Extraordinary book that explains how crazy crowds can get. Here is a passage from the book in the introduction:
“Money, again, has often been a cause of the delusion of multitudes. Sober nations have all at once become desperate gamblers, and risked almost their existence upon the turn of a piece of paper. To trace the history ofthe most prominent of these delusions is the object of the present pages. Men, it has been well said, think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, and one by one.”
It is a very good recount of three market bubbles: the Mississippi Bubble, the South sea bubble and the Tulipomania. It shows with several examples how extremely high and low stocks can get. It also shows how bright and ahead of his time John Law was and what a deep knowledge of how money worked he possessed. I found out about this book because it was the favorite of Jesse Lauriston Livermore (July 26, 1877 — November 28, 1940), also known as the “Great Bear of Wall Street”, he was an early 20th century stock trader. He was famed for making and losing several multi-million dollar fortunes and short selling during the stock market crashes of 1907 and 1929. On the other hand I heard of Livermore via Charlie Munger.
Margin of Safety by Seth Klarman
Extremely expensive book, I was expecting more of it given the price tag. But its not bad, most of it I already knew it via some previous books I read and recommended. I had the impression it was written very fast but it was nice to reaffirm concepts, like: do not use leverage and do not buy all at once. It was also nice to see some real case studies. He also mentions something that I agree a lot with: the stupidity of formulas like P/E or whatever, there is simply no formula that works out consistently, investing is too complicated to be resumed by any given formula, you got to know the business you invest in to be successful.
He gives a unique explanation of how institutional investing works, that was one of my favorite parts of the book since I did not know it that well, it shows how crazy and inefficient institutions can go and how it affects the markets, and it explains the incentives that cause such behavior. Another great part is when he explains the junk bonds bubble. I was impressed to see how much similar it was to the mortgage backed securities bubble that played such an important role in the 2008/2009 crisis, and how markets do the same stupid things over and over again.
Another very interesting opinion is how much you should study and the 80/20 rule that says that you can get 80% of the knowledge of a company with the first 20% of invested study time. So studying too much is not necessarily a good idea since it can make you miss good opportunities because by the time you find out all there is to know the stock might have recovered and when everything is known it almost always recovers. It reminds me of what Buffett says, the uncertainty is the friend of the investor and that you pay a very high price for a cherry consensus.
Finally the other interesting concept was the affirmation that you could not be successful without dedicating a very high amount of time and that therefore being a weekend or part time investor gave very poor results no matter how bright you were, to do well you almost have to dedicate full time (but even then success is not guaranteed by time, a bad investor will do worse the more he invests).
Enjoy the reading !
PD1: changing subject radically I want to mention I sold 75 wdc stocks today. I still find I have a too much (790 shares) and do not think it is very cheap anymore. I hope to deploy the proceeds on something interesting like google, and add to my 5 shares :). I am putting all my energy in evaluating it.
PD2: Welcome to the new members, Patricia, Gonzalo, Christian, Nicolas, Martin !