Books on Investing: Discussions, Reports &amp; Suggestions

Top 27. Jan 31, 1999 8:48 AM

» RandeS - By the way, I've got a 1932 hardbound copy (unabridged) of "Del

By the way, I've got a 1932 hardbound copy (unabridged) of "Delusions" in mint condition (with dust jacket) with a forward by Bernard Baruch. Prized part of my collection of investment boods. I've read every chapter many times. What a classic!!!

-- posted by RandeS

Top 28. Jul 4, 1999 3:34 PM

» SteveT - Against the Gods

Against the Gods The remarkable story of risk By Peter Bernstein

Was a good read It started out recapping how people in ancient times believed good fortune and disaster were controlled by gods. It went on in great detail about who and when advancements in accessing risks were devised. This first part of the book was to me like reading a History book. I happen to enjoy History and enjoyed it. I found it interesting reviewing things like probability, psychology, logic, statistics and other things we take for granted as part our everyday lives were new thoughts just a few hundred years ago.

One passage I found memorable was in a note the author received at an investment conference.
"The information you have is not the information you want.
The information you want is not the information you need.
The information you need is not the information you can obtain.
The information you can obtain costs more than you want to pay."

Information is a very important key to determining what something is worth. We all interpret that information differently and receive information at different times thus assign different values to the same item at any given moment.

More excepts I think appropriate "The capital markets are not accommodating machines that crank out wealth for everyone on demand." "Each investor’s return depends on what other investors will pay for assets at some point in the uncertain future, and the behavior of countless other investors is something that no one can control, or even reliably predict." " If people are so dumb, how come more of us smart people don’t get rich."

Diversification is mentioned in several places as an important tool to manage risk "but diversification is not a guarantee against loss, only against losing everything at once."

Market timing was discussed and the author thought it risky. Being out of the market during big up times can really lower returns, one example was offered. Decision regret was also discussed something I am sure we all have experienced. Index funds were mentioned as ways to deal with our nonrational behavior. And lastly derivatives or "side bets" constituted the final chapter. This for the most part dealt with the use of options by large institutions.

One final quotation "You can not expect to make large profits without taking the risk of large losses."
A worthwhile investment in anyone’s time to read or reread. It really hasn’t changed my perspective but gives me a few more points to add to future discussions.

-- posted by SteveT

Top 29. Sep 11, 1999 2:37 PM

» jbking - A couple of my books on Investing

My first one would have to be "Mutual Fund for Dummies" by Eric Tyson. This is actually a pretty good book at cutting through how mutual funds work and what to look for and lists a few places to consider for how to start investing in mutual funds.

Another one that I really liked is Bogle's latest: Commone Sense on Mutual Funds: New Imperatives for the Intelligent Investor. This is a great book for getting an understanding of how the markets work and what interesting cycles there are and has some good analogies such as thinking of the economy as a garden and investments as the fruits and vegetables from that garden.

Just my $.02 on this,

-- posted by jbking

Top 30. Sep 14, 1999 5:57 PM

» SteveT - Contrarian Investment Strategies:

Contrarian Investment Strategies: The Next Generation by David Dreman

I enjoyed this book very much and found it an easy read. Much of the information presented has been discussed at this site. While reading I could see why some of the strategies used buy Kirk and many others to select Semiconductor Capital Equipment Companies late in 1998 worked out so well.

The book leads readers through selected portions of market history. What I liked was it didn’t follow conventional wisdom all the time. Dreman tries to look at events of the past through a different pair of eyes. He points out areas where explanation and interpretations of the past can be filled with faulty conclusions. The one issue I found most interesting was the premise that over time Small Companies out perform Large Companies. Dreman disputes this notion. He attributes this to large companies becoming small caps in the 1930’s. Those companies survived the depression and again became large caps while many that started the 30’s as small caps went under and off the "radar screen". He also says trying to time the market costs you in the long run, and most analyst’s earnings forecasts are optimistic. Another key to this approach is to take advantage of the psychology in the markets that punish good companies that miss over optimistic earnings estimates. Buy them after they become out- of- favor, they usually do better going forward then companies that exceed earnings forecasts, given enough time.

Other common sense "rules " are to avoid speculation on the high fliers , watch trading costs as well as the spread( difference between bid and ask) on small illiquid stocks, diversity, when to sell a stock, don’t assume that just because something happened one way one time means it will happen that way again, don’t panic out of the market. I particularly liked Mr. Dreman’s approach to risk. Rule # 32 " Volatility is not risk. Avoid investment advise based on volatility." Included in the book is a table showing Compounded returns after Inflation and taxes from 1946 to 1996 for stocks, bonds and t- bills, the real risk seems to be in not being in the market. Dreman suggests a "realistic" definition of risk to incluide at least these two factors. 1. The probability that the investment you chose will preserve your capital over the time you intend to invest your funds. 2. The probability the investments you select will outperform alternative investments for this period ( sounds like Rande). Rule # 38 ( page 335) reminded me of some problems that have cropped up lately regarding filling orders on small cap over the counter stocks. The practice of dealers "backing away" has been a problem in the past and by the looks of it is not settled yet.

Dreman is partial to large companies that are temporally out of favor due to economic or political reasons with prospects to "turn it around". He values companies primarily by measures of price/ earnings, price/ book, price/ cash flow, and price/ dividend ratios. The book has numerous charts and tables that really do a wonderful job of complementing the message.

There are 41 "rules" to Contrarian investing that are fully explained through out the book and listed in order at the end. Also a small glossary and foot notes. I did find the end of the book anticlimactic. Appendixes A and B shoot several holes in Efficient Market Hypothesis, Modern Portfolio Theory, and Capital Asset Pricing Model. How this differs from his 1980 book of a similiar title I couldn't tell you but if you haven't read that one check this one out. Often when I finish a book I give it to someone else to read, this one I am going to keep in my personal library and read several times. I can see why it is one of Kirk's favorites.

Should you decide to do some Contrarian Investing I will provide a link to a site that may help you by sorting companies within an industry by P/E. In the example I will use SUNW.

-- posted by SteveT

Top 31. Sep 15, 1999 8:13 AM

» RandeS - Steve,

Steve,

Good review. You might be interested to hear that Bill Sharpe himself (and just about every other financial scholar these days) acknowledges the inherent problems with CAPM, which gets to one of the points of your take on Dreman's book -- things aren't always as they seem and we do well to go beyond face value and conventional wisdom before becoming emotionally attached to what "always" works.

-- posted by RandeS

Top 32. Sep 23, 1999 10:37 AM

» KirkL - Good Internet Books

Have you read
Net Worth: Creating and Maximizing Wealth With the Internet ?
Highly recommended reading for all investors in Internet stocks, especially BOWG.

Here is a second book to read:
Permission Marketing by Seth Godin, Don Peppers

I was told by Julie Bradshaw that I could gleam the business model from reading these two books and she thought "Permission Marketing" was closer to the model. Suite101.com is a hybrid of these two books that Julie and her father developed (from my understanding after talking to them). I have NOT had time to read the 2nd book so I can't give a review. The first is very good and is an eye opener.

My thought, if you can't invest $30 in two books to understand a company, then you really should not be buying penny stocks like BOWG or paying sky high p/e's of Internet stocks. You should understand what you are betting on. Same price as a trade at Schwab….and you get something to put on your shelf should the stock go to zero…

-- posted by KirkL

Top 33. Sep 23, 1999 11:02 AM

» KirkL - Market Wizards : Interviews With Top Traders

Market Wizards : Interviews With Top Traders
By Jack D. Schwager
Reviews: -Martin W. Zweig, "One of the most fascinating books ever written about Wall Street."

Leon: "AWESOME inspiration and a true treasure trove of information and tips. I take it everywhere I go, and re-read it as often as possible. I've read almost every book or article on the markets ever written since Bachelier's 1900 paper on random-walk theory, but this remains my personal favorites.

To: +Kirk (8778 ) From: +MrGreenJeans
Thursday, Sep 23 1999 10:54AM ET

Random Walk Down Wall Street

, "A Random Walk Down Wall Street" by Burton Malkiel is "Ask Rande" Spiegelman's suggested first book for an investor to read

The book basically makes the case for the markets being extremely efficient. Ask any successful trader on or off the floor of the exchanges if the markets are efficiently priced and I believe the vast majority would tell you: No.

Further, ask successful traders if they think price movements are random or move in predictable patterns and I believe most would cite the latter.

This is just another perspective one does not hear very often because I believe one needs a deeper understanding of markets to appreciate this opposing view; one that I believe and one that I believe most good traders adhere too. I always thought this book was vastly overrated.

For the professional trader Market Wizards, Parts I and II, by Jack Schwagger are well worth the money.

To: +MrGreenJeans (8780 ) From: +Alan Bell
Thursday, Sep 23 1999 1:23PM ET

MrGJ,

I am happy to hear your view on Random Walk. The book has bothered me because it has been tough to accept that markets are completely efficient. In fact, it was the reading of Market Wizards II that convinced me that it is possible to do better than the market average. The story about the Turtle Traders was most illuminating.

I echo your recommendation of Market Wizards. It can be read at a number of levels and is interesting for the casual investor as well as the professional. For me, it provided a knowledge of advanced concepts and terminology as well as some of the thought processes of different traders. It was much easier to listen to market commentary after reading it.

Alan

-- posted by KirkL

Top 34. Nov 15, 1999 10:20 PM

» Kirk - Physics: The Dancing Wu Li Masters

<img src=http://images.amazon.com/images/P/0688084028.01.MZZZZZZZ.gif width=89 height=140 align=left>
The Dancing Wu Li Masters
by Gary Zukav (Introduction), David Finkelstein

By far, one of my favorite physics books for those with little background in physics. Gary Zukav has written "the Bible" for those who are curious about the mind-expanding discoveries of advanced physics, but who have no scientific background. Like a Wu Li Master who would teach us wonder for the falling petal before speaking of gravity, Zukav writes in beautifully clear language--with no mathematical equations--opening our minds to the exciting new theories that are beginning to embrace the ultimate nature of our universe...Quantum mechanics, relativity, and beyond to the Einstein-Podolsky-Rosen effect and Bell's theorem.

Get the paperback and read this one if you don't want to get the hardback.

Another review... "Stripped of mathematics, physics becomes pure enchantment. I don't care how dumb you are at science; you'll come away from this book feeling like a Wu Li Master yourself."

I read this one right after college and LOVED it and strongly recommend it to anyone interested in how the universe is put together... or how it MIGHT be put together as it really gives an idea of what we don't know

-- posted by Kirk

<img src=http://images.amazon.com/images/P/0393047814.01.MZZZZZZZ.gif width=91 height=140 align=left> Click to View or order book

Top 35. Apr 1, 2000 6:36 AM

» Kirk - A Random Walk Down Wall Street

Mark Hulbert of Forbes reviews Milkiel's "A Random Walk Down Wall Street. "(It's the sixth edition)and I review Hulbert's review and suggest Contrarian Investment Strategies by David Dreman.

You CAN beat the market, or can you?

From Mark Hulbert in Forbes, I found this piece where he reviews the new edition of Milkiel's "A Random Walk Down Wall Street. "(It's the sixth edition)

Milkiel has slightly modified his premise to "there do seem to be some techniques of stock selection that may tilt the odds of success in favor of the individual investor."

Hulbert doesn't like it that Milkiel ignores some successful new techniques:

"Take stock-picking approaches that focus on relative strength, or momentum. The rankings in the Hulbert Financial Digest covering five years or more are dominated by letters that utilize relative strength. Yet Malkiel dismisses all momentum-based approaches by asserting that after paying brokerage commissions none can beat a buy-and-hold. "

and

But he's wrong: The Hulbert Financial Digest takes commissions into account in its calculations. Take the Value Line Investment Survey. Even after paying commissions, it has beaten a buy-and-hold by 4.4% per year since mid-1980. In fact, Value Line's performance was impressive enough to make a convert out of the late M.I.T. Professor Fischer Black, who otherwise was one of the most extreme believers in the Random Walk. He concluded from his analysis of Value Line that "there is hope that the traditional methods of portfolio management and security analysis can succeed."

Or take Louis Navellier's MPT Review, whose stock picking also relies heavily on momentum analysis. It has beaten the market by 13.3% per year on average since the beginning of 1985. Even on a risk-adjusted basis, both of these services still beat the market.

Ah, but what is Mr. Hulbert selling you but a newsletter service that ranks the newsletters? This would be worthless if ALL the newsletters were proven to be under performers. Follow the Money!

None of this is to suggest that beating the market is easy. It isn't. Relative strength, charts and the rest of it require exceptional skill for successful use, and there are probably more failures than successes. But beating the market is possible, as shown conclusively not only by my work, but also by a substantial body of academic work.

Malkiel is a good writer. And making money consistently in the stock market is darned difficult. Neither of those facts make Random Walk valid

<img src=http://images.amazon.com/images/P/0684813505.01.MZZZZZZZ.gif width=92 height=140 align=left> Click to View or order book

Yes, David Dreman has shown how to beat the market with Contrarian Investment Strategies and I use many of these techniques myself to get market beating performance. This is not technical analysis, but fundamental analysis and relies on psychology where investors over sell and over buy stocks in moments of panic or euphoria.

What Hulbert fails to mention is that by the vary nature of a random process, some newsletters should be expected to far exceed the index funds. What is amazing to me, is how few actually do!

What they both fail to mention is a technique could work for a long period until everyone used it and then this would be factored into the market.

Anyway, I strongly recommend reading both books

-- posted by Kirk