An excellent primer for someone first engaging with value investing. I found the napkin drawings surprisingly useful although the endless ven diagramsAn excellent primer for someone first engaging with value investing. I found the napkin drawings surprisingly useful although the endless ven diagrams get a little tiresome towards the end. Still plenty of wisdom in this fun little book....more
I will definitely read this book again, slowly, considering all the life changes I want to make.
This is the most honest and open account of an investI will definitely read this book again, slowly, considering all the life changes I want to make.
This is the most honest and open account of an investor coming of age I have come across. It deals directly with a lot of the in-the-weeds difficulties of staying disciplined, setting up the factors that will prevent known psychological traps and investing boldly as a contrarian. Spier has an extremely insightful perspective on what has led to Buffett's investing prowess. In moulding himself after the legendary investor he shows how it's possible for anyone to similarly set the odds up in their favor. They may not achieve Buffett-status but they stand a good chance of beating 90% of professional investors after fees, an approach that will surely lead to considerable wealth over a lifetime.
Similar to Guy, I experienced rapture when I first read the Intelligent Investor as well as Lowenstein's biography on Buffett. While I have implemented much of the teachings in my own investing strategy over the past six years, I now wish I'd been even more fanatical. For instance, Spier has set rules for himself such as always reading primary sources first, only checking stock prices once a week, never reading sell-side research and not talking about current investments. He has also worked hard to surround himself with high-quality likeminded investing peers. Well, I plan to remedy things, starting with attending the Berkshire annual meeting this year...
What's amazing about Graham, Buffett, Pabrai, Spiers, Dremen, Klarman, Watsa, Greenblatt, Gaynor, Einhorn and all the other great value investors is that they each publicly lay out their approach in detail (usually updated quarterly or annually), they each announce their specific holdings (on 13fs each quarter) and they each consistently beat the market by a wide margin and for long periods of time. Yet despite this, value investing continues to represent a small minority of the overall fund management business and few people succeed in copying value strategies successfully.
And the irony is it's such a simple approach! Invest in high-quality businesses that you understand with wide moats and good cashflow characteristics when they're going cheap. I.e. be greedy when others are fearful and fearful when others are greedy. Most investors think they understand this already.
The problem is that many cognitive biases remnant from our days on the savanna work against us at times of great fear and great greed, preventing us from sticking to methods that work over long periods of time but often appear to be broken in real time.
That's why this book is so important. Understanding our own cognitive biases and setting up an environment which will enhance rational thinking is where the rubber hits the road and what distinguishes great investors. It's no accident that Buffett holes up in Kiewit Plaza, reads sec filings all day, trades seldom and surrounds himself with individuals like Munger, Gates and Katherine Graham. He's nailed it.
Therefore, do not take this book lightly! It gets to the heart of what makes an investor great....more
More than a little disappointing. Bill Miller seems to be a very insightful man, a savvy investor and a widely read classicist along the lines of CharMore than a little disappointing. Bill Miller seems to be a very insightful man, a savvy investor and a widely read classicist along the lines of Charlie Munger and Ben Graham. This book, unfortunately, does very little to dig into Miller's life and approach to investing. Luckily, I only paid 1c for it on eBay :-)
I agree with the theroetical idea that a value approach could be well applied to certain fields of technology and fast areas of growth (companies like Aaple, EBay, Microsoft and Google are easy to analyse along a value framework and have been priced attractively in recent years). I'm not certain after reading this book however, that Bill Miller truly was able to hang on to his value discipline while investing in the high flighers of the 90s. This is clear when he freely admits that some of his holdings are overvalued but continues to hold them (possibly he's hoping for greater fools to come along like they kept doing during the 90s or possibly he just ended up duped by the growth stories like everyone else). I think in the end the Santa Fe Institute probably did a lot more harm than good to his ideas--a bunch of complicated, superflous science to justify some fragile growth investment ideas.
In conclusion, I feel a little sorry for Miller that this is the only book that tells his story. I'm sure there must be more to him....more
An excellent book. I almost didn't read it as I've read a few Buffet books and usually find them quite tedious. Not this one! I loved Lowenstein's perAn excellent book. I almost didn't read it as I've read a few Buffet books and usually find them quite tedious. Not this one! I loved Lowenstein's perspective as a long-time investor of Buffet's and a well regarded value investor/author himself. The result is an intimate but outside look at what made Buffet into the investor and man he is today.
Buffet is a mess of seeming contradictions, his obsession with accumulating money yet his refusal to spend any of it, his remarkable self confidence yet his apparent shyness, his analytical approach yet his refusal to use a computer or even a calculator to analyze investments ("if I don't understand the number in my head, then I won't understand it from a computer!"), his outspoken criticisms of modern CEO behavior yet his numerous CEO friendships, his hatred of all things wallstreet yet his continual close relationship to it. This man contains a multitude!
Lowenstein gets to the core of these contradictions in a revealing narrative of Buffet's formative years. We're let in on his distant yet highly principled congressman-father, his unfulfilled raging-mother, his intense desire to be rich from an early age, his love of numbers, his conservatism and loss-aversion, his unyielding resistance to change, his shy but outspoken style of showmanship (he honed this by taking classes), and probably most important in explaining his success, his disciplined adherence to the Graham-and-Dodd value principles (although applied in his own unique way).
He comes across as incredibly intelligent and widely read on current affairs but able to distill things down to a deceptively simple narrative. His consistent valuation framework allows him to cut through the cacophony of Wall street chatter that leads to short term thinking, herd mentality, pie-in-the sky valuations, and eventually undersized returns. As a result he blows away the market for five decades, virtually every single year. There has never been anyone with close to his record, nor will there be for many, many generations to come.
One thing I realized is that Buffet has spent a LOT of time reading stacks of annual reports all alone in his study. This is where he put his 10,000 hours and where he derived the insight behind his decisions. He has a wide network and makes a lot of calls but these are usually performed after he has an idea. He also keeps a quiet clutter-free office (none of his staff even know what he's cooking up next) and cuccoons himself in with piles of raw information - no computers, bloomberg screens or endless meetings and calls typical for a money manager. It reminds one of the Flaubert advice, “be regular and orderly in your life so that you may be violent and original in your work.” His relationship with west-coast-based Charlie Munger seems to have provided the perfect sounding board for his ideas. Just enough of a wise outside council to give him the confidence to act aggressively without over-analyzing or diluting his ideas. When things are cheap, Buffet acts quickly and aggressively (no investment committees here). He uses his numerical margin of safety in place of extensive discipline. A scan of the numbers, a quick call to Charlie, and Bam! $10 billion ready to go to action. Buffet's mantra.
"Be greedy when others are fearful and fearful when others are greedy."
Simple as that, really!
In summary, I highly recommend this book to anyone with an interest in investing. This is up there with the Intelligent Investor, the book that changed Buffet's own life when he read it in high school......more
Written in 1841 and covering three infamous financial manias - John Law's Mississipi Scheme, the South Sea Bubble, and Amsterdam's Tulipmania. A remarWritten in 1841 and covering three infamous financial manias - John Law's Mississipi Scheme, the South Sea Bubble, and Amsterdam's Tulipmania. A remarkably prescient account of the psychological factors that drive markets to excess (in both directions: greed and fear). Any keen observer of today's financial markets will see not just traces, but wholesale distortions as a result of the cognitive biases and herd behavior already well known to man in 1841.
In the words of Allan Greenspan, "There is one important caveat to the notion that we live in a new economy, and that is human psychology…which appears essentially immutable."...more
A disappointing read given Howard Marks' reputation and thoughtful investing style. The book is a clumsy cut-and-paste job performed on the Oaktree shA disappointing read given Howard Marks' reputation and thoughtful investing style. The book is a clumsy cut-and-paste job performed on the Oaktree shareholder letters (freely available on their website). After a promising first few chapters, the book fails to launch into any real meat. Clearly we need to use "second level thinking" to take into account the expectations of the rest of the market - but how does one put that into practice? Some nitty-gritty real world advice would not have gone amiss.
If you're looking for some investing wisdom from a successful practitioner read the Intelligent Investor by Ben Graham or Contrarian Investment Strategies by David Dremen. Both will provide a lot more value for your time and money (something you'll clearly appreciate as an investor!) ...more
A good follow up to Investment Biker. Adventure Capitalist follows millionaire investor Jim Rogers on his second trip around the world (this time in aA good follow up to Investment Biker. Adventure Capitalist follows millionaire investor Jim Rogers on his second trip around the world (this time in a converted 4x4 sportscar) spanning 3 years at the turn of the 21st century. It's an equally fun narrative and no less insightful on the economies and investment prospects of each country. ...more
A fun romp around the world on a motorcycle with quick insights into the many different countries along the way. After reading this book i would serioA fun romp around the world on a motorcycle with quick insights into the many different countries along the way. After reading this book i would seriously consider overland biking the world myself! It's hard not to be impressed reading about his forays through the Congo, the Sahara, Siberia, the Australian outback and Asia minor.
Unfortunately, the author comes across as self-promotional and a touch arrogant at the outset of the book (not helped by the fact he's brought a young blonde along for the ride!) but by the end of the book you realize he's just a big kid who's been lucky and made some good decisions over his life. It would help if he was a touch more humble and self-effacing but that shouldn't diminish the sense of wonderlust one can get from his books.
On the road Rogers shares his insights on the economies and investment potential of the countries he travels through. His thinking on macro investing is refreshingly simple and effective and no part of the book is a drudge to read. One soon gets a feel for his consistent common-sense approach to investing and as a result it becomes easier and easier to trust his opinion as the book goes on.
I would highly recommend this book to both investors-who-don't-travel and travelers-who-don't-invest. If you like both, it's a no-brainer!...more
Prescient reading given the bull market in commodities in the 5 years since its writing. An enjoyable summary of the mechanics of commodities investinPrescient reading given the bull market in commodities in the 5 years since its writing. An enjoyable summary of the mechanics of commodities investing (although it is much easier in practice these days) and the bull case for commodities. I particularly enjoyed his section on China and the effects of its growth - being in China myself has only reinforced everything he has to say. I also enjoyed his thinking by commodity (sugar, coffee, gold and oil in particular) and found his arguments to be generally coherent and defensible. His case against gold in the long run is spot on (although he grudgingly holds a small amount as doomsday insurance; which has handsomely paid off as a result of the financial crisis).
I feel that many investors could gain by similarly forming simple coherent rationales based on underlying fundamentals (demand and supply in the case of commodities), understanding the historical record, and then diligently sticking to the strategy for several years. The same approach applies to stocks, real estate and just about every investment class ever invented. Jim Rogers himself has made a handy fortune and traveled the world twice on this simple approach (although the devil is in the detail, of course.)
Before rushing out to buy commodities, the reader should read Siegel's Stocks for Long Run - a convincing case on why stocks are generally a better investment than bonds and commodities (except in times of severe inflation - possibly on the cards in the not too distant future). The problem with commodities is that they don't provide an income stream and so miss out on the wonderful effects of compounding. That said nothing beats inflation and recession like a good commodity!...more
This book is really two disparate parts welded together.
The first, quite enjoyable, section of the book describes Einhorn's start in the hedge fund buThis book is really two disparate parts welded together.
The first, quite enjoyable, section of the book describes Einhorn's start in the hedge fund business. If you have an interest in fund management, you'll get a lot out of how he put his first fund together and quickly rose to prominence with spectacular performance out of the gates. The book provides a detailed behind-the-scenes narrative on his early investment decisions and how each investment unfolded in the context of the overall fund. The main takeaway for me was the importance of gauging roughly where in the cycle the overall market is (based primarily on valuation and confidence levels) and positioning one's long/short ratio accordingly. Note that doesn't imply taking an all-or-nothing stand on the direction of the market (which can easily become more irrational in the short term) but it does imply overweighting the part of your portfolio which is most attractive (i.e. the longs during times of panic and the shorts during times of exuberance). By keeping both long and short exposures, the investor is still able to profit if the market moves against him. This thinking helped Einhorn do well during the dot.com bubble years and the subsequent crash (one of only a few investors to achieve this). Virtually all his returns in the crash years came from his shorts - a strong reminder of their value during tough times.
I liked his point that a successful short position needs to be based on both overvaluation and a flawed business model (or fraud). Just one of these conditions is not sufficient. Plenty of overvalued businesses continue to walk on air for long periods of time (like that cartoon character running off a cliff but not realizing it until he looks down) and in the interim a company may actually grow into its valuation (Amazon.com for instance). On the other hand if a business model is flawed but the market realizes it there is obviously little to be gained - only variant opinions are rewarded.
I did not, however, like Einhorn's point that 2x overvalued is effectively the same as 20x overvalued (i.e. both are irrational in the same way that 2x infinity is the same as 20x infinity). Personally, I would much rather be betting against a company at the 20x level as the hype and expectation are that much greater, creating a scenario where the smallest slip-up can bring collapse, and of course the maximum profit potential is larger. Recognizing this can help one increase a short position as it goes against you (in much the same way that value investors double down on battered stocks.)
While I really admire Einhorn as an investor it was highly discouraging to see how the short term orientation of his investors affected his decision making - including covering losing shorts that eventually would have paid off handsomely. It is a great pity that the hedge fund industry works on monthly and not annual or even longer-term performance. It can only be a detriment to eventual returns.
The second section of the book (comprising 2/3rds of its volume) consisted of a very detailed account of fraud at Allied Capital (a BDC investment company) in which Greenlight has held a very public short position (now vindicated with Allied's bankruptcy during the credit crisis). While I sided with Einhorn and was amazed at the extent of the cover-up, I found it much too detailed and convoluted to be enjoyable reading.
I enjoyed Buffet's comment to Einhorn that the problem with shorting crooks is that they'll play a lot dirtier than you will. It's interesting that Buffet has executed several shorts over his career and has no theoretical problem with the strategy but prefers to have a "long persona". After reading of Einhorn's constant battle with the media it is easy to see why....more
Dremen's name is eponymous with successful contrarian investing and this book methodically shows why (along with the impressive records of the Kemper-Dremen's name is eponymous with successful contrarian investing and this book methodically shows why (along with the impressive records of the Kemper-Dremen funds). A modern Ben Graham, Dremen is driven by fundamentals and underlying data, an approach that oddly marks him as a contrarian investor in today's emotion-driven markets.
Contrarian Investment Strategies provides a clear synthesis of the research that backs value investing. It also packs a good dose of simple executable advice - in essence invest in low P/E, low P/CF, low P/BV and high DY stocks that have strong balance sheets and good defensible business models - nothing new here but he does a great job laying it all out alongside the research.
One of the strongest sections of the book showed how value stocks weathered negative earnings surprises and leapt at positive surprises, while growth and concept stocks hardly budged at positive earnings surprises and plummeted on misses. This is something I've noticed anecdotally, but it's pleasing to see in the research - and, of course, provides a big justification for value investing through times of turmoil. Backing up the data is a lengthy but good discussion on investor psychology (along the lines of Shiller's Irrational Exuberance) that goes through the main behavioral biases that provide opportunities for value investors. The book ends by exposing the pitfalls of IPOs, small caps and index investing.
All in all, I believe the book remains as relevant today as it was in the mid-90's, particularly as the IPO market gears up again, this time with social networking stocks. It's as good a starting point as any if you're interested in investing in stocks for the long run....more
Unfortunately I've forgotten my critique of this book although I did like one analogy that I recall, likening dealing with one's emotions to riding anUnfortunately I've forgotten my critique of this book although I did like one analogy that I recall, likening dealing with one's emotions to riding an elephant:
"Depending on conditions, investors either worry about the market taking off without them or, if the market drops, whether they should sell everything. Such “emotional investing” can be likened to riding an elephant. The emotional part of your brain is the elephant, and the rational part is you on the elephant’s back. When things are going fine, you feel like you’re in control. However, when the elephant gets scared, all you can do is hold on. The emotional side of the brain takes over and shuts off most, if not all, of the rational part. Obviously giving into emotion will not help with investing. But you can take certain steps to “ride the elephant”
Perhaps a good title for an investment book "The art of elephant riding"? ...more
A reasonable defense of value investing in general terms but disappointingly shallow, highly repetitive and weak on individual stock selection (perhapA reasonable defense of value investing in general terms but disappointingly shallow, highly repetitive and weak on individual stock selection (perhaps because the author does not himself invest in individual stocks "given time constraints".) Unfortunately this book was not as interesting as his later book Bull's Eye Investing which provides a topical look at the current (high) level of the stock market and what strategies could work in the coming years - a more difficult topic in my opinion but better handled (closer to his expertise as an economic forecaster I suspect).
A great quote from the book comes from Third Avenue Management who said "DCF is like the Hubble telescope, if you move it an inch you end up studying a different galaxy". There were hundreds of similar quotes from Templeton to Buffet to Newton (who failed as an investor incidentally). While the quotes were interesting they were not well integrated into the text and came off as somewhat gratuitous.
Unfortunately, the supposed backbone of the book, "Value Investing: Tools and Techniques" is where the book really fails - it just isn't a blueprint for making successful value investments (in the way Graham's Intelligent Investor is).
That said, readers less familiar with value investing may appreciate the simplified approach and general advice.
My advice: rather purchase the equivalent works of Greenwald, Dremen, Klarman or Graham and if you are interested in Montier, read his other book "Bulls-eye Investing"....more