“When Genius Failed” by Roger Lowenstein
and I second “Random Walk”. Probably the best primer to investing there is.
Yes
Everybody seems to love “when genius failed.” It’s not bad, and it’s worth reading because it’s an important reference point in many discussions, but I don’t really get a huge sense of what makes it great.
I think everyone just likes to see Nobel Prize guys get into trouble because any time someone says “those guys are really smart,” you can just whip out WGF and say, “yeah, but you can give your money to me instead.”
I thought Margin of Safety by Klarman was pretty pedestrian, same goes for When Genius Failed, I just got bored reading it. You Can Be a Stock Market Genius was good, but have struggled to apply those ideas IRL. Peter Lynch’s first book was great, havent read the second one.
I have Philip Fisher’s book sitting in my drawer, maybe I will read it someday.
Most finance books have been pretty boring to me, I’d rather read case studies on individual investments.
+1
When Genius Failed was interesting but not really helpful from a practitioner standpoint, IMO
Margin of Safety wasn’t really applicable, IMO – needed more case studies and less everything else.
The Lynch books are the best on the market other than the Porter stuff
The Fisher book is like watching paint dry, someone seriously needed to get him an editor
The Greenblatt stuff is good but that has been commoditized now for the most part. Spinouts are very competitive.
Does anybody here read Martin Whitman? He has authored two books and also publishes quarterly letters through his Third Avenue funds. I’ve read some of his letters and really like them. I also own both of his books, but have yet to read either.
Lowenstein does an amazing job of taking complex financial transactions and stories and making them read like pure enjoyable fiction. Each character is almost like a fictional figure but they are most certainly real and Lowenstein brings them to life through descriptions and anecdotes.
The previous comment was in response to Bchad’s last post.
Ok, I agree that Lowenstein manages to make pretty dry stuff readable, and that’s an impressive accomplishment for the author. And I also agree that it’s a sufficient reference point for many discussions that those who haven’t read it look silly if they have to admit that they haven’t.
But I just don’t find the book all that transformative in terms of my thinking or understanding of finance. I guess it is the story of things looking great, and then suddenly blowing up in the wink of an eye, with everyone wondering what the heck just happened, and so it puts some personalities on that view.
Rather like “Margin Call.” I’m not sure there was any grand lesson there, but it was interesting to watch just how quickly things turned to crap, who got canned, and who survived.
I would add Liar’s Poker to that category.
Liar’s Poker and When Genius Failed are narratives. They were never intended to be practically applied in my opinion. Good books nonetheless. It’s hard to find “How-To” books on investing/trading anymore that give unique perspectives so I tend to stick to these narrative-type works these days if I want to read non-fiction.
There aren’t any good “how to” books on the market now. There are some books (discussed in this thread) that provide some insight into SOME aspects, but there is really no comprehensive book that covers all the bases well.
There is a discipline that you could piece together by reading all the classics, but it is incomplete, IMO. The Ben Graham stuff, for example, is great – if you’re in the 1950s. It’s less applicable today. Still good to know, it’s just incomplete. You can say that about every other major book as well. All the major works have become commoditized over time, so anyone with a unique approach that works is unlikely to write a how to guide.
There’s a revolution coming to finance within the next 10-15 years where modern portfolio theory will be proven wrong, efficient markets theory will finally be put down (unceremoniously with a bullet to the back of the head), and the idea that you “don’t get rich owning your 7th best idea” will be shown to be patently false. There are a lot of wrong ideas in finance but the big data revolution will disprove many of these.
You’re too optimist if you think this will happen in the next 10-15 years. It will happen eventually, but in a generation or 2.
What does it even mean for modern portfolio theory to be proven wrong?
Are you saying that holding two uncorrelated assets with positive expected returns isn’t a better approach to risk than simply holding the one with the highest expected return in all cases? Because that’s about the only thing that would “prove” MPT wrong.
The other stuff that flows from it - CAPM, APT, EMH etc…, those parts are much more challengeable, but they can be disproven (or more likely - shown to be unuseful) without “disproving MPT.”
And whatever comes to take their place, what will that be called? Postmodern Portfolio Theory? Can we socially construct that, please?
The MPT claim I was referring to (which, IMO is the main claim as it relates to equities) is that the optimal number of securities in a portfolio is n=30 because the benefit of diversification declines after that. This is false. I agree with what you’re saying, maybe I should have said “the commonly applied approach in recognition of MPT will be shown to be wrong.”
It will happen in the next 10-15 years. My generation is the first investing generation that has had access to big data and the technology to run it. It will revolutionize the market. Quant funds sort of tried to do this, but PhDs from MIT don’t understand business, so they can only focus on arbing out statistical patterns (that’s already done, it’s a pure commodity now). The 40-50 year old PM with a Buffett style orientation of value investing is going to be increasingly marginalized IMO.
OK, this is more interesting, because I have also been trying to think about how big data and relatively cheap computing power is changing the landscape, and what kinds of skills are likely to be useful.
Ultimately, I think that investment opportunities are divisible into those things that are calculable based on past history, and those things that require nonquantifiable business insights. Quant methods will basically handle one, and the rest will be what fundamental analysts can provide. It means that some parts of fundamental analysis will simply die (the projecting returns by extrapolating from the past and then discounting them into the present), but the parts that require analysis of strategic interactions will remain.
The idea that the optimal number of securities in a portfolio is 30 comes from the assumption that the only paid risk (i.e. the only risk worth taking) comes from exposure to common underlying factors (market beta, or something similar) and that security returns aren’t correlated with each other in any way other than those underlying factors. The moment that security returns are correlated to other stuff (some kind of alpha factor), then that falls apart.
What do you think will change the n=30 rule? Are you saying that optimal porfolios will have to have more than 30? Or are you saying that concentrated portfolios of 3-8 stocks are going to be found to be better?
Personally, I think that the soures of alpha will disappear and reappear like forms in a kaliedescope. As sources are identified, they will be arbed out, but then as they are arbed out, businesses will stop trying to catch them, which will allow these sources to reappear, which will start the process of arbing out all over again.
The more interesting question is that some processes will become almost costless to screen for with computers, so even if there is little to no profit in certain opportunities, it will make it almost costless to look and check for them. In some ways, the irony is that as bad as the EMH is today, it may actually become more valid in the future, at least for easily tested and computerizable hypotheses.
Value-added fndamental analysis increasingly needs to be about business strategy and the kinds of things that computers can’t spot. This is true already today, but will become more and more essential as anything computerizable becomes computerized.
Michael Porter’s books on competition and strategy
Rich Dad, Poor Dad by Robert Kiyosaki (i don’t like most of his other books but this one teaches the absolute “basics” really well.)
One Up on Wall Street by Peter Lynch
Fail Safe Investing by Harry Browne
Quantitative Trading by Ernie Chan
Permanent Portfolio by Craig Rowland
Four Hour Work Week by Tim Ferriss
I Will Teach You to be Rich by Ramit Sethi
With a few exceptions, most books on my list are the “big picture” types that greatly influence how I think of investing, not how I iron out the details of my investment plan.
Alexander, Who used to be Rich Last Sunday
This is the all-time worst personal finance/investing book ever written. #'s 2-22 are the other twenty one Robert Kiyosaki books.
Here’s some good reading on Bobby K. http://www.johntreed.com/Kiyosaki.html