Book Reviews – Page 2 – The Aleph Blog

Book Review: 100 to 1 in the Stock Market

Posted on 15 October 2015 by David Merkel

How can a book be largely true, but not be a good book? ?By offering people a way to make a lot of money that is hard to do, but portraying it as easy. ?It can be done, and a tiny number succeed at it, but most of the rest lose money or don’t make much in the process. ?This is such a book.

Let me illustrate my point with an example. ?Toward the end of every real estate bull market, books come out on how easy it is to make money flipping homes. ?The books must sell to some degree or the publishers wouldn’t publish them. ?Few actually succeed at it because:

It’s a lot of work
It’s competitive
It only works well when you have a bunch of people who are uneducated about the value of their homes and are willing to sell them to you cheap, and/or offer you cheap financing while you reposition it.
Transaction costs are significant, and improvements don’t always pay back what you put in.

You could make a lot of money at it, but it is unlikely. ?Now with this book, “100 to 1 in the Stock Market,” the value proposition is a little different:

Find one company that will experience stunning compound growth over 20-30+ years.
Invest heavily in it, and don’t diversify into a lot of other stocks, because that will dilute your returns.
Hold onto it, and don’t sell any ever, ever, ever! ?(Forget Lord Rothschild, who said the secret to his wealth was that he always sold too soon.)
Learn to mention the company name idly in passing, and happily live off of the dividends, should there be any. 😉

Here are the problems. ?First, identifying the stock will be tough. ?Less than 1% of all stocks do that. ?Are you feeling lucky? ?How lucky? ?That lucky? ?Wow.

Second, most people will pick a dog of a stock, and lose a lot of money. ?If you aren’t aware, more than half of all stocks lose money if held for a long time. ?Most of the rest perform meh. ?Even if you pick a stock you think has a lot of growth potential, there is often a lot of competition. ?Will this be the one to survive? ?Will some new technology obsolete this? ?Will financing be adequate to let the plan get to fruition without a lot of dilution of value to stockholders.

Third, most people can’t buy and hold a single stock, even if it is doing really well. ?Most succumb to the temptation to take profits, especially when the company hits a rough patch, and all companies hit rough patches, non excepted.

Fourth, when you do tell friends about how smart you are, they will try to dissuade you from your position. ?So will the financial media, even me sometimes. ?As Cramer says, “the bear case always sounds more intelligent.” ?Beyond that, never underestimate envy. 🙁

But suppose even after reading this, you still want to be a home run hitter, and will settle for nothing less. ?Is this the book for you? ?Yes. ?it will tell you what sorts of stocks appreciate by 100 times or more, even if finding them will still be rough.

This book was written in 1972, so it did not have the benefit of Charlie Munger’s insights into the “Lollapalooza” effect. ?What does it take for a stock to compound so much?

It needs a sustainable competitive advantage. ?The company has to have something critical that would be almost impossible for another firm to replicate or obsolete.
It needs a very competent management team that is honest, and shareholder oriented, not self-oriented.
They have to have a balance sheet capable of funding growth, and avoiding crashing in downturns, while rarely issuing additional shares.
It has to earn a high return on capital deployed.
It has to be able to reinvest earnings such that they earn a high return in the business over a long period of time.
That means the opportunity has to be big, and can spread like wildfire.
Finally, it implies that not a lot of cash flow needs to be used to maintain the investments that the company makes, leaving more money to invest in new assets.

You would need most if not all of these in order to compound capital 100 times. ?That’s hard. ?Very hard.

Now if you want a lighter version of this, a reasonable alternative, look at some of the books that Peter Lynch wrote, where he looked to compound investments 10 times or more. ?Ten-baggers, he called them. ?Same principles apply, but he did it in the context of a diversified portfolio. ?That is still very tough to do, but something that mere mortals could try, and even if you don’t succeed, you won’t lose a ton in the process.

Quibbles

Already given.

Summary / Who Would Benefit from this Book

You can buy this book to enjoy the good writing, and learn about past investments that did incredibly well. ?You can buy it to try to hit a home run against a major league pitcher, and you only get one trip to the plate. ?(Good luck, you will need it.)

But otherwise don’t buy the book, it is not realistic for the average person to apply in investing. ?if you still want to buy it, you can buy it here: 100 to 1 in the Stock Market.

Full disclosure:?I bought it with my own money. ?May all my losses be so small.

If you enter Amazon through my site, and you buy anything, including books,?I get a small commission.? This is my main source of blog revenue.? I prefer this to a ?tip jar? because I want you to get something you want, rather than merely giving me a tip.? Book reviews take time, particularly with the reading, which most book reviewers don?t do in full, and I typically do. (When I don?t, I mention that I scanned the book.? Also, I never use the data that the PR flacks send out.)

Most people buying at Amazon do not enter via a referring website.? Thus Amazon builds an extra 1-3% into the prices to all buyers to compensate for the commissions given to the minority that come through referring sites.? Whether you buy at Amazon directly or enter via my site, your prices don?t change.

Book Review: The Art of Execution

Posted on 1 October 2015 by David Merkel

Some books are better in concept than they are in execution. ?Ironically, that is true of “The Art of Execution.”

The core idea of the book is that most great investors get more stocks wrong than they get right, but they make money because they let their winners run, and either cut their losses short or reinvest in their losers at much lower prices than their initial purchase?price. ?From that, the author gets the idea that the buy and sell disciplines of the investors are the main key to their success.

I know this is a book review, and book reviews are not supposed to be about me. ?I include the next two paragraphs to explain why I think the author is wrong, at least in the eyes of most investment managers that I know.

From my practical experience as an investment manager, I can tell you that your strategy for buying and selling?is a part of the investment process, but it is not the main one. ?Like the author, I also have hired managers to run a billion-plus dollars of money for a series of multiple manager funds. ?I did it for the pension division of mutual life insurer that no longer exists back in the 1990s. ?It was an interesting time in my career, and I never got the opportunity again. ?In the process, I interviewed a large number of the top long-only money managers in the US. ?Idea generation was the core concept for almost all of the managers. ?Many talked about their buy disciplines at length, but not as a concept separate from the hardest part of being a manager — finding the right assets to buy.

Sell disciplines received far less emphasis, and for most managers, were kind of an afterthought. ?If you have good ideas, selling assets is an easy thing — if your ideas aren’t good, it’s hard. ?But then you wouldn’t be getting a lot of assets to manage, so it wouldn’t matter much.

Much of the analysis of the author stems from the way he had managers run money for him — he asked them to invest on in their ten best ideas. ?That’s a concentrated portfolio indeed, and makes sense if you?are almost certain in your analysis of the stocks that you invest in. ?As such, the book spends a lot of time on how the managers traded single ideas as separate from the management of the portfolio as a whole. ?As such, a number of examples that he brought out as bad management by one set of managers sound really?bad, until you realize one thing: they were all part of a broader portfolio. ?As managers, they might not have made significant adjustments to a losing position because they were occupied with other more consequential positions that were doing better. ?After all, losses on a stock are capped at 100%, while gains are theoretically infinite. ?As a stock falls in price, if you don’t add to the position, the risk to the portfolio as a whole gets less and less.

Thus, as you read through the book, you get a collection of anecdotes to illustrate good and bad position and money management. ?Any one of these might sound bright or dumb, but they don’t mean a lot if the rest of the portfolio is doing something different.

This is a short book. ?The pages are small, and white space is liberally interspersed. ?If this had been a regular-sized book, with white space reduced, it might have taken up 80-90 pages. ?There’s not a lot here, and given the anecdotal nature of what was written, it is?not much more than the author’s opinions. ?(There are three pages citing an academic paper, but they exist as an afterthought in a chapter on one class of investors. It has the unsurprising result that positions that managers weight heavily do better than those with lower weights.) ? As such, I don’t recommend the book, and I can’t think of a subset of people that could benefit from it, aside from managers that want to be employed by this guy, in order to butter him up.

Quibbles

The end of the book mentions liquidity as a positive factor in asset selection, but most research on the topic gives a premium return to illiquid stocks. ?Also, if the manager has concentrated positions in the stocks that he owns, his positions will prove to be less liquid than less concentrated positions in stocks with similar tradable float.

Summary / Who Would Benefit from this Book

Don’t buy this book. ?To reinforce this point, I am not leaving a link to the book at Amazon, which I ordinarily do.

Full disclosure:?I?received a?copy from a PR flack.

Book Review: DIY Financial Advisor

Posted on 26 September 2015 by David Merkel

I am generally not a fan of formulaic books on investing, and this is particularly true of books that take unusual approaches to investing. This book is an exception because it does nothing unusual, and follows what all good quantitative investors know have worked in the past. ?The past is not a guarantee of the future, but?if the theories derived from past data make sense from what we know about human nature, that’s about as good as we can get.

The book begins with a critique of the abilities of financial advisors — their fees, asset allocation, and security selection. ?It then shows how models of financial markets outperform most financial advisors.

Then, to live up to its title , the book gives simple versions of models that can be applied by individuals that would have outperformed the markets in the past. ?You can beat the markets, lower risk, and “Do It Yourself [DIY].” ?It provides models for asset allocation, stock selection, and risk control, simple enough that a motivated person with math skills equal to the first half of Algebra 1 could apply them in a moderate amount of time per month. ?It also provides a simpler version of the full model that omits the security selection for stocks.

The book closes by offering three reasons why people won’t follow the book and do it themselves: fear of failure, inertia, and not wanting to give up an advisor who is a friend. ?It also offers three risks for the DIY investor — overconfidence, the desire to be a hero (seems to overlap with overconfidence), and that the theories may be insufficient for future market behavior.

This is where I have the greatest disagreement with the book. ?I interact with a lot of people. ?Most of them have no interest in learning the slightest bit about investing. ?Some have some inclination to learn about investing, but even the simple models of the book would make their heads spin, or they just wouldn’t want to take the time to do it. ?Some of it is similar to seeing a Youtube video on draining and refilling your automatic transmission fluid. ?You might watch it, and say “I think I get it,” but the costs of making a mistake are sufficiently severe that you might not want to do it without an expert by your side. ?Most will take it to the repair garage and pay up.

I put a knife to my own throat as I write this, as I am an investment advisor, but there is more specialized knowledge in the hands of an auto mechanic than in an investment advisor, and the risk of loss is lower to manage your own money than to fix your own brakes. ?That said, enough people after reading the book will say to themselves, “This is just one author, and I barely understand the performance tables in the book — if right, am I capable of doing this? ?Or, could it be wrong? ?I can’t verify it myself.”

The book isn’t wrong. ?If you are willing to put in the time to follow the instructions of the authors, I think you will do better than most. ?My sense is that the grand majority?people are not willing to do that. ?They don’t have the time or inclination.

Quibbles

The book could have been clearer on the ROBUST method for risk control. ?It took me a bit of effort to figure out that the two submodels share half of the weight, so that when submodels A & B flash green — 100% weight, one green and one red — 50% weight, both red — 0% weight.

Also, the book is enhanced by the security selection model for stocks, but how many people would have the assets to assemble and maintain a portfolio with sufficient diversification? ?The book might have been cleaner and simpler to leave that out. ?The last models of the book don’t use it anyway.

Summary / Who Would Benefit from this Book

I liked this book, and I recommend it for those who are willing to put in the time to implement its ideas. ?This is not a book for beginners, and you have to be comfortable with the small amount of math and the tables of financial statistics, unless you are willing to trust them blindly. ?(Or trust me when I say that they are likely accurate.)

But with the caveats listed above, it is a good book for people who are motivated to do better with their investments. ?If you want to buy it, you can buy it here:?DIY Financial Advisor.

Full disclosure:?I?received a?copy from one of the authors, a guy for whom I have respect.

If you enter Amazon through my site, and you buy anything, I get a small commission.? This is my main source of blog revenue.? I prefer this to a ?tip jar? because I want you to get something you want, rather than merely giving me a tip.? Book reviews take time, particularly with the reading, which most book reviewers don?t do in full, and I typically do. (When I don?t, I mention that I scanned the book.? Also, I never use the data that the PR flacks send out.)

Book Review: How Software Works

Posted on 12 September 201513 September 2015 by David Merkel

Can you explain to a non-technical reader how software works? ?It depends on what you mean by “software” and “explain.”

With respect to software, this particular book focuses on a few areas that are hot today, and not computing in general. Take a look at the following list. ?What would it be like to not have the following technologies?

Graphic display, both for pictures and video
Security — whether in the form of passwords, encryption, including public key cryptography
Data compression techniques to reduce the amount of data sent, whether for text, pictures, or video
Web Search
Maps that help us find the most efficient driving route
Concurrency –?allowing multiple parties to use the same application at the same time

The web and the internet generally would be a dramatically different place, and much smaller, as it was?in 1990?slightly after?Tim Berners-Lee created HTTP (Hypertext Transfer Protocol).

The topics here are important and affect our daily lives. ?The author of “How Software Works” makes a significant effort to explain programming in a way that teenagers and adults could understand, using pictures, tables, flowcharts, simplified numerical examples, and more.

Now, reading this book will give you a top-level view of how these technologies work, but not much more. ?It will help you understand some of the tradeoffs that go on in computing. ?How do you balance:

Richness of data delivered versus resource use and speed of display.
Security versus ease of use
Reduction of size of data versus loss of?fidelity in an image or?video
And more, there are a lot of tradeoffs in programming.

The ideal audience for this book is bright adults who aren’t programmers, but want some appreciation of the hidden complexity behind much of what goes on on the internet. ?The second ideal audience would be teenagers and young adults who might want a career in computer science, who might benefit from exposure to these varied areas of software. ?Who knows? ?One area might catch their fancy, and then they can study it for real, and put it into practice. ?(I’m giving this book to my second daughter who is interested in programming.)

Quibbles

On page 39, the author suggests that there is no way to do square roots, that it is just a guesswork procedure. ?There are algorithms to do square roots — whether those are used in computing, I don’t know, but it wouldn’t be hard to implement. ?I was doing it when I was 10. ?(I’m not much of a programmer presently, but I am good at math.)

Summary / Who Would Benefit from this Book

I liked this book. ?Give it to friends who want to learn about how much of the web is designed. ?Give it to interested teenagers to expand their horizons in computing. ?If you want to buy it, you can buy it here:?How Software Works.

Full disclosure:?I?received a?copy from a friendly?PR flack.

Book Review: Market Liquidity Risk

Posted on 9 September 2015 by David Merkel

Liquidity is ephemeral, and difficult to define. ?The first real article at my blog was about liquidity, and the three things that liquidity can mean, notably: the ability to:

Enter into large or exit from?commitments to risk assets cheaply (cost)
Borrow at tight credit spreads compared to the safest borrowers
Make large adjustments to their asset allocations rapidly (speed)

Most of these phenomena can be observed without complex models. ?Ask yourself:

Is credit growing rapidly?
Are the exchanges moving turning over stocks more rapidly?
Are credit spreads tight?
Have credit terms and conditions deteriorated?
Do lenders care more about volume of lending than quality of lending?

My bias is that I think most of the academic mathematical models of liquidity risk are overly technical, and tend to obscure liquidity conditions rather than reveal what is going on. ?You may disagree with that view.

But unless you disagree with that view and you like math, this book will not be worth a lot to you. ?Yes, there are qualitative sections, and they are good. ?For example, the beginning of chapter 2 is very good at illustrating the paradoxical nature of liquidity. ?Chapters 1-3 would have made a very good qualitative monograph on liquidity — but it would be so small that you couldn’t charge $80+ for it.

Chapters 4-6 will only be useful to the mathematically inclined. ?I’m dubious that they even be useful then, because much of it is calculus, which does not do well with discontinuous events such as market panics. ?(You would have thought that the quants on Wall Street would have learned by now, but no…) ?Even if the models did work, there are simpler ways to see the same things, as I pointed out above.

As such, I really can’t recommend the book, and at $80+ the price is a lot more expensive than the free Monograph from the CFA Institute “The New Economics of Liquidity and Financial Frictions.” [PDF] ?Read that, not this, and save liquidity.

Quibbles

The book could have used a better editor. ?Too many typos in the introductory chapters.

Summary / Who Would Benefit from this Book

If you are a math nerd, and want to pay a lot of money to buy a book that I think will at least partially mislead you on liquidity risk, then this is the book for you. ?If you want to buy it, you can buy it here: Market Liquidity Risk.

Full disclosure:?I?received a?copy from a friendly?PR flack.

Book Review: Charlie Munger: The Complete Investor

Posted on 5 September 20156 September 2015 by David Merkel

This book is written by an interesting man about another interesting man. ?Tren Griffin writes a respectable blog called 25iq. ?His main topics are the theory of value investing, and what he has learned from bright investors and businessmen. ?One of his favorite businessmen/investors that he likes studying is Charlie Munger, and that’s why he wrote the book.

Why is Tren Griffin interesting, aside from his writing? ?Well, he solved a practical problem of his own once using the ideas of Munger and Buffett. ?As an executive at Microsoft, he had a large block of Microsoft stock during the dot-com bubble. ?His dilemma: should he sell his stock or not? ?After reading Munger particularly, he came up with a solution that I would endorse: he sold half of his holdings. ?A lot of good investing is getting around psychological barriers so that you are?happy with your results, and be able to sleep well at night. ?Selling half is never the optimal solution, but it is a good one amid uncertainty, and allows you to stop sitting on your hands amid danger.

A lot of what goes into the thought processes of Charlie Munger involves how investors let fear or greed get the better of them, and cease to think rationally. ?Learning these foibles has two advantages: you can try to train yourself to avoid these problems, and take advantage of the irrationality of others in business and investing.

In his book, Tren Griffin takes you through Munger’s thoughts on Value Investing. ?Particularly interesting to me was how the concept of Margin of Safety changed, and what role Munger played in its development. ?The key change was noting that businesses differ in quality, especially as to how long they can maintain above average returns on their invested capital, and how much of their profits would be free to be reinvested in the business. ?An ideal business would be a natural monopoly with a high return on capital, and a need for continued capital investment somewhat less than its profits.

Tren Griffin?also introduces you to the mental models of Munger. ?Strong generalist knowledge in a wide number of areas can aid making business and investment decisions. ?One drawback is that many of the mental models are clear and adequately described — the ones on human psychology. ?The rest are more vague, and seem to be?what a true liberal arts education should be, including math and science. ?Munger is a lifelong learner, and given how much the world changes, if you want to be competitive, you have to continually update your knowledge.

For those who are familiar with the way that Munger thinks, this is old hat. ?But for those that are new to it, this book is an excellent introduction, and is systematic in?a slim 150+ small pages of information. ?On that basis, I recommend the book strongly.

But, if you’re still not sure whether you would like the book or not, or whether it would be a good book for a friend of yours, you have an easy way to help you decide. ?Just visit the author’s blog, and look at the topics page. ?Scroll down and find the topic “Charlie Munger.” ?Of the nine articles presently there, pick two of them and read them. ?If you like them, you will like the book.

Quibbles

From my past dealings with authors, I know they don’t always control the title of the book, but this book is half about Munger and half about value investing generally, particularly the version of value investing practiced at Berkshire Hathaway. ?There are ample quotations from Buffett and other value investors along with more from Munger. ?If I had been structuring the book, I would have made it entirely about Munger, and might have included a biography if the book had not been long enough.

The appendices are a good example of that, in that they are less about what Munger thinks, and more about the way Berkshire Hathaway views value investing. ?The last appendix doesn’t seem to mention Munger at all.

Summary / Who Would Benefit from this Book

If you’ve read a lot of Munger, this book will likely not benefit you. ?If you are new to the thoughts of Charlie Munger, or want aid in clarifying his thoughts into a system, this book will help do that. ?If you want to buy it, you can buy it here: Charlie Munger: The Complete Investor.

Full disclosure:?I?received a?copy from a friendly?PR flack.

Book Review: Jesse Livermore: Boy Plunger

Posted on 22 August 201523 August 2015 by David Merkel

This is a story of triumph and tragedy. ?Jesse Livermore is notable as one of the few people who ever made it into the richest tiers of society by speculating — by trading stocks and commodities — betting on price movements.

This is three stories in one. ?Story one is the clever trader with an intuitive knack who learned to adapt when conditions changed, until the day came when it got too hard. ?Story two is the man who lacked financial risk control, and took big chances, a few of which worked out spectacularly, and a few of ruined him financially. ?Story three is how too much success, if not properly handled, can ruin a man, with lust, greed and pride leading to his death.

The author spends most of his time on story one, next most on story two, then the least on story?three. ?The three stories flow naturally from the narrative that is largely chronological. ?By the end of the book, you see Jesse Livermore — a guy who did amazing things, but?ultimately failed in money and life.

Let me briefly summarize those three aspects of his life so that you can get a feel for what you will run into in the book:

The Clever Trader

Jesse Livermore came to the stock market in Boston at age 14, and was a very quick study. ?He showed intuition on market affairs that impressed the most of the older men who came to trade at the brokerage where he worked. ?It wasn’t too long before he wanted to invest for himself, but he didn’t have enough money to open a brokerage account, so he went to a bucket shop. ?Bucket shops were gambling parlors where small players gambled on stock prices. ?He showed a knack for the game and made a lot of money. ?Like someone who beats the casinos in Vegas, the proprietors forced him to leave.

He then had more than enough money to meet his current needs, and set up a brokerage account. ?But the stock market did not behave like a bucket shop, and so he lost money while he learned to adapt. ?Eventually, he succeeded at speculating on both stocks and commodities, leading to his greatest successes in being short the stock market prior to the panic of 1907, and the crash in 1929. ?During the 1920s, he started his own firm to try to institutionalize his gifts, and it worked for much of the era.

After the crash in 1929, the creation of the SEC and all the associated laws and regulations made speculating a lot more difficult, to the point where he could not make significant money speculating anymore.

The Poor Financial Risk Manager

Amid the successes, he tended to aim for greater wins after his largest successes, which led to him losing much of what he had previously made. ?One time he was cheated out of much of what he had while trading cotton.

Amid all of that, he was well-liked by most he interacted with in a business context. ?Even after great losses, many wanted him to succeed again, and so they bankrolled him after failure. ?Before?the Great Depression, he did not disappoint them — he succeeded in speculation and came roaring back, repaying all of his past debts with interest.

In one sense, it was live by the big speculation, and?die by the big speculation. ?When you play with so much borrowed money, it’s hard for results to not be volatile.

A?Rock Star of His Era

When he won big, he lived big. ?Compared to many wealthy people of his era, he let spending expand far more than many who had ?more reliable sources of income. ?Where did the money go? ?Yachts, homes, staff, wives, women, women, women… ?Aside from the last of his three wives, his marriages were troubled.

His last wife was a nice woman who was independently wealthy, and after Livermore lost?it all in the mid-’30s, he increasingly relied on her to stay afloat. ?When he could no longer be the hero who could win a good living out of the market via speculation, his deflated pride led him to commit suicide in 1940.

A Sad Book Amid Amazing Successes

Sadly, his son and grandson who shared his name committed suicide in 1975 and 2006, respectively. ?On the whole, the story of Jesse Livermore’s?life and legacy is a sad one. ?It should disabuse people of the notion that wealth?brings happiness. ?If anything, it teaches that money that comes too easily tends to get lost easily also.

The author does a good job?weaving the strands of his life into a consistent whole. ?The book is well-written, and probably the best book out there on the life of the famous speculator that so many present speculators admire. ?A side benefit is that in passing, you will learn a lot about the development of the markets during a time when they were less regulated. ?(The volatility of markets was obvious then. ?It not obvious now, which is why people get surprised by it when it explodes.)

Quibbles

None.

Summary / Who Would Benefit from this Book

This is a comprehensive book that explains?the life and times of Jesse Livermore, one of the greatest speculators in history. ?It will teach you history, but it won’t teach you how to speculate. ?If you want to buy it, you can buy it here: Jesse Livermore – Boy Plunger: The Man Who Sold America Short in 1929.

Full disclosure:?I?received a?copy from a kind PR flack.

Book Review: Excess Returns

Posted on 18 August 2015 by David Merkel

Suppose you wanted a comprehensive book on all of the ways that there are to get excess returns from the stock market as a type of value investor (as of year-end 2013), and you wanted it in one slim volume. ?This is that book. ?As with most desires there is the “be careful what you wish for, you just might get it” effect. ?This book is not immune.

At Aleph Blog, I try to write book reviews that always include what sort of reader might benefit from a given book. ?Because this book packs so much into such a small space, it is not a?book for beginners unless they are?prodigies. ?If you are a beginner, better to warm up with something like The Intelligent Investor, by Ben Graham. ?Beginners need time to see concepts described in greater detail, and more slowly.

Though it is a book on value investing, it is expansive in what it considers value investing. ?It includes topics as varied as:

Behavioral Economics
Market-timing from a valuation standpoint
Growth at a reasonable price [GARP] investing
Private investing
Shorting
Event-driven investing
Barriers to considering investments that keep others from buying them at attractive prices
Studying informed investors (insiders & 13F filings
Catalysts that may unlock value
Emerging markets
Financial statements
Competitive Analysis
Analyzing Growth Potential
Analyzing Management
Valuation techniques
Common mistakes; why most average investors go wrong
Understanding different types of industries and companies
Attitudes — Modesty, Patience & Independent Judgement
And more…

In a book of around 300 pages, this is ambitious. ?It gives you one or two passes over important topics, so you are only getting a taste of the ideas involved. ?This is also predominantly a book on qualitative investing. ?Pure quantitative value investing doesn’t get much play. ?Non-value anomalies don’t get much coverage.

The other?thing the book lacks is a way to pull it all together in a practical way. ?Yes, the last chapter tries to pull it all together, but given the breadth of the material, it gets pulled together in terms of the attitudes you need to do this right, but less of a “how do you structure an overall investment process to put these principles into practical action.” ?Providing more examples could have been useful, and really, the whole book could have benefited from that.

Additional Resources

Now, if you want a greater taste of the book without buying it, I’ve got a deal for you: this is a medium-sized slide presentation that summarizes the book. ?Pretty sweet, huh? ?It represents the book well, so if you are on the fence, I would look at it — after that you would know if you want to buy it.

Summary / Who Would Benefit from this Book

This is a good book if you understand qualitative value investing, but want to get an introduction to all the nuances that can go into it. ?If you want to buy it, you can buy it here: Excess Returns: A comparative study of the methods of the world’s greatest investors.

Full disclosure:?I?received a?copy from the author.

Book Review: Heroes & Villains of Finance

Posted on 13 August 201513 August 2015 by David Merkel

I made it through this book while watching my daughter at a softball tryout. ?It was an overly easy read, because there is little in the book. ?For each of the 50 characters in the book, you get around 1.5?pages of text. ?An average article at Aleph Blog would be the length of 2-3 biographical vignettes contained in this book. ?At most, you learn the highest points of their lives.

But, I have other criticisms:

You don’t even necessarily get the highest points of their lives. ?I read through a few of them and thought I could have done a better job summarizing their lives with one hour of time.
Many of the characters don’t deserve to be in the book. ?Some?aren’t important or colorful enough. ?Others?are too recent to evaluate how truly “colorful” or important they are. ? Others aren’t truly in finance — they may be in business, politics, or academic economics, but they had little to do with finance in any direct way.
Occasionally, there are factual errors, such as with Nick Leeson, where it attributes his famous “I’m Sorry,” note to February 1994 (twice), while having him flee?one year later in 1995. ?Both happened in February 1995.

This book is bad enough that the author should be absolved from blame, and that the editors and anyone else in the approval process at Wiley should receive it. ?This book should never have seen the light of day in its present form. ?Wiley’s quality control is usually quite good — something went awry here.

Now, lest this be purely negative, I have two ideas. ?Simple idea one: go buy Kenneth Fisher’s 100 Minds that Made the Market. ?This is the book that Heroes &?Villains of Finance should be. ?As I say in my review:

Some people are hard to buy gifts for.? With books, there is often a trade-off between books that say a lot, and those that people are willing to read.? One book that I think hits the sweet spot is 100 Minds That Made The Market, by Ken Fisher.

Why do I think this?? This book is 100 little books in one volume.? You can pick this book up for five minutes, and read a well-written 3-4 page biography of person who has had a significant impact on how our markets work today.? Then you can put it down, get back to work, and think that you have learned something significant.

So if you want a book of short biographies, this is a better one. ?I think it makes an excellent gift.

Idea number two, for the folks at Wiley — here’s a book that could sell: [20-50] Greatest Financial Scandals Ever. ?Average people aren’t looking for heroes in finance. ?It’s not that there aren’t any. ?It’s just that the scoundrels are far more interesting to read about. ?Finance, when done right, is boring. ?Margin of safety, low debt,?ethical management, etc… good to learn from, but won’t tell interesting stories to the same degree.

I would encourage the author to take it one step further as well: add a final chapter to give the common themes that run through the scandals. ?Books like?Heroes &?Villains of Finance leave you with no generality at the end — is there some common thread behind heroes? ?What of villains? ?Are there lessons to be drawn here from the sum total of the lives considered?

Summary?

Don’t buy?Heroes and Villains of Finance. ?Instead, if you want such a book, buy?100 Minds That Made the Market. ?If you buy through the link I provide here, I get a small commission. ?At present, it is the only revenue source for my blog.

Full Disclosure

I review books because I love reading books, and want to introduce others to the good books that I read, and steer them away from bad or marginal books.? Those that want to support me can enter Amazon through my site and buy stuff there.? Don?t buy what you don?t need for my sake.? I am doing fine.? But if you have a need, and Amazon meets that need, your costs are not increased if you enter Amazon through my site, and I get a small commission.? Win-win.

Book Review: The Great Minds of Investing

Posted on 29 May 2015 by David Merkel

This is a difficult book to review. ?Let me tell you what it is not, and then let me tell you what it is more easily as a result.

1) The book?does not give you detailed biographies of the people that it features. ?Indeed, the writing on each person is less than the amount that Ken Fisher wrote in his book, 100 Minds That Made the Market. ?If you are looking for detailed biographical sketches, you will be disappointed.

2) The book does not give detailed and comparable reviews of the portfolio performance of those that it features. ?There’s no way from what is written to tell really how good many of the investors are. ?I mean, I would want to see dollar-weighted rates of return, and perhaps, measures of dollar alpha. ?The truly best managers have expansive strategies that can perform well managing a large amount of money.

3) The book admits that the managers selected may not be the greatest, but are some of the “greats.” ?Okay, fair enough, but I would argue that a few of the managers don’t deserve to be featured even as that if you review their dollar-weighted performance. ?A few of them showed that they did not pay adequate attention to margin of safety in the recent financial crisis, and lost a lot of money for people at the time that they should have been the most careful.

4) If you wanted to understand the strategies of the managers, this is not the book for you. ?They are not described, except in the broadest terms.

5) There is no integration of any common themes of what makes an investment manager great. ?You don’t get a necklace; you just get a jar of pretty, non-comparable beads that don’t have any holes in them.

What do you get in this book? ?You get beautiful black and white photos of 33 managers, and vignettes of each of them written by six authors. ?The author writes two-thirds of the vignettes.

Do I recommend this book? ?Yes, if you understand what it is good for. ?It is a well-done coffee table book on thick glossy paper, with truly beautiful photographs.?It is well-suited for people waiting in a reception area, who want to read something light and short about several?notable investment managers.

But if you are looking for anything involved in my five points above, you will not be satisfied by this book.

One final note on the side — I would have somehow reworked the layout of Bill Miller’s photograph. ?Splitting his face down the middle of the gutter does not?represent him to be the handsome guy that he is.

If you would like?to buy it, you can buy it here: The Great Minds of Investing.

Full disclosure:?I?received a?copy from the author. ?He was most helpful.