I have always been someone who loved reading books. During school days it was fiction – I liked Hardy Boys and The Three Investigators. As I grew up, it was Stephen King, Robert Ludlum among others. My all time favorite for a very long time though remained Tintin Comics.
Somewhere down the line I stopped reading and I did that at a time when in hindsight I should have read more. I did read a lot of articles on subject matters that interested me but I now know that books would have helped better since it provides a better framework to understand and learn.
A structured way of learning can compress what essentially would take years or even decades into a smaller time-frame.
There are literally millions of books that cover every subject you can think about but not everyone is a great read. Many great reads though require a deeper perspective, one that you may not have been acquainted with when you read the book in the first place. I now understand what people are saying when they say, I shall re-read the book once again.
While fiction can be read over a weekend at best, reading books on any subject matter requires much greater time for they require deep focus (something I sorely lack). That hasn’t stopped me from buying good books based on recommendations from people I trust and of course Amazon reviews.
Here is the list of some of the books I bought in 2019 (have read some start to end, skimmed a a few and hope to revisit them in the future).
Inside the Investments of Warren Buffett: Twenty Cases by Yefei Lu
Category: Fundamental Analysis
While Warren Buffett himself has not written a single book, there are hundreds of them with each author trying to dissect his methodologies and what made him click. In this book, Yefei Lu tries to get an understanding of how he choose the companies by looking at the Balance Sheets of the companies at the time when Warren bought into them.
The choice of 20 companies I believe is based on Warren’s famous 20-idea punch card. Its a good book but one that requires some amount of understanding with respect to fundamental analysis but even if you aren’t an accountant is still a good read on how to choose good companies.
The Go–Go Years: The Drama and Crashing Finale of Wall Street′s Bullish 60s
Category: Financial History
Financial shenanigans isn’t new. Its been there in the past, is there currently and will be seen in the future regardless of the number of laws that are passed or better understanding by investors. John Brooks who has several interesting books to his credit wrote this book
This book focusses on the 10 years between 1960 and 1970. What is so special about that period you may ask and the answer is in what happened later. The US markets were in full steam going into the 60’s. The high just before the crash that led to the great depression had been crossed over in 1955 and markets were well and truly in a euphoric rally.
Dow began 1960 at 680 and by crossed the 1000 barrier by 1966. A 50% rise in markets may not seem that great but this came on top of 300% rise in the preceding decade. While the 1965 high was breached a couple of times, such breaches ended in failure and it was only in 1982 that the high was well and truly broken to be never seen again.
Indian Stock Markets haven’t seen long periods of consolidation. Yet, if the coming future is showcasing a slower growth environment while our valuation remain high, the only outcome is a long time based correction.
This book as Michael Lewis in the foreword writes is not about markets themselves as much as they are about morality tales of the most outlandish events of the 1960’s.
Book of Value: The Fine Art of Investing Wisely
Category: Fundamental Analysis
I have more of less frozen the framework I use to build a portfolio of stocks using the Momentum factor. One factor that keeps interesting me and one that I feel can add value is creating a Value based portfolio. This book was bought based on recommendation of a good friend who is for lack of a better word, Value Oriented.
The Author, Anurag Sharma is an Associate Professor Management at the Isenberg School of Management. In this book, he tries to provide a framework on how to go about building a portfolio of stocks – a Core Portfolio.
The Author believes that while information overload is fast becoming a problem for investors, the bigger problems arise from emotional and psychological vulnerabilities.
One interesting chapter is “Investing as a Negative Art”. This is more inline with Mungers famous quote, Invert, always Invert. The chapter focuses on the importance of defining a criteria to use for disconfirming investment thesis.
The Bubble Economy: Japan’s Extraordinary Speculative Boom of the ’80s and the Dramatic Bust of the ’90s
Category: Financial History
Passive Investing is the current rage but what are the risks of buying and holding the index. As we have seen with Dow Jones and many other Indices, markets can remain flat for a long period of time. Do you know for instance that FTSE today is at 7600. The high it reached in 2000 was 6950.
Yes, we are comparing a developed economy with an emerging one, but such risks exist everywhere. Japan on the other hand has been a different kind of markets altogether. Nikkei hit a high of 39K in 1989. In 2009 at the height of the financial crisis, the Index was close to breaking 7000. A fall of 82% from its high.
Christopher Wood’s book is one of the best that traces both the boom and the bust. An example from the book shows the excesses of the market. Nomura, the world’s largest stock broking firm then was at its peak was valued in excess of the total market cap of many companies. In a way, we are seeing something similar today with just Apple and Amazon having more market capitalization that entire stock markets of countries.
India has been for a while now seeing the fruits of the excesses of the earlier years when loans were disbursed and property prices escalated beyond what most people have the ability to bear. Japan was an extraordinary case but it holds lessons on how excesses can result in mountains of bad loans, economy in recession and scandals.
The Z Factor: My Journey as the Wrong Man at the Right Time
Category: Autobiography
As the Essel Empire slowly but seems to be surely going under, this is a good book to understand how he came to become India’s Media giant. Lots of interesting tidbits such as
The Predators’ Ball: The Inside Story of Drexel Burnham and the Rise of the JunkBond Raiders
Category: Financial History
In the United States, just two companies have a AAA rating as of August 2019: Microsoft (MSFT) and Johnson & Johnson (JNJ). In contrast to US, in India we have dozens of companies with AAA rating, a rating that allows them a competitive advantage in their ability to borrow cheaply. For the credit companies, there is very little if any risk is things go bad. IL&FS went from being AAA to default. SEBI fined them 25 Lakhs, peanuts in the scheme of things
India despite having a large number of companies which are essentially high risk doesn’t have a junk bond market. An active junk bond would allow companies to diversify their ability to borrow other than from Banks and NBFC’s. For investors, it can provide a higher return opportunity for taking a higher risk.
The US Junk bond market was popularized by Michael Milken who found an opportunity to enable small and high risk companies an ability to borrow from the markets. He did this when working at Drexel Burnham Lambert. This book is about the rise and fall of he and the company.
What started out as an endeavor to generate fees soon turned to greed as access to information and insider-trading took root. The book is an interesting read on the path and the people involved.
Trivia: Twitter is preparing to debut in the Junk Bond market with a $600 million deal at a yield of around 4.5%
One Hundred Years on Wall Street: Investment Almanack
Category: Financial History
I had written a review of the same here
The Mind and the Market: Capitalism in Western Thought
Category: Economic History
While the book itself is around 400 pages, its deep on the thought of interaction between Capitalism and market as it tries to answer the question of moral, political, cultural and economic ramifications. From Voltaire and Adam Smith to Marx, Hegel and Keynes, the book touches upon a lot of views on the utility and purpose of markets.
Devil Take the Hindmost: A History of Financial Speculation
Category: Financial History
Speculation is as old as the hills. This book hence starts from Speculation in the Roman Empire. Did you know for instance that in 1351 (at a time when Muhammad bin Tughluq was the Sultan of Delhi), Venice introduced a law against rumours intended to sink the price of government bonds.
While we have all heard about the Tulip Mania, the book showcases the Canal (Stock) Mania and the Rail Mania. The Canal Mania came about because of the high Return on Equity (as much as 50%) generated by the earlier Canals. The bubble burst due to the outbreak of the French Revolution. Return on Equity dropped from 50% to 5% leaving many a Canal without the ability to pay a return to its shareholders.
On the positive side though, many of the Canals that were built using such funds exist to this day. While the investors suffered, the permanent infrastructure would have yielded to others returns multiple times the Investment. The Railway Mania which followed the Canal one lived a bit longer but died similarly. But once again the gainer was general public with more than 8000 miles of rails in Britain having been laid. Britain at that point had the highest density of railways in the world.
Warren Buffett’s Ground Rules: Words of Wisdom from the Partnership Letters of the World’s Greatest Investor
Category: Investment Management
The only reason I bought this book was to understand Warren Buffett before he bought Berkshire Hathway. Very little is known about his partnership days, partnerships where he had enormous success and one quite different from what he said or did in his later years.
The book is named after the Ground Rules Buffett wrote up when he formed his first partnership.
“These are the ground rules of my philosophy. If you are in tune with me, then let’s go. If you aren’t, I understand”
The 5th Rule is something that every few fund managers of today let alone of those days would even bring up to a prospective client. The Rule was as follows
While I much prefer a five-year test, I feel three years is an absolute minimum for judging performance. It is a certainty that we will have years when the partnership performance is poorer, perhaps substantially so, than the Dow. If any three-year or longer period produces poor results, we all should start looking around for other places to have our money. An exception to the latter statement would be three years covering a speculative explosion in a bull market.
In other words, Buffett felt that if a client gave him a 3 year timeframe and if evenpost that he was under-performing, they would be better off investing elsewhere. While the Index was the benchmark, Buffett felt that he should be performing at least 10% better than the Index to justify the risks of active investing.
In these days of Concentrated Portfolio vs Diversified Portfolio, here is Warren Buffett’s advice in the late 90’s which he delivered to a group of students
If you can identify six wonderful businesses, that is all the diversification you need. And you will make a lot of money. And I can guarantee that going into a seventh instead of putting more money into your first one is gotta be a terrible mistake. Very few people have gotten rich on their seventh best idea. But a lot of people have got gotten rich with their best idea. So, I would say for anyone with normal capital who really knows the business they have got into, six is plenty and I {would} probably have half of [it in] what I like the best.
One interesting facet of his partnerships he ran for 10 years, he never had a down year.
Risk Game: Self Portrait of an Entrepreneur
Category: Autobiography
As real estate developers in India unravel in a web of leverage and unsold apartments, this book by a US developer provides an interesting perspective on the risk and travails of real estate development.
Francis J. Greenburger was finally able to pull if off, but just one project 50 West could have derailed all that he had achieved in the decades past. While it speaks of perseverance, it also is about ability to convince others and of course the role of luck. As with any other Autobiography, he does go overboard on his own wisdom and knowledge sometimes but given that this is his book and his achievement, I would give it a pass for the ability to learn about his life and how he overcame the odds.
The Rebel Allocator
Category: Investment Management
How do you distill the important facets when it comes to analyzing a business and yet make it a lovely read. Well, that is what the author has achieved here. While the focus is on learning, it doesn’t involve deep maths yet does touch upon a lot of philosophy more than once. For instance,
“Throughout your life, you should follow your own inner scorecard. What does that mean? Don’t spend a lot of time worrying about what other people think of you. Progress is only accomplished by those who are stubborn and a little weird. It’s easier said than done, but if you stay true to your own principles and follow your own inner scorecard, it’s your best shot at happiness”
There are very interesting insights on what type of companies survive and thrive for the long run and which don’t. Using a picture, it showcases that companies that thrive are those that make a profit while at the same time providing value which seems higher than the price of the product making it attractive to the end customer.
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I am not a compulsive reader yet thanks to the easy availability of books, its attractive to buy those that seem interesting based on the reviews of others. In addition to the above, I have in recent past purchased a few more but haven’t been able to read.
Even if you are not a big reader, I would recommend buying books that seem interesting or have been recommended by well meaning friends. There will be a day when you are bored with Social Media and Television and on such days, books can be a good friend if it’s easily available.
A book, especially non fiction is basically years of knowledge of the author compressed into a small digestible version in print. That being available for the cost of a Starbucks Coffee is cheap beyond imagination. For me the biggest benefit has been the ability to distinguish Bull Shit from what is not. In the world of finance, this gives me a nice edge when it comes to investing.
