PORTFOLIO POINT: Who do our writers turn to for inspiration? Here's a list of their best-loved business and investment books.
Oddly enough, we have never previously asked our circle of writers at Eureka Report to select their favourite investment books. But the exercise clearly stimulated their collective talents with a flurry of calls on whether they could extend their lists or expound more fully on certain tomes.
In the end we have arrived at a terrific list that I’m sure will entertain and inform every subscriber. Unsurprisingly, Warren Buffett features heavily but there are also authors who may be unfamiliar to many Australian readers; Sylvia Nassar comes to mind (chosen by Michael Feller) or John Rothchild (chosen by Doug Turek).
No doubt the limits of the subject matter also forced some contributors to recommend mainstream business books – such as Malcolm Gladwell's Blink, or certain biographies – such as Paul Barry’s The Rise and Fall of Alan Bond – and they are more than welcome because they offer investment lessons for everyone.
There is something of a disconnection between the books here and the sort of books that dominate the best-sellers in the investment section of your local bookshop (if you still have a local bookshop). We find some local best-sellers missing – Steve McKnight and his 0 to 130 properties in 3.5 years was, in relative terms, a monster seller in Australia but it does not get a look-in here. Likewise, the Rich Dad, Poor Dad series from Robert Kiyosaki is on the list but only once (from Bruce Brammall). There is nothing from Donald Trump or Anthony Robbins '¦ why?
The answer may lie in the nature of Eureka Report rather than any failing of high-profile best-sellers: It’s not that there is anything intrinsically wrong with typical money-based best-sellers but it is more likely our contributors are interested in more pragmatic – if not reliable – ways to make some money than the glamorous wish-fulfilment style of authorship that can sell truckloads but offer few lessons.
It’s also reassuring to see plenty of Australian authors here, the most interesting new arrival being Matthew Kidman’s Bulls, Bears and a Croupier, which has been exceptionally well received. Of course it would be silly of us not to mention books by our own crew. We're generally much too modest to nominate ourselves (although Bruce Brammall is on Monique Sasson Wakelin’s list!). For the record, in the shops or online now you can get Alan Kohler’s Eureka Report Guide to Personal Investing (with Barbara Drury), James Kirby's Australian edition of Investment For Dummies (with Barbara Drury), Bruce Brammall's Debt Man Walking, Monique Sasson Wakelin's Streets Ahead and Roger Montgomery's Value.able, to name just a few.
One last thing: the internet has enabled readers to get almost any book from anywhere. If you cannot track down some of these titles you can always try online at Amazon.com or the wonderful bookshop collective site Abebooks.com.
So who chose what?
Alan Kohler, Eureka Report Publisher
Security Analysis, by Benjamin Graham and David Dodd.
This is the classic 1934 text on investing in stocks. It’s big but don’t be daunted: it’s actually written in a way that anyone can understand, and provides all the basics of how to approach the task of figuring out which stocks to buy, and which to sell.
Buffett: The Making of an American Capitalist, by Roger Lowenstein
There are many books about Warren Buffett, but the reason I like this one is because it combines an examination of his investment techniques with details of his life. Investing is indistinguishable from your life: the way you invest, and the risks you take, are determined by who are. Lowenstein’s book puts this idea into the context of the greatest investor the world has known.
One Up On Wall Street, by Peter Lynch, with John Rothchild
Peter Lynch is probably the second greatest investor and this book is a pure delight. It’s easy to read and, unlike Warren Buffett, he lets you in on his secrets: how he approaches investing, as well as all the lessons he learnt along the way. Not that Buffett is not an educator as well, he just hasn’t written a book.
James Kirby, Eureka Report Managing Editor
The Essays of Warren Buffett: Lessons for Corporate America, by Lawrence A. Cunningham
I chose this because despite the plethora of books on Buffett (including one by his ex-daughter in law) nothing beats the original texts from the man himself. This is effectively a collection of Buffett's annual report statements from the chairman. They are concise lessons in the elementary aspects of investing with little in the way of jargon, but plenty in the way of “takeaways”. If you only ever read one investment book, read this.
Renton’s Understanding The Stock Exchange, by Nick Renton
This is a sentimental choice. Indeed, the book itself is offered more as a sample of a series, than a stand out from Nick Renton’s collection of investment books. The reason I chose this is because Renton (along with other local authors Austin Donnelly and Noel Whittaker) invented a uniquely Australian series of books that offered a simple, no-nonsense guide to investing in Australia. Renton’s books are mostly available now in second-hand shops but remain excellent introductory guides to the principles of investment.
The Millionaire Next Door: The Surprising Secrets of America's Wealthy, by Thomas Stanley and William Danko
Investment books invariably pay attention to making money, but very few pay attention on how to spend it or – crucially – how to accumulate it. This book, based on a survey of 11,000 high-net worth Americans, is a terrific guide on making money and keeping it. The book has sold more than million copies and yet it is the very opposite of the get-rich-quick trivia that perennially dominate the best-seller lists.
Also rans: Witness To History, by Armand Hammer; One Up On Wall Street, by Peter Lynch, with John Rothchild; The Ascent of Money, by Niall Ferguson; Adventure Capitalism, by Jim Rogers; The Wolf of Wall Street, by Jordan Belfort; and Liar’s Poker, by Michael Lewis.
Michael Feller, Eureka Report Investment Strategist
Competitive Strategy: Techniques for Analyzing Industries and Competitors, by Michael E Porter
This book, by Harvard professor Michael Porter, is unbeatable for synthesising the basics of what makes businesses competitive, in language that any company investor, manager or owner can understand. Readers should be careful when following the advice of any popular management guru (I wrote about the pitfalls of past wisdom from Jim Collins, another prominent theorist, on November 28) but for general education these writers are famous for a reason. Sharemarket investors could do worse than start here for understanding the dynamics of the businesses they ultimately invest in.
Grand Pursuit: The Story of Economic Genius, by Sylvia Nasar
Most economic texts can be dry for even the most devoted students. For those who prefer to learn from a ripping good story then journalist Sylvia Nasar, who previously wrote A Beautiful Mind, has penned a tremendous narrative outlining not only the various theories that make up modern economics, but the people behind them. Just as it’s essential to understand the basics of business as an investor, it’s essential to understand the basics of economics. Grand Pursuit can help in this endeavour without putting you to sleep.
The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else, by Hernando de Soto
This book left a big impression on me and can be useful in not just understanding economics in a development setting but understanding societies as well. Alongside Jared Diamond's more famous book Collapse: How Societies Choose to Fail or Succeed, de Soto presents a compelling argument for why some countries are rich and some are poor. As emerging markets continue to drive economic growth, understanding the dynamics of the world’s less developed regions is essential.
Also rans: Red Capitalism: The Fragile Financial Foundation of China's Extraordinary Rise, by Carl E. Walter and Fraser J. T. Howie; The Great Stagnation: How America Ate All the Low-Hanging Fruit of Modern History, Got Sick, and Will (Eventually) Feel Better, by Tyler Cowen; The Black Swan: The Impact of the Highly Improbable, by Nassim Nicholas Taleb; and The Millionaire Next Door: The Surprising Secrets of America's Wealthy, by Thomas Stanley and William Danko.
Elizabeth Moran, Eureka Report bonds expert
Bond Markets: Analysis and Strategies, by Frank J Fabozzi
This comprehensive guide (792 pages) is considered an authority on the fixed income asset class, and is more of a textbook than one you could read for pleasure over Christmas. Enthusiasts who really want an in-depth understanding should probably watch Amazon.com for the new edition, due out at the end of January, although many of the principles won’t have changed.
The Strategic Bond Investor, by Anthony Crescenzi and Mohamed El-Erian
The authors, both of whom work for specialist fixed income fund manager Pimco, give detailed explanations of different types of bonds and analyse how they perform in various environments. The book also encompasses how bonds perform in an unpredictable economy, particularly relevant given the uncertainty we all face today.
Buffett: The making of an American Capitalist, by Roger Lowenstein
This book is more a biography than an investment book, but nevertheless very enjoyable. Buffet is a fascinating character. During the GFC I followed him as he invested in Swiss Re and Goldman Sachs. Did you know he invested $3 billion in some Swiss Re preference shares? The investment earned 10% pa and in less than two years he was repaid $3.6 billion. You can’t help but admire his style.
Tim Treadgold, Eureka Report resources correspondent
Two Centuries of Panic: A History of Corporate Collapses in Australia, by Trevor Sykes
If you read nothing else about the pleasure and perils of investing in Australia, this Trevor Sykes classic will answer most of your questions. Essentially, Sykes (who created the legendary Pierpont character of Financial Review fame), exposes in awful detail the corrupt and panic-stricken heart that can be found in every business when tough times hit – like now! From early 19th century collapses to mining rogues of the 20th century, such as the larger-than-life Claude de Bernales, Sykes details the traps and tricks that have occurred over the past 200 years, and continue to reoccur in harmony with the motto of circus impresario, PT Barnum: “There’s a sucker born every minute”. Read Sykes’s book and you might avoid becoming a sucker.
The Rise and Fall of Alan Bond, by Paul Barry
For a close-up of how an Australian entrepreneur made his fortune using other people’s money, and won a yacht race on his way to a spectacular plunge into the abyss (with a side trip to jail), Paul Barry’s superbly documented expose of Alan Bond is another book about what happens when a boom busts. In Bond’s case, he enjoyed a meteoric rise through the 1980s only to crash in 1987, with the mess he left behind providing an insight into how it is possible to fool all of the people most of the time, and some of the people all of the time. The lesson in this book, as will be demonstrated over the next year by the looming global credit crunch, is that there will be repetitions of the Bond saga. Barry’s book might help you spot today’s Bond look-alikes.
Blink: The Power of Thinking Without Thinking, by Malcolm Gladwell
Not an investing handbook but the best guide to human nature you will ever read, and very much aligned with one of the key planks of the theories of John Maynard Keynes: what he called animal spirits. What Keynes wrote in 1936 has been refined by Gladwell in his book about rapid decision-making, and how first reactions are very often the correct reaction. Keynes noted that: “A large proportion of our positive activities depend on spontaneous optimism rather than mathematical expectations, whether moral or hedonistic or economic.” In Blink, Gladwell boils that down to the importance of the first two seconds of assessing a person or situation which, in the case of an investment means: if uncertain about value, walk away. Or, as the old saying goes, “if it looks too good to be true, it probably is”.
Roger Montgomery, Eureka Report value investor columnist
Bulls Bears and a Croupier: The Insider's Guide to Profiting from the Australian Sharemarket , by Matthew Kidman
A terrific no-holds-barred insight into the varied techniques used to outperform the market by my old friend and fellow (and now former) fund manager Matthew Kidman. The chapter on ABC Learning Centres perfectly explains the cycle some companies take from emerging small cap to market darling to pariah all in one breath, while revealing the tidbits that fund managers add to their framework to make them even better investors. For investors keen to fine-tune their technique and add a few arrows to their quiver, there are many practical demonstrations here and they're gleaned from a long and successful career beating the market.
Pigs at the Trough: Lessons from Australia's Decade of Corporate Greed, by Adam Schwab
Australian investors are blessed with choice when it comes to local financial writers who have been willing to share their insights. Adam Schwab does the investor an incredible service by simply putting his pen to paper. He dispels any notion that dodgy remuneration and CEOs putting their own interests first is solely a US phenomenon. Without wanting to give anything away, Pigs at the Trough provides a disturbing account of what can happen when shareholders are asleep at the wheel. It may even have contributed to the fabric of the movement that led to this year's substantial 'no’ votes against executive remuneration. Read Chapter 8 first!
The (Mis)behaviour of Markets: A Fractal View of Financial Turbulence, by Benoit Mandlebrot and Richard Hudson
This is the DIY Mechanics version of fractal geometry and chaos theory. Benjamin Graham said that in the short run the market is a voting machine but in the long run it is a weighing machine. In others words: in the short run the market is a popularity contest and price moves are as good as random; but in the long run price follows value. What Benoit was working on was an explanation to help predict the short-term moves. If you love maths and are fascinated by the history of modern portfolio theory, you will love this book. Don't miss Chapters 3 and 4.
Monique Sasson Wakelin, Eureka Report property correspondent
The Great Depression Ahead: How to Prosper in the Crash Following the Greatest Boom in History, by Harry S Dent
I disagree with much of what Harry Dent writes and predicts, especially with respect to the Australian property market, but he is an entertaining, big-picture kind of guy. All investors can benefit from subjecting themselves to his take on the long-term dynamics shaping the world economy and the investment landscape.
The Big Tilt, by Bernard Salt
Not an investment book per se, but once again, Salt considers the major demographic shifts occurring in Australia in coming decades and the implications for us all. His humorous prose makes the subject matter light work for the reader. Like me, you may find his view about the post-baby boom future a little too pessimistic, but it’s healthy to be challenged.
Debt Man Walking: A 10-Step Investment and Gearing Guide for Generation X, by Bruce Brammall
Where Harry Dent and Bernard Salt see the world through baby boomer eyes, Brammall has a younger man’s focus. He recognises that debt is effectively a fact of life for the generation dealing with young families and large mortgages. He guides the reader about how to use credit carefully to advance wealth-creation strategies, with a writing style that dispenses advice and laughs in equal measure.
Doug Turek, Eureka Report portfolio allocation expert
The Four Pillars of Investing: Lessons for Building a Winning Portfolio, by William Bernstein
This book remains for me a must read and a classic primer on investing covering investment theory, history, behavioural finance and investor/industry conflict. It could be the DIY investors’ best investment – paying great dividends and provide a lot of interest.
Probable Outcomes, by Ed Easterling
Easterling uses long-term historical US data to remind investors that mean-reverting average sharemarket performance isn’t a birthright. Instead, returns come from earnings growth and inflation/deflation-affected pricing or price/earnings multiples; if companies continue to encounter headwinds that slow profit growth, and extreme inflation or deflation breaks out to affect share prices, poor sharemarket returns are more likely guaranteed.
The Bear Book: Survive and Profit in Ferocious Markets, by John Rothchild
This is one of only a few investment books on what works and doesn’t investing in bear markets. Not surprisingly, most writers like to focus on the good times. Rothchild’s witty writing style includes a reminder that when governments are faced with a deficit and the option of cutting spending, raising taxes or minting/printing money they choose the third option.
Also rans: DVD of Niall Ferguson’s The Ascent of Money; and This Time is Different, by Carmen Reinhart and Ken Rogoff.
Scott Francis, Eureka Report investment writer
Index Funds: The 12 Step Program for Active Investors, by Mark Hebner
This book distills much of the research into sharemarkets, bond markets, cash investments and asset allocation, including research by five Nobel Laureates in Economics, into a plan for building effective investment portfolios. While largely based on US research, it remains relevant to Australian investors who want to engage with the high-quality research into how investment markets work, and investment portfolios can be built.
Affluenza: The All-Consuming Epidemic, by Clive Hamilton and Richard Denniss
This book poses an interesting question about how we spend and consume, and whether it makes us happy. It is an important question because many people are working harder than ever so they can consume more (bigger houses, more TVs, more and better cars), however it does not seem to make us any happier. Given that a huge part of being successful financially is spending less than you earn, Affluenza gives food for thought about the way in which we spend and consume, and our happiness.
The Richest Man in Babylon, by George Clason
This clever book of parables sets out the simple steps to creating wealth. From spending less than you earn to buying a house and investing your surplus money, the key steps to being financially successful are illustrated through simple stories.
Also rans: The Snowball: Warren Buffett and the Business of Life, by Alice Schroeder; The Millionaire Next Door: The Surprising Secrets of America’s Wealthy, by Thomas Stanley and William Danko.
Tony Rumble, Eureka Report investment product reviewer
Against the Gods: The Remarkable Story of Risk, by Peter Bernstein
This is my all-time favourite book on investment. It traverses human and economic history looking at how mankind has tried, since ancient times, to manage investment risk. Whether it is the risk that faces farmers when they plant seed and hope to sell the crop some months later, or whether it is the hedge fund manager that makes exotic investments and seeks to hedge them to acceptable levels, Bernstein shows us how risk management is crucial to our economic activity. Without the ability to hedge the price risk for his crop, the farmer can’t borrow to buy seed; and without being able to access the financial markets, the investment manager can’t generate returns for their investors. Against the Gods is remarkable for the historical accuracy and easy-to-understand explanations of sometimes complex arbitrage and risk-management techniques. It is the perfect companion to the barrage of exposes about the GFC, most of which focus on the greed and stupidity of the financial markets (an abuse of the tools that their creativity and intelligence has devised).
The Big Short: Inside the Doomsday Machine, by Michael Lewis
Lewis is an ex-Salomon Brothers bond trader and in his first book he blew the cover off the 1980s equivalent of the CDO market – the Michael Milken/Ivan Boesky-led “junk bond” fiasco. Lewis goes behind the scenes of the sub prime/CDO market in the leadup to the GFC and, with brilliant investigative journalism and whistle blowers from Wall Street biggies, he shows how banks like Goldman Sachs and Deutsche used the CDO market to bet against the US real estate markets. In so doing, the CDOs that were created wreaked carnage in the same markets and led to the GFC. If ever you wanted to understand how investment bankers use their power and privilege to plunder at the expense of ordinary investors, this is the book that shows all. By the way, the activity that Lewis exposes has now led to the US SEC commencing legal proceedings against major Wall Street banks which, if successful, could lead to bigger losses to those banks than they incurred during the whole of the GFC!
Security Analysis, by Benjamin Graham and David Dodd
When I teach financial advisers how to use ASX-listed shares as direct investments for their clients, we spend a lot of time comparing the patient “buy and hold” approach, to the high turnover approach used by typical managed funds. The managed funds try to hug the index, while the buy and hold investors think like a landlord, attracted to stable and hopefully growing rental returns (with rising capital value coming as a result). Like Warren Buffett, Graham is driven by fundamentals rather than the short-termism of the stockmarket. My favourite section in the book is where Graham bemoans the “unbridled speculation” in the “culminating phase” of the last boom. It reads as freshly and accurately as if it was written yesterday, even though it was written in 1934.
Janene Murdoch, owner of Educated Investor Bookshop
Rather than putting my three favourite all-time books on the list, I'm letting readers know what were the three best-selling investment books in 2011.
Bulls, Bears and a Croupier: The Insider's Guide to Profiting from the Australian Sharemarket, by Matthew Kidman
Drawing on more than a decade of experience as a professional fund manager, Kidman manages to demystify the sharemarket. He looks at its cyclical nature and believes we are in the third and last stage, of a bear market. Don’t get too excited, though, because traditionally this stage is the longest and most drawn-out and Kidman believes we will not see a recovery until the second half of 2012 going into 2013. Just when investors believe the sharemarket has no future, the recovery will begin and, if Kidman is correct, you had better hang on to your hat!
Top stocks 2012: A Sharebuyer's Guide to Leading Australian Companies, by Martin Roth
The eagerly awaited 18th edition of this true classic has now become a must-have in any investor’s library. Only the stocks that fit Roth’s strict selection criteria, which details in the opening pages, make the cut. Historically, it stands as a reminder to the turmoil that can be the Australian sharemarket. It includes examples such as HIH Insurance, which was once a darling of the ASX and included in an earlier edition of Top Stocks, only to be omitted from the next, well before its public demise. Why? Because the company no longer met Roth’s selection criteria. Roth believes that there are often undervalued companies in the book that have escaped the attention of the fund managers, therefore giving the retail investor the opportunity to invest in the stock at a discounted share price. Fundamental analysis is very time consuming and Roth’s book takes a lot of the hard work out of investing. It looks at growth stocks, sector investing, contrarian investing and cyclical stocks, just to name a few features.
Boomerang: The Meltdown Tour, by Michael Lewis
One of my favourite authors, Michael Lewis has written such classics as Liar’s Poker and The Big Short, and this year’s big seller is Boomerang. Lots of books have been written about the European crisis but few have been able to capture the attention of the reader in such a colourful, entertaining and frightening way. Lewis highlights the people and companies that have profited from the global collapse and stand to do the same again if governments default on the global debt. He visits the basket cases of Greece, where income tax is a dirty word; Ireland, where people’s fortunes were made and lost on bricks and mortar; and Iceland, where they should have stuck to fishing. Lewis also questions the resolve and capacity of Germany to continue to bail these countries out of their financial woes. Will governments groaning under the weight of debt from previous financial stimulus, and if GFC II does occur, the question needs to be asked: who will bail out the governments?