Book Marks:
5 Good Reads to Ring in the New Year

Categories Author: Patrick O'Shaughnessy, Investing

Looking for a book you can stick your head into that lets you disappear from the in-laws during vacay? Or perhaps your New Year’s resolution includes “read more books”… Either way, consider these selections to help keep you going:

Value Investing: Tools and Techniques for Intelligent Investment
by James Montier

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The Value Investors: Lessons from the World’s Top Fund Managers
by Ronald Chan

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The two above are very fast reads full of fun and useful information on value investing.

Montier is a long-time favorite of mine, and his book is a great collection of ideas. I especially enjoyed the section on short selling. As with all books on value investing, some of the areas have been covered in depth elsewhere, but I enjoy Montier’s style. “The near fatal mistake that investors seem to make repeatedly is to assume that market risk is like roulette. In roulette, the odds are fixed and the actions of other players are irrelevant to your decision. Sadly, our world is more like playing poker. In poker, of course, your decisions are influenced by the behaviour you witness around you.”

As someone who deals with models all day, I also loved this “modeler’s oath” put together by Paul Wilmott and Emanuel Derman:

I will remember that I didn’t make the world, and it doesn’t satisfy my equations. Though I will use models boldly to estimate value, I will not be overly impressed by mathematics. I will never sacrifice reality for elegance without explaining why I have done so. Nor will I give the people who use my model false comfort about its accuracy. Instead, I will make explicit its assumptions and oversights. I understand that my work may have enormous effects on society and the economy, many of them beyond my comprehension.

Chan’s book is more refreshing. It tells 12 stories about successful value fund managers, many of whom I had never come across (mostly managers in Asia). I loved the anecdotes and the emphasis on temperament:

I think many investors and even investment books like to discuss what the right investment style or method is, but I do not think we should get too bogged down with what is the right or wrong way in the first place. Instead, it is more appropriate to understand oneself before deciding on a specific investment style. If you are a calm and patient person, then the value investing approach may be right for you; but if you are jumpy and aggressive, then a more trading-oriented style may be more suitable. Investing is not about finding a fixed form, but about understanding your temperamental compatibility towards investing and improving your strategy through time and experience. Otherwise, you are always fighting against yourself!

Deep Value
by Tobias Carlisle

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Tobias was a co-author (along with Wes Grey) for another great book, Quantitative Value. This is the best book I’ve read in some time on value investing. Most value investing books emphasize a strategy similar to Joel Greenblatt’s magic formula: Buy good businesses at a good price. This simple strategy sounds intuitive — and it works — but there may be even more impressive returns available to investors willing to get into the nitty gritty of bad companies trading at massive discounts. This may sound like shades of Buffett’s early career and it is, but Carlisle expands on the deep value concept in a way that is entertaining as hell and ultimately very useful for value investors. One note: the book itself is expensive. I suggest you ignore the price and take the plunge. One person on Twitter put it (as cornily as possible): “For Deep Value, the price < book value.”

Successful Investing Is a Process: Structuring Efficient Portfolios for Outperformance
by Jacques Lussier

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I enjoyed big sections of this rather “sophisticated” look at the world of investing and asset management. It is definitely not for the faint of heart, but for professionals and committed individual investors, there is a lot of useful information. It begins with the most thorough explanation for why active management will always lose to the market in aggregate, and then proceeds to describe processes which may allow select few disciplined managers to outperform over the long run. This came in as a suggestion from a reader (thank you!).

The author has met with more than 1,000 managers, so has good perspective:

Some managers should never have existed, a majority of them are good but unremarkable and a few are incredibly sophisticated (but, does sophistication guarantee superior performance?) and/or have good investment processes. However, once you have met with the representatives of dozens of management firms in one particular area of expertise, who declare that they offer a unique expertise and process (although their “uniqueness” argument sometimes seems very familiar), you start asking yourself: How many of these organizations are truly exceptional?

I love this idea from the author: “Our objective is not so much to outperform the market, but to let the market underperform — a subtle but relevant nuance.”

Asset Management: A Systematic Approach to Factor Investing
by Andrew Ang

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I include this book for those interested in an overview of markets and investing. Its title is misleading: it does discuss what I would call factor investing (value, small cap, etc.), but it’s pretty introductory. What I enjoyed most was the early chapters on market participants: the roles, sizes, and motivations of sovereign wealth funds, pension plans, corporations, and individual investors. For those just getting interested in markets who want a fairly deep and comprehensive dive (with an academic writing style), this book has lots of good information. Feel free to skip sections that cover familiar ground.

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