Enterprising Investor Forum

Beating the Street, Peter Lynch Tuesday, March 25, 2008

After our review of One Up on Wall Street (link) we had to do Peter Lynch’s follow-up. This book is similar in terms of strategy and what he preaches but it offers a more in-depth look on how to picks investment products and screen the market place (whilst taking the reader through his full experience at Magellan).

As usual, the book is a very easy read and quite amusing. What is refreshing is that the reader really gets a feel about the psychology of money management and not only the technical/strategic side of the business. As he says, “In dieting and in stocks, it is the gut and not the head that determines the results”. N.B. remember: you are getting this advice from one of the most successful track records of any money manager.

A quick overview:

• You can’t see the future through a rear view mirror
• If you are going to pick a fund or stock, you might as well take the time to pick a good one
• As Buffett also notes, the extravagance of any corporate office is directly proportional to management’s reluctance to reward the shareholders
• Not all common stocks are equally common
• The best stock to buy may be the one you already own

If you want good results, you have to invest only in companies you have researched and do not be afraid to take big positions if you have done your homework.

Enjoy!

The Last Tycoons, William D. Cohan Friday, February 22, 2008

Subtitled: ‘The Secret History of Lazard Frères & Co.’, this +700 page ‘tale of unrestrained ambition, billion-dollar fortunes, byzantine power struggles and hidden scandal’ will definitely prove difficult to put down and stop reading.

Despite all the controversy surrounding this book, this is a great read and a true insider view of Wall Street and the house of Lazard. Truth be told, this could be a blockbuster movie (well, actually probably too much to convey in one single movie) and is truly a very comprehensive piece of research that has been undertaken by Mr. Cohan. Maybe one small criticism could be that there is a bit too much detail in some parts but all in, reads fine.

From the establishment of the firm to the near demise during World War II, Cohan portrays all the ‘Great Men’ of Lazard up to the final IPO and the end of a dynasty:

• André MEYER: architect of the post-war resurrection.
• Felix ROHATYN: possibly the greatest investment banker that ever lived.
• Michel DAVID-WEILL: the last scion of the family-owned banking empire.
• Steve RATTNER: the PR/Media king that tried to save the firm.
• Bill LOOMIS: the ultimate Lazard survivor who also repeatedly tried to save the firm.
• Bruce WASSERSTEIN: a living legend – one of the key figures of investment banking history who ultimately took the firm private and made a fortune.
• …and many more key bankers such as Gerardo Braggiotti.

From Paris to London to New York, ambition, wealth, power, betrayal, side-deals, tradition, drama, etc…….. this is a truly fascinating book and a must read.

Enjoy!

The Little Book of Common Sense Investing, J. Bogle Friday, February 15, 2008

This is the third book we are reviewing from the ‘little book’ series and once again, these are really great.

John Bogle summaries and explains a lot of our thinking here at Enterprising Investor Forum. He starts with Buffett’s famous story about the Gotrocks (read: here), explaining how Wall Street is effectively stealing investor funds and preventing them from adequately compounding good returns.

He details why the low-cost index fund solution is the best way for most investors to allocate their savings and shows this in a very simple and concise manner.

Like Warren Buffett, he maintains that investing is all about common sense and that investors should not fall victim to fads and fashion and understand that despite being simple, investing is far from easy. We should forget notions of consistently trying to ‘beat the market’ or ‘beat the street’… it is simply not possible and effectively a zero-sum game.

Investors will do very well for themselves if they can match market returns over the long-run and should not fall victims to excessive expectations.

For our other reviews:

• The Little Book of Value Investing Review: here.
• The Little Book that Beats the Market Review: here.

Enjoy!

The Bonfire of the Vanities, T.Wolfe Wednesday, December 26, 2007

A classic, another tale of the 80s excesses. This is not an investment or finance book, it is a great contemporary novel.

In what is essentially a homage to New York, Wolfe tells the story of a Wall Street bond trader – not a simple trader but a ‘Master of the Universe’ – and how failing to take the wrong turn whilst driving his beautiful Mercedes started an incredible downward spiral, a one-way ticket to disaster.

Readers get it all:

• improbable characters ranging from eccentric English expatriates, medial moguls, a ghetto warlord Reverend, beautiful and dangerous women, etc
• tales of New York riches from private schools, Park Avenue properties and retreats in the Hamptons
• Wall Street characters, war stories and bonuses
• Greed, murder, lust, luxury and more…..

Enjoy!

Hedgehogging, Barton Biggs Wednesday, November 28, 2007

This is one of the best books we have read in a while! Barton Biggs offers readers a truly fascinating account of Wall Street and the hedge fund world.

The book is well written, interesting, instructive, funny and captivating. It is not a tale of ‘hot shot’ hedge fund managers but a very eloquent and detailed account of the fascinating world of hedge funds, the people (both a mangers and investors) and the inner workings. Apart from the tales of Wall Street, the book also wonders back in history and offers unique insights and lessons from Bismark and John Maynard Keynes.

The book is a mix of The Intelligent Investor, One Up on Wall Street and Liar’s Poker…. we think this ranks in the must read list! We came across this by chance and can’t stress what a good read this was.

As David F. Swensen from the Yale Endowment said:

“Barton Biggs writes about markets with greater style, clarity, and insight than any other observer of the Wall Street scene…”

Enjoy

You can be a stock market Genius, J. Greenblatt Thursday, October 25, 2007

Like ‘The Little Book that Beats the Market’ (read review), this book keeps on teaching readers how to make money in the market. Greenblatt manages to explain how to take advantage of opportunities that arise in a very simple and straight forward fashion.

He focuses on Spin-offs, Mergers, Restructuring, Recapitalizations and Bankruptcies to highlight how the Enterprising Investor, who is willing to take the time to do some research, can greatly profit from these situations and actually beat professionals without even having to compete with them.

The book tackles each situation not only by explaining why, how and when you can profit but takes readers through a number of case-studies to prove all the points that Greenblatt is making.

Recommended reading for both novice and experienced investors.

Enjoy!

Freakonomics, S. Levitt & S. Dubner Wednesday, September 26, 2007

Despite not being about investing or the markets, we felt that readers could find this book quite interesting as it strives to ask the right questions and understand why and how events happen – something that is key for the Enterprising Investor.

As the authors state: “If morality represents an ideal world, then economics represent the actual world.” The book sets out to convince readers to become skeptical of conventional wisdom and addresses a number of questions with common sense and quantitative analysis to show us the hidden side of everything. For example:

• What Do Schoolteachers and Sumo Wrestlers Have in Common?
• How Is the Ku Klux Klan Like a Group of Real-Estate Agents?
• Why Do Drug Dealers Still Live with Their Moms?
• and many more….

In doing so, the authors manage to challenge this conventional wisdom and actually prove it wrong. OK, some of the findings are controversial but they are backed up by numbers and they will no doubt give you plenty of discussion topics and food for thought.

Enjoy!

Liar’s Poker, M. Lewis Friday, September 14, 2007

Michael Lewis shares his experiences as a bond trader at Salomon Brothers in the 80s. The reader gets to follow him through his unorthodox way of getting hired, to trainee, to geek, to Michael and finally, to being a Big Swinging Dick on the trading floor!

Lewis is a really good writer, he manages to make you feel as though you were there with him. Not only does he paint a picture of all of the characters but he actually find a way to let you have a peek into what was going in their minds and driving them. If you enjoyed watching the movie ‘Wall Street’, this should be on your MUST READ list.

Another interesting aspect of the book is that, not only does her offer an insight into Salomon, the Street, the high profile figures, the traders and so on but he manages to do this in an extremely funny way – the book is hilarious.

As the back of the book states: Funny, frightening, breathless and heartless, Liar’s Poker is a tale of hysterical greed and ambition set in an obsessed, enclosed world.

Enjoy!

When Genius Failed, R. Lowenstein Tuesday, September 11, 2007

As the book cover states, this is the tale of the rise and fall of Long-Term Capital Management (LTCM) and how one small bank created a trillion-dollar hole. Lowenstein details how the financial and academic ‘experts‘ that ran the fund nearly managed to collapse the world’s entire financial system.

The story is both fascinating and alarming. This hedge fund was being run, not only by some of Wall Street’s Superstars but also by a former Vice-Chairman of the Federal Reserve and two economic Noble prize winners. It should serve as a reminder to even the best investors that arrogance and greed do not offer a sustainable longterm proposition.

John Meriwether and his Partners were indeed arbitrage specialists and had perfected the risk-management strategies of their hedge fund. From March 1994 (when LTCM started trading) the fund showed a ROI of over 40% per year in the first four years of operation! The issue was that to keep producing this kind of performance, their bets had to involve bigger and bigger positions, more leverage and therefore more risk. Due to the success and the fact that everyone wanted a piece of the action, they became even more convinced that they were completely invincible and lenders did not hesitate to keep on funding them as the results where there….

However, once markets turned against them, LTCM had no chance to get out in time. They lost close to 2 billion dollars in one month alone! Furthermore, due to all the leverage, derivatives and other complex financial hedges, the fall of LTCM also meant that banks, governments and institution worldwide where in the midst of this imminent financial disaster. Ultimately, the Fed had to step in and lead a bailout….

Enjoy!

The Little Book of Value Investing, C. H. Browne Tuesday, August 28, 2007

Christopher H. Browne is one of the best value investors around. He is Managing Director of Tweedy, Browne Company LLC, the oldest value investing firm on the Street and his father counted the likes of Benjamin Graham and Warren Buffett as his clients.

Browne tackles the history, fundamentals & performance of value investing techniques and goes as far as highlighting a detailed road map of where to find the information you need and how to dissect the financials. As he states, ‘the beauty of investing is its logical simplicity’. It is based on determining what the company is worth and at what price you are willing to buy an ownership stake: in essence, intrinsic value and margin of safety.

A quick read, this book gives a complete and detailed picture to anyone interested in having a non-nonsense guide on how to buy stocks on sale; paying 66 cents for every dollar.

Enjoy!