Enterprising Investor Forum

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!

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!

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

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!

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!

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!

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!

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!

Monish Pabrai reviews the value investing approach, explains how it has served him and takes it one step further by detailing the Dhandho method (pronounced dhun-doe). He follows in the footsteps of Warren Buffett and really offers the reader a unique insight in how he invests, what reference material he uses and how he is guided by maximizing rewards AND minimizing risk. As he says, you need to make sure that you only toss a coin when the odds are: “Heads, I win; tails, I don’t lose much!”

This book is an extremely easy read and is real gem! 100,000 USD invested with Pabrai in 1999 would have been worth well over 650,000 USD in 2006 - that’s an annualized return of over 28% after fees and expenses! What we really liked is that he did not start his career on the Street and is not a classic money manager. He was an independent investor that slowly and surely moved towards value investing and eventually started to manage his own hedge fund.

The book explains how the Dhandho way of investing - basically, the way a certain ethnic India group approaches life and business - can be applied to the stock market and to the value investing framework. Furthermore, what is truly exceptional is the Monish Pabrai opens up the doors of his world for the reader and offers them a unique insight on how he has successfully managed to make investing his trade.

Enjoy!

A must read, the biography of Warren Buffett, probably the best investor that ever lived! Lowenstein does a great job not only in detailing Buffett’s life and investment career but also allows the reader to understand more about the man himself and his unique perspective on life.

Starting from scratch, Buffett built his empire by consistently sticking to his investment philosophy, focusing on studying fundamentals in order to determine when to take positions in companies, usually, in difficult times and when the market fails to reflect/acknowledge their true potential. Despite his fame and fortune, Buffett has remained extremely modest for a billionaire and continues to stand by his principles, values and keeps on proving his detractors wrong.

Be prepared for a beautiful journey through Buffett’s life. You will get a taste of his views, philosophy, humor, integrity and actions. You will also see and appreciate how he has managed to lead his life according to his principles without backing down.

You cannot read this book without being inspired. It presents countless lessons on how to lead a simple and honest life guided by values and principles. If you manage to take in even a small part of the lessons that Buffett’s story highlights, they will not only make you a better investor but they will guide you through all aspects of your life.

Enjoy!