Book Reviews

The Future For Investors

Author: Jeremy Siegel


The future for investors
This is an excellent book for long-term investors. Based on historical analysis, the author, Jeremy Siegel proposes to enhance index-investing strategy. Dr. Siegel is Professor of Finance at the Wharton School and is the author of Stocks for the Long Run.

Jeremy Siegel starts his book by discussing the inefficiencies with Index investing. He takes the example of the most popular index: S&P 500. This index is constructed using market capitalization. Market capitalization indexes are subject to distortions. For example, during the dotcom period technology stocks represented more than 30% of the index.

The Future for Investors is divided in five parts:

Part 1: Avoid the growth trap

Jeremy Siegel shows that investing in performing stocks can lag regular stocks because of dividends. For example Standard Oil will have provided better returns than investing in IBM.

Part 2: Beware of bubbles

Bubbles are part of financial markets, Dr. Siegel discusses them.

Part 3: Focus on companies distributing dividends

This book insists on choosing high dividend paying stocks and reinvests them. Reinvesting dividend is helpful especially during tough times but the company must recover.

Part 4: Aging population in developed countries

Because of the aging population, the developed world will need to sell its assets to cover retirement expenses. It will sell to the developed world.

Part 5: Portfolio strategies

Siegel suggests investing in Global firms because usually regular investor suffers from home bias.

Invest in low price earning ratios, add growth by looking for PEG ratio

The author underlines sectors that have performed well over the years: Consumer staples, oil and natural resources and pharmaceutical.

Regarding this book, two major critics can be addressed:

First, the studies developed in this book can suffer from data mining. For example, transaction costs today are way lower than decades ago. Reinvesting dividends would have been more expensive, weakening this strategy. If you want to pursue this strategy, it should be done in a tax-sheltered account.

Second, the strategies introduced by Jeremy Siegel can become useless if more investors follow them.

Despite few shortcomings, The Future For Investors remains an excellent book for every serious long-term investor.

Buy The Future For Investors by Jeremy Siegel

Apr 12, 2012

Contrarian Investment Strategies

Author: David Dreman


contrarian investment strategies
Every value investor will find this book useful. The ideas developed in this book are the following: Buy out of favour stocks in a diversified portfolio. One can identify these stocks by looking at low multiple ratios (low Price to book, low Price earning and low Price to cash flow).

The book is controversial because it refutes the idea of "efficient market" and the way researchers develop their models to describe the real world (weakness of hypothesis). This book also contains an interesting investment psychology section.

All these developments are supported by strong statistics. The book could have been shorter because of repetition and the statistics exposed.

Some haters point out the modest performance of Dreman’s funds. But professionally managing money is difficult. You have to be invested even in period of crisis; also transaction fees and management fees impact your performance.

After more than a decade (last edition was 1998), this book is still worth reading.

Buy Contrarian Investment Strategies - The Next Generation

Jul 30, 2011

The Essays of Warren Buffett. Lessons for Investors and Managers.

Author: Lawrence A. Cunningham


the essays of warren buffett
Cunningham presents an organised compilation of Warren Buffett’s essays. Usually these essays are part of the chairman’s report from Berkshire Hathaway (Warren Buffett’s investment company).

Warren buffet is one of the greatest investors since markets have been created. Just have a look of the Berkshire Hathaway’s stock (code: BRK.A) and you will understand. The main ideas are to invest in well-run business, investments to be held a long time.

The Warren Buffet’s investment criteria are the following:

» Invest only in large company (at least $50 Millions in revenue), smaller company are more risky investments.
» Consistent earning power history. The company should make money and will continue to do so!
» Companies with little or no debt. Avoid companies using too much leverage.
» Efficient management.
» Understandable business. The advice is if you don’t understand the business; avoid it.
» Try to buy an investment at a discount. This is the margin safety advice that you can encounter in Benjamin Graham work.

This book will not provide you with a methodology on how to determine the current business value of a company. For this matter, you should refer to Warren Buffett’s mentor: Benjamin Graham. This book will please very investors from financial newbies to the most experienced ones.

Buy The Essays of Warren Buffett

Aug 07, 2011

You can be a Stock Market Genius.

Author: Joel Greenblatt


you can be a stock market genius
If you want to approach investing in a different way than buying a mutual fund and stay invested a for a long term period, this book will help you to understand others methods to make money in the stock market.

Before reading this book, it is recommended to read books about value investing (ie Benjamin Graham’s books) because the author assumes that the lector is a seasoned investor.

In 1985, Joel Greenblatt started Gotham Capital with 7 millions, most of which was financed by junk bond king Michael Milken. Since them, Joel Greenblatt has been beating the market. Gotham Capital is one of the most successful hedge fund firms, providing its investors with over 50% per year for 10 years from 1985 to 1995.

Don’t let the awful name and the yellow cover fool you. This book is an important insight to special situation investing.

Special situation investing are related to various corporate events like:

» Spin offs
» Risk arbitrage and mergers
» Bankruptcy and restructuring
» Recapitalizations

The book is quite easy to read, Greenblatt makes funny jokes along the way and speaks clearly. This book was originally published in 1997. Unfortunately within the years, more money has been put in special situation strategies.

Contrary to popular belief, thanks (or because) of Hedge funds, the market is more efficient.

Buy You Can Be a Stock Market Genius

May 09, 2011

One Up on Wall Street.

Author: Peter Lynch


one up on wall street
Peter Lynch was portfolio manager of Fidelity Magellan fund, which was the best performing fund in the world during his mandate (May 1977 to May 1990). His ideas can be described as the following:

Thanks to the power of common knowledge and in depth studies of companies, an individual investor can beat the market. Like Warren Buffett, Peter Lynch advises to invest in what you understand. The only difference as Peter Lynch puts it; he buys stocks when Buffett buys companies.

The book is splitted into 3 sections:

» Preparing to invest

The author gives us 3 advices before investing:

Own your house. Only invest what you could afford to lose without that loss having any effect on your daily life in the foreseeable future. Patience, common sense, tolerance for pain, humility among others are the personal qualities an investor should have.

» How to pick up winners

Peter Lynch reviews the various elements to consider when analysing a stock: Price earning, institutional ownership, Book value, insider trading. One of the best advices the author gives us is the following: Avoid the hottest stock in the hottest industry.

» Invest for the long term

In this book Peter Lynch gives a lot of example, it is an easy read as well. The last edition of this book was released in 2000. Anyway this book is timeless.

Buy One Up On Wall Street

Apr 17, 2011

The Intelligent Investor

Author: Benjamin Graham


the intelligent investor
If you need to read only one book regarding investing The Intelligent Investor is a reference. If you want to invest with a value-oriented disciplined approach, this book is the best start.

The author Benjamin Graham is considered as the father of value investing. In this book, the author presents three essential concepts:

» Margin of safety concept: Make sure you buying a business at a discount.
» Mr Market: An allegory made by the author about the way that the market can be right or wrong.
» A stock is a piece of business: When you buy shares, you buy a part of a business.

In this edition, Jason Zweig provides the book with footnotes comments. Furthermore, he comments each chapter in a separate chapter. Thanks to these additions, this book is more up to date and gives contemporaneous references.

Graham explains how to select a stock for a defensive investor:

1) Adequate size of the enterprise: >$100M sales.

2) Sufficiently strong financial condition: 2:1 current ratio (Current assets should be twice the liabilities).

3) Earnings stability: some earning during the last 10 years.

4) Dividend record: Uninterrupted payments for at least 20 years.

5) Earning growth: One-third increase in EPS in the past 10 years.

6) Moderate price earning ratio: no more than 17 times average earnings of the past three years.

7) Moderate ratio of price to assets: Price to book should not exceed 1.5.

Additionally, Warren Buffet does preface and appendix.

Even if the book was originally published in 1929, it represents the best introduction to value investing

Buy The Intelligent Investor

Apr 17, 2011

The Dhandho Investor

Author: Mohnish Pabrai


the dhandho investor
The motto of the book is: Heads, I win; tails, I don’t lose that much. This idea is very similar to the notion of margin of safety from Benjamin Graham.

This book is a good introduction for value investing investors; the Dhandho principles can be compared to Value investing ideas. Dhandho principles can be summarized as the following:

» Invest in existing businesses.
» Invest in simple businesses that you can understand.

The first part is about successful investment stories like the Patels one. The author gives an historical perspective with the Patels history, a refugee minority owning now billions dollars worth of hotels.

The second part of the book is more about value investing and examples of famous value investing investors. The book is an easy read and well documented, illustrated with Virgin Atlantic, Microsoft and Mittal examples. Furthermore, the author speaks briefly about the use of discounted cash flow and the Kelly formula

Finally, M. Pabrai provides good research sources for finding potential investments; it gives many websites and book references.

It is really an easy read and is very entertaining; it can be read within few hours. Anyway the book won’t give you precise tools on how to analyse companies.

Buy The Dhandho Investor

Apr 10, 2011