Next Reading List: Beyond the Basics


(Donald Francis) #1

Arun had put up a nice compilation on Next Reading List. I take the liberty of putting up his compilation under this separate thread, so he can kick-off a discussion on these next-level books. And others can pitch in with their next reading list books and comments.

Here is what Arun had put up:

I have also found the following books very valuable

1). The Dhando Investor by Mohnish Pabrai - A simple to read book reinforcing lot of Value investing concepts with examples.

2.Security Analysis by Graham - A very good book to read after reading all the basic books. A bit difficult to follow if you don’t have some background. But worth it.

3.Interpretation of Financial Statements by Graham - A basic book on accounting. Good read if you don’t have much background in accounting.

4). Margin of Safety by Seth Klarman

5). The Little Book That beats the Markets by Joel Greenblatt - Interesting idea. Worth a read.


(Donald Francis) #2

Arun and others,

Dhando Investor - When I read this book in 2009, I couldn’t find anything new. Ihad finished the basics by then, so I was looking for something new, or original. I have heard this book recommended by many seniors, so I am sure there is something that I missed on teh first read.

Can you bring out the essence - something that was extra in the book - was it the probability odds, what?

Margin of Safety - Seth Klarman - If I have imbibed the Margin of Safety concept from the Intelligent Investor book, why should I read this? I havent read this so I am asking what refinement will I get over the basic Intrinsic Value concepts, etc.


Books on stock Market w.r.t INDIA
(Arun S) #3

Hi Donald,

You are right in that"Dhando Investor"doesn’t have anything completely new. But it presents the ideas of Graham and Buffet in a different, easy to understandformat. Here are some ideas that are presented really well

1). “Heads I win, tails I don’t lose much” - Although this is not a new concept, he has presented this probablistic way of thinking with very simple examples.

2). Low Risk, High uncertainity businesses - He asks people to invest in low risk, high uncertainity businesses. This basically reinforces the idea of looking for triggers that can unlock values quickly.

3). Few bets, big bets, infrequent bets

Now coming to Margin of Safety by Seth Klarman. Will you learn anything new? I doubt. But should you read it? Yes. It has some good chapters on why Institutional investors perform badly, areas of opportunity, margin of safetyetc.

These books are like “Mysore Masaladosa” an interesting variation of “Masala dosa” that is available in south India. Not very different but worth a try.

Frankly I like the following type of books even if there are no new ideas

1.Books that reinforce, explainthecore value investingideas - Dhando Investor, Margin of Safety etc fall in this category

2.Books that present slight variation of the ideas - Books by Martin Whitman like “Aggressive Conservative Investor”, Little book that beat the marketfall in this category

3.Books that help us become good value investors - Behavioral Finance Books, Warren Buffet books etc

Regards,

Arun


(Arun S) #4

Few other books I recommend are

1.Poor Charlie’s Almanack - Compilation of Charlie Mungers speeches

2.Aggressive Conservative Investor by Martin Whitman

3.More than You Know by Michael J. Mauboussin

4). Wealth of Nations by Adam Smith- I haven’t read it completely but liked few chapters

5). Fooled by Randomness and Black Swan by Taleb


(Manish Madnani (Jaishrikrishna)) #5

I would only like to add this one:

Reminiscences-Stock-Operator-Edwin-Lefevre

http://www.amazon.com/Reminiscences-Stock-Operator-Edwin-Lefevre/dp/0471059706


(Jagadeeswaran) #6

Dear all,

I think once the reader imbibes Graham’s concept of Mr.Market and Margin of safety, Buffett’s value investing principles and Peter Lynch’s mantra of investing in growth companies of sectors in which you have knowledge/edge, the next concept to learn would be “Contrarian investment strategies”.

Two books which helped in my learning was

1). Contrarian investment strategies - David Dreman. This book explains why analysts are very poor at estimates, what will happen to stock in the case of positive suprises/negative suprises?, How contrarian investment strategies work?, how investor psychology makes standing out of crowd makes difficult?, How to profit from investor overreaction? How to invest in times of crisis? etc. He answers all these questions with convincing evidence. A very enjoyable read indeed. Here is nice summary of the book - http://www.travismorien.com/FAQ/shares/contrariantng.htm

2). You can be a stock market genius - Joel greenblatt. He explains interesting investment opportunities found in some areas which are not usually considered/abandoned by the average investor like spin-offs, mergers, risk arbitrage, restructurings, rights offerings, bankruptcies, liquidations, and asset sales. A delightful read where explains each area with case studies from his own experience. (I find this book of greenblatt as more useful for average investor to learn few tricks about stock market than his little book that beats the market).

Learnings form this 2 books helped me to look at the investment opportunity at Piramal healthcare which involves slump sale of part of the business and complete investor’s apathy to the company.

regards

Jagadees


(Abhishek Basumallick) #7

Here is a list of good books from Prof, Sanjay Bakshi…

http://www.amazon.com/gp/richpub/listmania/byauthor/A3QYEOFVG03005


(Donald Francis) #8

Excellent comments Jagadeeswaran.

I believe I am a contrarian investor by nature. I have heard the Dremanbook referred quite early on by Ramesh Damani in one of his interviews. Somehow I have missed acquiring this book and learning from it. Thanks for bringing it up, will order it todayContrarian Investment Strategies: The Psychological Edge Link: http://www.flipkart.com/books/0743297962?pid=l5w3fh0y8b&_l=GOondWnomHOpT1nYHiHhRg--&_r=WWf_73j6l7Z3zEjj9tab2A--&ref=8b37199c-efa5-4da8-b38b-286850513976 seems to be the latest revised edition.

I have read the Stock Market Genius Link: http://www.flipkart.com/books/0684840073?pid=y3w3fxw05c&_l=CJHVEqJO3veuHytbACc9dw--&_r=qk%20AznApAWoHqwaFLdmTkQ--&ref=03074581-7d5f-45be-ba08-128202c934ec book. Again you are bang on that this is a very interesting add-on to the average investors arsenal. The discussions on opportunities arising out of spin-offs and mergers, liquidations, case studies that explain how one should go about evaluating them are great. Complex subjects explained simply with great lucidity.

Thanks for highlighting them again.

-Donald


(Donald Francis) #9

Thanks Manish. Yes one should read this book if only to understand how markets operate. The best part is it reads like a novel!

For someone fed with a steady diet of value-investing books, this was a welcome change and helped me look at the market, the operators, momentum and all such things from new eyes. Adds that much needed perspective!

I have to go back to that book, as I had left it midway in the stock operators journey!

-Donald

Reminiscences-Stock-Operator-Edwin-Lefevre

Link: http://www.amazon.com/Reminiscences-Stock-Operator-Edwin-Lefevre/dp/0471059706 http://www.amazon.com/Reminiscences-Stock-Operator-Edwin-Lefevre/dp/0471059706 Link: http://www.amazon.com/Reminiscences-Stock-Operator-Edwin-Lefevre/dp/0471059706


(Girish) #10

Re-posting my list here…

My list inadditionto all the above would be…

1). Manias, Panics and Crashes By Charles P. Kindleberger. This is history of financial crises over the centuries. Really scholarly analysis of causes and effects of the crisis. it also gives us the typical sequence in which events usually unfold in such manias and subsequent crashes. It also tells us that the events feed into themselves and things go round in cycle indeed. He says the one reason for the crisis is always expansion of credit andthensubsequentcurtailmentwhen panic spreads causing recession/depression etc. Must read if you want to understand why such financial crisis repeat and how to detect these and guard against.

2). Influence By Robert B. Cialdini. Although not an investment book it will tell you how and why you get influenced into something which you would have ideally avoided. Will help you save from IPOs, stock brokers, tips from friends, herd mentality, investing into your company’s stock in the market etc.

3). Damodaran on valuation. I think basic understanding of valuing any asset is a must if you are in a business of trading (buying and then selling) any asset. It will also help the readers demystify notion of intrinsic value that we hear so much in all value investing books.

4). Financial Shenanigans- How to Detect Accounting Gimmicks & Fraud in Financial Reports Third Edition by Howard Schilit. Apropos to what you said above this kind of book may be useful in Indian context where creativity thrives in our businesses…but it is possible that this author has not entirely comprehended the ingenuity of an Indian mind. If any one has comment on certain inadequacy of this book in Indian context then I would like to learn from them.

Another book in the same genre is "Quality of Earnings’ by O’Glove which I am reading now.

5.The Essays Of Warren Buffett - Lessons For Corporate America.Directlyfrom the horse’s mouth. All his wisdom is given here.

6.Against the Gods: The Remarkable Story of Risk ByPeter L. Bernstein. It is ultimate book on risk, probability etc. It gives the history of evolution of probability theory, measurement of risk etc.Risk management, which assumes that future risks can be understood, measured and to some extent predicted, is the focus of this solid, thoroughgoing history. Probability theory, pioneered by 17th-century French mathematicians Blaise Pascal and Pierre de Fermat, has made possible the design of great bridges, electric power utilities and insurance policies. The statistical sampling methods invented by dour Swiss scientist Jacob Bernoulli undergird diverse activities such as the testing of new drugs, stock-picking and wine tasting. Bernstein (Capital Ideas) animates his narrative with a colorful cast of risk-analyzers, including gambling addict Girolamo Cardano, 16th-century Italian physician to the Pope; and John Maynard Keynes, whose concerns over economic uncertainty compelled him to recommend an active, interventionist role for government. Bernstein also traces the development of business forecasting, game theory, insurance and derivatives, and surveys recent advances in risk forecasting made possible through chaos theory and by the development of neural networks. Very high rating for this book on Amazon is fullyjustified.


(Donald Francis) #11

Hi Girish,

Many thanks for bring up important aspects that need to be part of every wannabe advanced investor reading list.

I agree with most of your views. But need to prioritise

1). Probability

I am very very interested in how to increase my understanding of the odds in a given situation. Information will never be sufficient, will always be incomplete, so getting better and better at understanding where the odds are stacked is most important - at this stage of my learning curve.

Will theAgainst The Gods: The Remarkable Story Of Risk Link: http://www.flipkart.com/books/0471295639?pid=1xw3f91z11&_l=CJHVEqJO3veuHytbACc9dw–&_r=P0L3nTJnSe%20fbhicD0Cz5w–&ref=a4986f57-fd98-4e89-937a-075a252d3d50 book help me in getting better at this?

2). Valuation

Most senior investors have advised me to read formal books on Valuation in order to broaden and deepen understanding of this crucial aspect - and extend it to all asset classes

I was highly recommended the Mckinsey book on Valuation but a first read disappointed me as the discussion hovered on DCF mostly. Now I have found DCF for valuation useful only when there is a very sure predictable earnings/cash flow stream.

The PAT Dorsey book gave me a very solid understanding of DCF principles in a very simple manner, so I didn’t gain anything additionally from the Mckinsey Book. I suspect the Damodaran book might again be harping on DCF, and more on more & more complex modeling situations. I respect and am completely awed by what Damodaran brought to the table in modeling DCF and making 100s of models available for various business situations and the levels of refinements that he brought in.But I found in practice the more variables you bring in DCF, the more unpredictable/inaccurate the model gets. If one were to use DCF in valuing normal investment opportunities, there should be only 2 variables - Growth rate and the Discount rate.

Sorry for the big pre-amble, the question is will I learn more from the Damodaran book on valuation than the basic DCF concept and loads and loads of models, which practically I will not need?

Cheers

Donald

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inadditionto


(Madyam KS) #12

I think Margin of Safety by Seth Klarman is one of the best investment books i have ever read and is one of the few investment books that i usually re-read (the other being intelligent investor). Seth’s writing skills (not to mention investment skills) easily comes close to that of Graham. Too bad that he stopped writing since then.

The only problem is that you cant buy this book these days. He has not allowed the publisher to bring out re-prints, supposedly because he wrote too much about his investment strategy in it! Anyways second-hand books are available in amazon at around $1000 which means none of the “value” investors will be buying it :slight_smile:

There are pdf’s floating around in the internet but they are ofcourse scanned and can only be read on the computer…which is a pain…but worth the effort each time i do it!!


(Narender Kumar) #13

I have gone through a few books on value investing like

Intelligent Investor-Ben Graham

Margin of Safety- Seth Klarman

Five Rules for Successful Investing - Pat Dorsey
One up on Wall Street
Could someone suggest me a few which focus on stock valuation ?

I could grab the basis from Pat Dorsey's focused on DCF models but haven't developed a broad strategy to follow for valuing stocks.



(Donald Francis) #14

Hi Narender,

Valuation is an ART form!

You may like to read the most quoted book on Valuation

Valuation: Measuring and Managing the Value of Companies

However you will be well advised to read this compilation of what the Gurus have to say about the use of DCF as a Valuation Toolfor a broader perspective on Valuation. We will extend the parent section of GuruSpeak on Stock Valuation, in time.


(Abhishek Basumallick) #15

I would also suggest Aswath Damodaran’s Valuation. Although, it is more an academic book and is a very “heavy” reading, nevertheless has a lot of variety of common stocks valuation techniques.


(Akbar Khan) #16

Check his blog

http://aswathdamodaran.blogspot.in/ Link: http://aswathdamodaran.blogspot.in/


(Shashi) #17

Those who wish to read the book in pdf form can download by following this link :-

Valuation: Measuring and Managing the Value of Companies Link: http://www.amazon.com/Valuation-Measuring-Managing-Companies-Edition/dp/0471009938

Valuation: Companies Link: http://www.amazon.com/Valuation-Measuring-Managing-Companies-Edition/dp/0471009938

DCF Tool Link: …/…/…/…/resources/guruspeak/stock-valuation/discounted-cash-flow-dcf for


(ved vyas) #18

I would like to add 2 books a. Money Game and b. Supermoney by Adam Smith. These books are not investment books in tradition sense because it mainly focus on pshychology of participants in investing business.


(kushal dalal) #19

http://aswathdamodaran.blogspot.in/ Link: http://aswathdamodaran.blogspot.in/

I would also suggest Aswath Damodaran’s Valuation. Although, it is more an academic book and is a very “heavy” reading, nevertheless has a lot of variety of common stocks valuation techniques.

If anybody want to check aswath damodaran’s video then this is the link where his all the classes’ videos are online.http://pages.stern.nyu.edu/~adamodar/ Link: http://pages.stern.nyu.edu/~adamodar/ Just check the webcast link for all the classes.


(Rajesh Kumar) #20

The Little Book of Valuation by A Damodaran is simple and less demanding mathematically. To those who avoid long equations and differential calculus, it is a great read.

http://pages.stern.nyu.edu/~adamodar/New_Home_Page/littlebook.htm