Books Worth Reading
Here we shall list some books and articles that we view as worthwhile reads. They cover a variety of topics and help to cement the way Tralucent thinks, works and invests.
SuperInvestors of Graham and Doddsville: Appendix A to the Intelligent Investor
If you are not a value investor to some degree, you will be out of business sooner rather than later. Conversely, if you want to do well, you have to start with understanding the significance of value investing. This article appears as the Appendix to The Intelligent Investor details how good value investors routinely outperform the underlying benchmarks. Beware though that practising value investing in the real world is a very difficult exercise and should be left to the real pros.
Contrarian Investment Strategies
The surest way to have your head handed to you is to buy what is popular. Recent memory is full of these episodes – most Canadians remember the miserable fate suffered by owning darling Nortel and telecommunication stocks in general. Conversely, those who have a desire to make money need to learn to do what is often unpopular. That itself is an art and a science. Dreman outlines some principles and makes recommendations on how to be a contrarian.
Generally, being a good contrarian takes knowledge, experience and hard knocks, and should be left to seasoned pros or those determined to learn it. Do not be a contrarian for the sake of being a contrarian. Six billion people get up every day, look at the sun rising and say: it is daytime. Just going against them and declaring it is night does not make a person a contrarian but only quite silly.
Made in America
Sam Walton (autobiography)
Want to know who killed Kmart? How real competitive businesses are built? Read the autobiography of Sam Walton. This is almost a store by store, town by town story of how Wal-Mart was built into an empire which destroyed many competitors – including Kmart.
This is one of the most enjoyable business books we have ever read.
Only the Paranoid Survive
This is an amazing book written by Andy Grove, who is the ex-chairman of Intel Corp. He gives a detailed account how Intel came to rule the world through sheer innovation and competition.
The layman may find it dry but it is a masterpiece of a business book that illustrates the importance of being competitive and how competitive businesses survive and thrive over the long haul.
A Random Walk Down Wall Street
Readers are urged to read what Nobel Prize Winner Burton Malkiel has to say on the futility of technical analysis in his book. As indicated in our page of DOs and DON’Ts, technical analysis is not something Tralucent puts any stock into.
Models Behaving Badly
This is a brilliant exposé by an ex-Wall Street quant that shows why people’s obsession with financial modelling is destined for failure, and why nobody will ever be able to write a model that can encapsulate human behavior.
Good judgement comes from experience and experience comes from bad judgement. As a computer science undergraduate, Bill tried for years to come up with a reasonable mathematical model to model stock market behaviour but these attempts were an absolute disaster. Bill learned the hard way that human behaviour is far too complex to model. His liberation came when he gave up mathematical models back in 1988 to concentrate on globally competitive companies that produce earnings and are reasonably valued.
Books about the Insanity of Crowds
It is amusing how mankind every now and then gets obsessed with some concept that is quite far from what is real and sane, and takes it to extremes at its own peril. Canadians bought Nortel until they couldn’t buy it any more. It may have felt nice to brag about owning it, but it had little value. Europeans also had an episode of insanity buying tulips. Tulips looked good but had little value, especially when everyone and their neighbour was growing/selling them.
So, before you jump into buying something you need to ask how much value is there in that action.
The following books articulate some parts of our history where huge subsets of the population just about went mad doing something that had no value and so was quite destructive.
Extraordinary Popular Delusions and the Madness of Crowds
Why do otherwise intelligent individuals form seething masses of idiocy when they engage in collective action? Why do financially sensible people jump lemming-like into hare-brained speculative frenzies–only to jump broker-like out of windows when their fantasies dissolve? We may think that the great crash of 1929, junk bonds of the ’80s, and over-valued high-tech stocks of the ’90s are peculiar 20th century aberrations, but Mackay’s classic – first published in 1841 – shows that the madness and confusion of crowds knows no limits, and has no temporal bounds. These are extraordinarily illuminating and, unfortunately, entertaining tales of chicanery, greed and naiveté. This is essential reading for any humanities or communications student.
In fact, cases such as Tulipomania in 1624 – when tulip bulbs traded at a higher price than gold – suggest the existence of what one could dub “Mackay’s Law of Mass Action”: when it comes to the effect of social behavior on the intelligence of individuals, 1+1 is often less than 2, and sometimes considerably less than 0.
Gustave Le Bon
This book written over a hundred years ago illustrates how crowds often have no individuality, and even intelligent people can easily lose their senses and begin to behave like the ordinary.
A Short History of Financial Euphoria
John Kenneth Galbraith
You are probably well aware of the importance of a sound and functional banking system in the modern world. But what if banks go mad? Start lending to people who don’t have a chance of ever paying back? Make silly investments that make no sense? Yes that is what actually happens. Galbraith articulates how banks take some irrational steps every fifteen years or so causing enormous pain to the system.