The Great Investment Books You May Not Have Heard Of (Part 1)
There's a wealth of knowledge for investors hidden in the pages of books that haven't become all-time best sellers like The Intelligent Investor. Here's several that I not only found insightful on first read but also found myself referring back to from time to time.
Quality of Earnings - Thornton L O'Glove
Scrutinising financial statements is a core skill for fundamental investors and this book, written back in 1987 by a veteran analyst who turned his curiosity as a stockbroker (meaning he reviewed disclosure documents) into an institutional advisory service scrutinising financials and "telling people what stocks not to buy". O'Glove walks the reader through some colourful stories of company attempts to cover-up or gloss over deficiencies. It takes a talented writer who has mastered his craft to explain how to read accounts and what trickery to look out for and still keep the reader engaged. From time to time I've wondered about following down O'Glove's path and establishing a similar "Quality of Earnings" advisory service in Australia.
The Art of Execution - Lee Freeman-Shor
What a privileged position to be in. The author handed out allocations of between $US25m and $US150m to 45 of the "world's top investors" with one clear mandate - each investor was to only deploy the capital in their 10 best ideas. You don't need to buy the book to learn that most of the best ideas lost money - but Freeman-Shor digs deep into the strategies that resulted in these investors making strong positive returns anyway (and into the flaws of those that were less successful).
The Hard Thing About Hard Things - Ben Horowitz
The successful Silicon Valley entrepreneur and venture capitalist offers some great perspective on what it is like on the inside of a business that is trying to grow and please investors. The quote from Baidu CEO Robin Li about the firm's IPO pricing is gold - Li was prepared to deliver results that justified a modest valuation uplift from the IPO price but the market immediately took the stock up 4.5 times and forced him to change his perspective.
Quantitative Value - Wesley Gray
This book sets out a framework by which the modern investor can use compute power to aid a fundamental, value focused investment process. A quote from John "Singo" Singleton isn't a bad way to set the scene for a book that is all about number crunching. Value investing gurus Graham and Dodd are paid their dues. Then we get into cognitive bias, behavioural finance and luck. "The objective nature of the quantitative process acts both as a shield and a sword," Gray tells us before launching into rigorous research to identify the best metrics and how to combine them to identify value investment opportunities.
Part 2 to follow...