Monday, August 19, 1996
A Fool's Library or Lynch or L'Amour?
Every Fool needs to understand stocks and the market to some extent. I've done a lot of reading on the market, and while some of the books I've read are sheer drivel, some really stand out. I'd like to mention the best ones. First are the books every Fool's library shouldn't be without. Here are the most important, in my opinion:
Barron's Finance & Investment Handbook -- Need to look up the definition of Puts and Calls? Curious about the address of the New York Stock Exchange? Want to look up where the Dow closed in 1897? It's all in here, along with the addresses of all the companies listed on the NYSE, AMEX, and NASDAQ. Along with this information is an explanation of different investments, how to read financial statements, and all sorts of other useful stuff. It's not a book to sit by the fire and read, but if you ever get curious about what a Straddle is, you can grab this tome and find it in a few seconds. (It's on page 503.)
The Stock Market, by Richard J. Teweles, Edward S. Bradley, and Ted M. Teweles -- Here's a book that explains how it all works -- how an IPO is issued, how the market operates, how investments are made in options, and explanations of all but the more esoteric investments. Reading this is a must for every novice investor, and as you grow to understand investments, it's good to read this book time and time again. Every time I read it, I learn something new.
Beating the Street, and One Up On Wall Street, by Peter Lynch -- First let me criticize these books. They are short on the exact mechanics for how to evaluate companies. Peter Lynch stresses buying stock in companies you know, but is awful light on analysis in these books. The novice may find himself buying stock in XYZ Lite Beer because he likes the product, but losing money because the company is going bankrupt. That out of the way, the books are still excellent. Reading them, you learn how Lynch thinks and a number of important philosophies about investing. He was extremely successful at the helm of Fidelity's Magellan Fund, and did so with some fairly simple methods. Not only that, the books are interesting reading -- great for bringing to the beach.
Buying Stocks Without a Broker, by Charles B. Carlson, CFA -- Charles Carlson, aka MF DRIPS to us, explains the intricacies of investing in stocks by buying directly from the companies. It amazes me how many people know nothing about these plans, known commonly as Dividend Reinvestment Plans (DRiPs). They allow you to invest regularly in stocks, save on commissions, and take advantage of dollar-cost averaging. While DRiPs aren't suitable for everybody, one should certainly consider them in a portfolio. Chuck writes an easy-to-read book, and explains things very clearly -- also one to bring to the beach.
The Motley Fool Investment Guide, by Tom and David Gardner -- You knew I would recommend this book, didn't you? Well, the Gardners make up where Peter Lynch left off. They explain the exact mechanics of how to analyze companies, how to read financial statements, and how to develop a portfolio. There are enough plugs for this book in Fooldom, so I'll move on to others.
Now, for the more intrepid reader, there are a few other titles I recommend:
The ABC's of Stock Speculation, by S.A. Nelson -- This book was written in 1903, when investing had traditionally been the domain of the robber barons, such as J.P. Morgan, Jay Gould, et al. Chapters 4 through 20 are Wall Street Journal editorials by Charles Dow. There is a footnote at the beginning of each of these chapters called "Dow's Theory," which later became the basis for Dow's famous "Theory" on the market. What is really surprising in this book is not how much has changed since 1903, but how much has stayed the same. The writing is in an archaic, flowery style, which makes it very enjoyable reading.
The Intelligent Investor, by Benjamin Graham -- Warren Buffett was an admirer of Graham, and learned a lot of his methods. I've only gotten about half-way through this, and I suppose I'll have to read it several times to really understand it. Graham advocates a very conservative, fundamentals-based investment approach. The book is definitely not sitting-in-the-airport or lying-on-the-beach stuff. It is written like a text book, and is rather dry. Nonetheless, the information is valuable to understanding how to invest. He liked dollar-cost averaging by regular investments in solid companies, which is what I do in my DRiPs, so how can I not think this is a great book?
The Warren Buffett Way, by Robert G. Hagstrom, Jr. -- If you ever find yourself stuck at Pittsburgh International Airport during one of those awful snowstorms we get here every couple of years, you need to get this book. It gives an interesting account of Warren's life, and just how he got so rich. It is fascinating. Just don't expect to learn all that much about his investment methods. The writer talks about how Buffett values companies, but I could not glean enough information to do the valuation myself. Like Peter Lynch's books, this one is very light on the mechanics of analysis.
Now, for some interesting books that will entertain you, and maybe teach you something, too (definitely airport and beach reading):
Traders Tales , by Ron Insana -- This CNBC reporter has collected a series of amusing stories about the traders and investors in the stock markets and commodities exchanges. The stories are fascinating and funny. If I ever had any doubts as to whether I wanted to be a short-term trader, I lost them reading this book. No way -- I think the old job of dropping nitroglycerin down oil well bore-holes was much less risky.
Liars Poker, by Michael Lewis -- Michael Lewis was a bond trader for Salomon Brothers. If you ever feel that the little investor is always getting ripped off, and is always getting suckered into bad investments, read this book. The institutions dominate the bond market, and seem to do a good job of losing the money they are entrusted with. I doubt if Salomon Brothers has this book sitting on a shelf in their reception area, but it is really worth reading.
As for me, I'm going to the beach tomorrow morning, and I'm taking a bunch of Louis L'Amour books. None of them are about investing; he writes about cowboys mostly (and I don't even like horses). I don't care though. I'm on vacation, and I'll get Foolish again when I return. Well, I've got to go, time for me to pack the car...
Transmitted: 8/19/96