Finance books to mend your soul
Posted on June 24, 2008 by Richard Beddard
Filed Under Reading list |
Sometimes I find it helpful to take a step back from the day-to-day work of evaluating companies and markets and think about what I’m looking for and why. Regular readers know I find the reports of James Montier*1 at Societe Generale and his book Behavioural Investing (review) particularly useful.
Last week he sent around brief reviews of recent books he considers “required reading” for analysts. The list begins with books on finance and then strays into the realm of psychology, which is fitting as Mr Montier is a behavioural investing guru:
Fooling Some of the People, all of the Time by David Einhorn
Einhorn went short Allied Capital, and then gave a… speech on the subject… This book should serve as a wake up call to investors and analysts alike over the fact that corporates lie and cheat (when it suits them)… The book is inspiring in terms of the portrait of fundamental analysis that it provides. Einhorn and his team went to great lengths to research their investment case. They provide a shining example of the way in which research should be done (and note not a single earnings forecast in sight!).
The fundamental Index by Robert J Arnott et. al.
Rob and his colleagues have been attacked by the fans of passive and active investment alike. In the interests of full disclosure I am a fan of the fundamental indexing approach. Regardless of my personal views on the idea, anything that upsets quite so many people must surely be of interest… Rob and his colleagues have developed an alternative to CAPM inspired cap weighting. An index weighted by fundamentals such as earnings, dividends and cash flows… It is effectively a way of contrarian indexing. By its very construction it will trade against whatever is doing particularly well in the market be it value, growth, large or small.
The Investor’s Dilemma by Louis Lowenstein
Louis Lowenstein’s The Investors Dilemma takes a long hard look at the mutual fund industry and finds that it has betrayed its fiduciary responsibility in favour of short-term profits. The good news is that not all fund managers have fallen into this trap. Lowenstein details the select group of those managers who have the discipline and the integrity to do things differently. Strangely enough they are long-term orientated value investors.
Financial Shenanigans by Howard Schilit
This useful book sets out to explore seven common areas of what might be described as ‘earnings management with dubious intentions’.
Creative Cash Flow Reporting by Charles Mulford and Eugene Comiskey
Creative Cash Flow Reporting picks up where Schilit’s book leaves off. It concerns the manipulation of cash flows rather than earnings, and the use and abuse of free cash flow.
Predictably Irrational by Dan Ariely
I often judge a book by how many of the corners of the pages I have turned down to remind me of something, Predictably Irrational is one of the few books that has almost every page marked… For anyone wanting an introduction to how being human affects our behaviour, this is the book for you. I simply can’t recommend this book highly enough.
Mistakes Were Made (But Not by Me) by Carol Tavris and Elliot Aronson
Tavris and Aronson take the reader on a whirlwind tour from the Crusades to Holocaust, from recovered memories and the fallacies of clinical judgment to false confessions, and wrongful convictions. The range of topic covered show the universal nature of the biases of which I so often write.
Mindset by Carol Dweck
This book is the closest thing to a self-help book that has ever appeared on my lists, but it is carefully grounded in empirical research that Dweck and her colleagues have undertaken over the last two decades.
Better: A surgeon’s notes on performance by Atul Gawande
Gawande believes that success in medicine requires three core elements. Firstly, diligence… Secondly, to do right… Thirdly, ingenuity… I would suggest that those who are most successful in finance possess all three of these traits in abundance.
Why Smart Executives Fail by Sydney Finkelstein
Finkelstein uncovers the ’seven habits of spectacularly unsuccessful people’
Footnotes:
- One slight concern is that fellow analysts have voted Mr Montier and Albert Edwards the top team in a Thomson Extel survey of European analysts. If his contrarian views are becoming more fashionable it will make them less profitable so here’s hoping they like the ideas, but can’t implement them in practice. Or else they’ll forget about them when markets take off.
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