Recommended books

[Valuebo]

Hi all,

 

I am a starting (value) investor and since a couple of months I am trying to read as much as possible about it. After reading 4 value investing books and with 3 left on the shelf, I begin to feel confident about my basic knowledge on the subject.

 

However, I feel that I am missing basic knowledge on sectors that I am interested in, probably mainly because I have little actual business experience (being 21 years old). I want to focus on 2 or 3 sectors first, so that I don't lose my way in the big big world that investing is.

 

Would it be a good idea to read general books about these sectors (as an extra besides the companies' annual reports) to get some background of each sectors' specifics, general knowledge, the used ratio's, marketing, ... ? Because now, I feel like I am missing important information and background on various sector-specific topics. Or would it be a complete waste of time? If not, what would you recommend on, for example, insurance, retail, *insert other sectors*?

 

I am about to read the book 'The Little Book of Behavioral Investing: How Not to be Your Own Worst Enemy' too. Are there any other good books on the subject, perhaps going in greater detail? As someone already told me before, the subject probably is equally important as valuation on itself.

 

And while I am at, can anyone recommend good books on business in general or entrepreneurship?

 

 

Thanks in advance,

 

Tom

 

 

 

[twacowfca]

There was been a thread on this topic a few months ago.  :)

[Valuebo]

There was been a thread on this topic a few months ago.  :)

 

Hm.  :) On what subject do you mean? Business in general? I found that one now I think :

http://cornerofberkshireandfairfax.ca/forum/index.php?topic=2986.0

 

And also I did find one on the insurance sector now. :) But I can only find a very short one on behavorial finance and none on other sectors (or even the idea of doing that, maybe it's just stupid).

 

[woodstove]

Hi Tom,

 

Regarding investing books in general, Philip Fisher's "Common Stocks and Uncommon Profits" deserves a read.  Another approach to "value".

 

For learning about industries, if you have an access to some particular firm (maybe friend or relative works there), try learning about that. Have to get feet wet somewhere.  What are success factors in that firm?  What are differences vs others in industry?

 

If want to choose an industry that is actually investible in today's market, insurance is only one that hasn't been goosed to infinity by a combination of excess investment funds and insufficient cautionary thinking.  (Just my opinion of course.  Can get diversity of opinions via this board, which is good!)  And insurance is tough to learn about.  Buffett letters help.  Wikipedia articles, links from those.  There are trade publications, and you can get info from websites of various firms.  Some firms are remarkably forthright about what are the success factors in their business.  Q&As at ends of conference calls - after the standard recitation of info from the quarterly report - often have good info about how a business works, as an analyst for brokerage firm asks Q and gets clarifying explanation.  For Canadian firms, TSX listed, Sedar has the annual information forms, which sometimes include excellent overviews of industry in which the firm operates.

 

And there's always books.  If you have access to a university library, as is likely considering your age, check out trade publications.  For instance, my university's library has online access to industry E-journals including: Advertising Age, Corrosion, Plating & Surface Finishing, ...  You can get perspectives on an industry, which are different from (hence valuable) the type of coverage that shows up in investing books or on the pages of the business newspapers.

 

You've got decades of time available to you, and (per Buffett) need only 20-punches max, say 1 good idea every year or two.  So it can pay to take it gradually, learn an industry until you're comfortable making "investment operational" decisions.

 

One of the main hazards of being an analyst working for a brokerage firm, if that is perhaps on your career horizon, is the expectation that one be prepared with an opinion (or ready to formulate and state an opinion after a bit of background study) on pretty much any firm.  That is just unrealistic, and leads to bad habits and losing money.  Most every question which can be asked is either unanswerable as stated, or simply does not deserve a response.  If you are able to compartmentalize your investing activity from those pressures, it may serve you well.

 

Best wishes.

[ragnarisapirate]

Phil Fisher's second book was great, as well as his 'common stocks, uncommon profits'. Obviously, you should give Graham a read. Buffett's Partnership letters are great too. While not on value investing, I would strongly recommend reading The Black Swan, as well.

 

Read 10Ks like crazy.

[Valuebo]

Thanks! Very useful comments and tips woodstove, I appreciate it!

 

Just to give you an idea of my knowledge, I have read The Intelligent Investor, Value Investing From Graham to Buffett and Beyond, The Little Book thats still beats the market and Rule °1 (not great...). On my shelf I have left for the near future : Common Stocks and Uncommon Profits, You Can be a Stock Market Genius and One Up on Wall Street.

I think that will cut it for the basics of value investing?

 

Atm I am reading Buffett's letters as well and digging through the first couple of annual reports. I hope reading those annuals gets easier over time. :)

Would it help if I read the annual reports of smaller companies first because most of the time they are less complex? Or isn't there a big diference between <100million and >1billion market cap companies?

[woodstove]

Oh, there's a huge difference between < $100m and > $1B companies.  And Berkshire is about the hardest company to understand, if you are trying to dig into the details.

 

I believe www.hoovers.com still has some free access.  Good place to browse companies and industries.  Personally I would be inclined to start with some manufacturing firm, sub $100m.  Publically listed so you have the filing to look at.  But not much real estate (just a plant or few), more stuff than relationships (financials are relationships), not too much debt, no franchising or other opportunities to jiggle the figures.  I'm not suggesting that as investing, just as a type of business to start learning about.  Something that has not changed rapidly, eg no financial restructuring or recapitalization or new owners issuing shares to public, and such.

 

Depends so much on your interests though.  Are you in US or Canada?  What sort of businesses are you personally interested in or familiar with?  Have you ever worked in manufacturing, distribution, newspaper, retail, ... for summer job or co-op or whatever?  Any relatives or friends, who can provide you with interesting background on how a particular business runs?

[SharperDingaan]

 

http://books.global-investor.com/books/293746/Curtis-Faith/Inside-the-Mind-of-the-Turtles/

 

Focus on fully understanding the lessons, not the hype.

Then look at 2-3 stocks this board has followed over time, & how you would have applied the lessons (had you known about them) to those stocks at the different points in time.

 

SD

[Valuebo]

Oh, there's a huge difference between < $100m and > $1B companies.  And Berkshire is about the hardest company to understand, if you are trying to dig into the details.

 

I believe www.hoovers.com still has some free access.  Good place to browse companies and industries.  Personally I would be inclined to start with some manufacturing firm, sub $100m.  Publically listed so you have the filing to look at.  But not much real estate (just a plant or few), more stuff than relationships (financials are relationships), not too much debt, no franchising or other opportunities to jiggle the figures.  I'm not suggesting that as investing, just as a type of business to start learning about.  Something that has not changed rapidly, eg no financial restructuring or recapitalization or new owners issuing shares to public, and such.

 

Depends so much on your interests though.  Are you in US or Canada?  What sort of businesses are you personally interested in or familiar with?  Have you ever worked in manufacturing, distribution, newspaper, retail, ... for summer job or co-op or whatever?  Any relatives or friends, who can provide you with interesting background on how a particular business runs?

 

Maybe I was unclear about the annual reports. I meant that I have been reading some reports (FFH, RLE,..) in general, not those of BRK. :)

I will definitely try to find such small and simple companies and get started with those!

 

I am from Belgium, Europe. I study finance & insurance, but the education isn't worth much imo, just some basic stuff. For example on the subject of insurance, we don't learn how insurance companies work, we learn how the products work, etc.  ;)

I have been working (student job) for an insurance agent whom I know well for some time. But I am just starting to deal with contracts etc., before it was mainly administrative work. This of course won't help me to understand the industry any better. But maybe I can get more information and knowledge through the agent, he has some experience in the sector and asking doesn't hurt... The point is that the sector lies in my line of interests.

 

I have a great interest in marketing and sales so retail seems to be a second sector I would like to explore. Also, retail seems to be one of those sectors where most companies probably still somewhat lie in my field of competence.

 

@ SD = Thank you. Will look into the book.  I will stay of the buttons until I fully understand the lessons, thanks.

[roundball100]

... I have read The Intelligent Investor, Value Investing From Graham to Buffett and Beyond, The Little Book thats still beats the market and Rule °1 (not great...). On my shelf I have left for the near future : Common Stocks and Uncommon Profits, You Can be a Stock Market Genius and One Up on Wall Street.

I think that will cut it for the basics of value investing?

Another worth considering is Burton Malkiel, A Random Walk Down Wall Street (recently revised again), and I found early parts (more than later parts) of The Four Pillars of Investing useful, especially for historical perspective.  After a few of these you start to see the same messages, which is not a bad thing (e.g., for index investing, Bogle's Little Book of Common Sense Investing).  For fun, and long-standing lessons, a very quick read is the old classic, The Richest Man in Babylon.

[bonechip1]

tombgrt,

 

When I first started investing, I would go to the library whenever I had a chance, and would grab the binders of Value Line Investment Surveys and would spend hours thumbing through the different industries looking at every company in every industry.  There is an incredible amount of information that is compressed in those 1 page briefs, and you can get a very good overview of an industry and it's financial characteristics as well as determining the best and worst companies within each sector in a very short amount of time.

 

I have not read Montier's books on behavioral finance, but have heard they are good, and are on my list of books to read.  I have found the following behavioral finance books to be helpful.  Although there is overlap, I have found that repetition ingrains the ideas:

 

anything by Kahneman, Tversky or Statman (including scholarly articles)

Hersh Shefrin's Beyond Greed and fear

Belsky and Gilovich Why Smart People Make Big Money Mistakes

any of Charlie Munger's lectures which are in Poor Charlie's Almanack

Robert Cialdini's Books

Ariely's Predictably Irrational

Thaler and Sunstein's Nudge

Nofsinger's Psychology of Investing

Mauboussin' Legg Mason commentaries are pretty good.

Tilson has a good behavioral finance checklist included in a lot of his presentations.

 

hope that helps.

 

[Myth465]

I dont think locking yourself in a library and reading for years is the right approach. At the end of the day you will need to think. You are essentially making a very educated bet, handicapping a few variables with each investment. You get paid if you are right, and go broke if you are wrong. I learn the most from others mistakes but still make a few mistakes myself.

 

I would honestly read the LUK shareholder letters and annual reports starting from year one. After each year I would make a basic projection about the key operating businesses, and would read the next year to check and see if I was correct. LUK has owned banking, insurance, and manufacturing businesses so its a gold mine inmo. At some point you have  to learn how to think. Thats just my 2 cents, and its overpriced.

[twacowfca]

Oh, there's a huge difference between < $100m and > $1B companies.  And Berkshire is about the hardest company to understand, if you are trying to dig into the details.

 

I believe www.hoovers.com still has some free access.  Good place to browse companies and industries.  Personally I would be inclined to start with some manufacturing firm, sub $100m.  Publically listed so you have the filing to look at.  But not much real estate (just a plant or few), more stuff than relationships (financials are relationships), not too much debt, no franchising or other opportunities to jiggle the figures.  I'm not suggesting that as investing, just as a type of business to start learning about.  Something that has not changed rapidly, eg no financial restructuring or recapitalization or new owners issuing shares to public, and such.

 

Depends so much on your interests though.  Are you in US or Canada?  What sort of businesses are you personally interested in or familiar with?  Have you ever worked in manufacturing, distribution, newspaper, retail, ... for summer job or co-op or whatever?  Any relatives or friends, who can provide you with interesting background on how a particular business runs?

 

Maybe I was unclear about the annual reports. I meant that I have been reading some reports (FFH, RLE,..) in general, not those of BRK. :)

I will definitely try to find such small and simple companies and get started with those!

 

I am from Belgium, Europe. I study finance & insurance, but the education isn't worth much imo, just some basic stuff. For example on the subject of insurance, we don't learn how insurance companies work, we learn how the products work, etc.  ;)

I have been working (student job) for an insurance agent whom I know well for some time. But I am just starting to deal with contracts etc., before it was mainly administrative work. This of course won't help me to understand the industry any better. But maybe I can get more information and knowledge through the agent, he has some experience in the sector and asking doesn't hurt... The point is that the sector lies in my line of interests.

 

I have a great interest in marketing and sales so retail seems to be a second sector I would like to explore. Also, retail seems to be one of those sectors where most companies probably still somewhat lie in my field of competence.

 

@ SD = Thank you. Will look into the book.  I will stay of the buttons until I fully understand the lessons, thanks.

 

 

A recent annual report by Montpelier Re (for 2009 I think) has the best primer in a few pages for understanding reinsurance and reinsurance companies.  Reading it perhaps more than once untill you thoroughly understand it should be more informatve than any thing else.  :)

[woodstove]

Ok Tom, thanks for clarifying.  Some really good suggestions from others.  I think you are definitely well positioned for focus on insurance industry - your interest, your studies, people you know - so I withdraw my remark that insurance is hard industry to start with.  It's ideal in your situation!

 

The only thing I would add, is when looking at companies, also look at some of the average and even not-very-successful firms' reports.  It will help you get some ideas, by induction, about what works well, company cultures, investment vs underwriting.  I agree with Myth that in the end you have to make decisions, and there is no substitute to flying solo with your real money at risk.  Still helps to have friends to assist. This board is a great place to bounce some ideas around, huge amount of insurance (and investing) expertise hereabouts.  But the decisions must be your own, ultimately; if always rely on consensus, end up with something that is at peak of its flavour, not opportunity.

 

You will do fine.  You are clearly very bright and industrious.  Best wishes!

[bookie71]

What is your occupation?  Find some companies in your occupation area and get their annual reports and 10-K's. I like to get the printed copy of the annual reports as they give you an impression of how frugal the companies are.

If you can find them get ahold of some of the early Berksire reports, the letters are available on the BRK site, but it helps to have the reports to read and see what he is talking about.

ditto WSC

I would also suggest you read books of other types of investing, just so you know what others are thinking.  I agree that smaller companies are better and easier to understand. 

Google "annual reports" and order all of an industry you are interested in.

https://www.orderannualreports.com/sector/Default.asp?mkt_code=GOOGN20203&s_kwcid=TC|13088|annual%20reports||S||5307958450 is a place to start.

 

[Guest Bronco]

There are many ways to skin a cat (although I don't even know what that means - is that Asian food?)

 

Anyway, I think it makes sense to understand financial statements.  After that, find out about the industry you are looking to invest.  Trade publications may be helpful.

 

I would also try to develop a thesis on long-term trends.  IMO, some good ones are everything Apple and oil consumption.  Is the population going to be bigger or smaller in 10 years?  What are the beneficiaries of such a trend?  We may have a housing crisis now but where are all the people going to live with a population explosion?  Where I live in the northeast - I can remember farm land everywhere that is currently developed.  Will this happen again?  For example, I live in South Jersey and you have homes every 5 feet but outside of the high population areas are lots of flat land.  Some day, this will all be developed.

 

I think you need to read as much as possible but then forget everything and think for yourself.  What are companies worth to other companies?  What companies have competitive advantages?  What companies will be dominant 10 years from now?

 

Myself - I can see a Netflix in a very competitive business 10 years from now and Salesforce as an innovator.  If I were to buy either company, it would be the latter.

 

Lots of random thoughts here, but try to think for yourself.  Don't treat anyones comments as gospel, including Buffett.  Everyone makes mistakes - don't get caught. 

 

I also think value investing is tough - easy maybe 2 years ago but not as easy now.  That is why I think buying quality is always important.  Focus on the franchise.  Focus on long-term sustainability.  Don't worry about day-to-day nonsense in the media...it is a killer.

[SharperDingaan]

 

A little biased, but you might want to look at the following:

 

To know the mechanics as to how P&C insurance works, look at the industry professional designations. Within Canada you would be looking at the CIP &/or the FCIP.  http://www.insuranceinstitute.ca/ProductCatalog/ChartOfProgramOfferings.aspx?pg=Canada&lu=1. As with everything, the principles involved (ie: UW of marine, hazmat, specialties, reinsurance, etc) are more important than the actual legislation.

 

Learn from the bad. Look at the financials & press releases for the last 5-10 years of KFS (TSE listing), read the various comments that were made on this board (content & time). Look at the loss triangles on their final AR's, what the coy was saying 9-12 months before the losses occurred (short-tailed business), how you can delay the enevitable, & what bad UW can do (assumptions & staff retention) to you ($, & time to break-up/bankruptcy).

 

Then look at the WED transaction. If the business showed 3 yrs worth of 'real' triangles how much more would it be worth over the purchase price - simply because the uncertainty was removed ? Very patient shareholders, & at 580M shares o/s - a 120M loss is only 2c/share. ie: The how you fix it. Watch & learn.

 

SD 

 

[Rabbitisrich]

Andrew Gelman recently provided a list of recommended readings: http://thebrowser.com/interviews/andrew-gelman-on-statistics