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Tuesday: 29 November, 2022

Books to help Boost your Investment Return

ResourcesReadingBooks to help Boost your Investment Return

What’s new? Our list of treasured books and articles are included to help you boost your investment return.

Although some of these books are more than 300 years old, we believe they are still relevant for study and reflection.

Unlock the door to investment return picture
Unlock the door to Investment Return – Source: Pixabay.com

The context: The finance education industry (and many industry practitioners) since the 1960s increasingly focused on the intuitively pleasing predictions of risk measures and the relation between them and expected returns of the Capital Asset Pricing Model. Unfortunately, while the CAPM has had a poor empirical record, and many renowned scholars have dismissed its validity, that hasn’t stopped many academics and investment advisors from advocating its merits.

Where to look? We’ve curated a list of investment books and articles that aim to boost long term investment return. Some of these investment books are easily available online, while others (more unconventional) are harder to find. We’ve also detailed scholarly articles, commentaries, and resources that we consider useful when thinking of investing and the general world of business.

This list provides a starting point for you to impartially seek, and perhaps, find knowledge and maximise your chances to boost your investment return.

List of Books to Boost your Investment Return

This investment books list is focused on stock picking (we only partially address capital allocation here, as capital allocation is very much dependent on your own situation). Our list of books has a US-bias and it is important to remember that factors like inflation, exchange rates and geopolitical policy (and sentiment) can have a major impact on investment return over the long term. Enjoy

The Classics:

An Inquiry into the Nature and Causes of the Wealth of Nations – Adam Smith – 1776 : Smith’s book was first delivered as a series of lectures, compiled into three volumes.

Try to find a full-length version, as many abridged versions can leave out whole sections of the original, or are written to convey a specific interpretation. It is a theoretical book and reflects on the productivity of nations, encouraging the role of free trade and free markets.

The lectures and book was partly a social commentary published at a time that a new nation arose, standing up against the rules and regulations against international free trade imposed by controllers of the international economic system to maintain the status quo.

The Art of Speculation – Philip L. Carret – 1930: Carret’s book was first published as a series of articles for Barron’s magazine, which started in 1927 (before the 1929 crash). Carret tackles the intricacies of speculation in the context of business, finance, and the markets.

The book explains the relationship between speculation and business, and digs into the complexities of successfully executing speculation. In the final chapter Carret leaves the speculative investor with twelve investment precepts, which has aged well to this day.

The General Theory Of Employment Interest And Money – John Maynard Keynes – 1936: Keynes wrote this during and after a major economic recession. Although many have dismissed Keynesian economics, the path that the world economies have followed over at least the last four decades matches his interventionist worldview quite well.

Since Keynes we’ve seen a sharp rise in interventions, monetary and fiscal support for assets deemed worthy by a select few, and even policy interventions on geopolitical grounds.

Keynes believed that people should be enticed to consume by lowering interest rates, which would lead them to deter saving. Keynes advocated for accommodative monetary AND fiscal policy to prevent a drop in wage-rates, even if that means governments need to run deficits and print money in order to spend sufficiently. The book is not a masterpiece in literary prose, but it provides an important example of how interpretations in favour of certain ideologies can “turn” books and the ideas therein into classics.

“Of the maxims of orthodox finance none, surely, is more anti-social than the fetish of liquidity, the doctrine that it is a positive virtue on the part of investment institutions to concentrate their resources upon the holding of “liquid” securities. It forgets that there is no such thing as liquidity for the community as a whole.”

Security Analysis – Benjamin Graham and David L. Dodd – 1934: This comprehensive book was first published in 1934 for students of finance (Benjamin Graham was a professor and David Dodd his teaching assistant) and remains filled with timeless investing principles.

The book is focused on fundamental analysis and value investing, and remains valuable, although many of the investing strategies employed by Graham (e.g. net-net investing and ultra diversification) were informed by the Great Crash and the Depression and not so relevant anymore. Benjamin Graham built on the margin-of-safety of bond investing and extrapolated that to equity investing, although most subsequent interpretations declared margin-of-safety in context of valuations, rather than yields, as was intended in our view.

The Theory of Investment Value – John Burr Williams – 1938: This book resulted from a Ph.D. thesis of Williams at Harvard in 1937. Williams offered several important concepts on how to value financial assets.

  • The Intrinsic Value of a share is equal to the discounted value of the dividends it pays out over its economic life.
  • The Discount Rate should be based on a desired rate of return or alternatively the long-term risk free rate.
  • A Detailed Analysis of business’s divisions and its industry should be used to forecast earnings and dividends.
  • Capital Allocation decisions are critical for valuations.

Companies should retain earnings if investments can generate satisfactory rates of investment return or payout dividends if investments can NOT generate satisfactory rates of investment return. Williams calculated his valuation of companies in comparison to the yields of bonds.

That concept would very effectively be used by Warren Buffett and Charlie Munger.

Investment Companies and their Securities – Arthur Wiesenberger – 1943: Wiesenberger published this a year after the Investment Companies Act of 1940. Wiesenberger explained the use of leverage to support the returns of closed-ended (and open ended) investment companies (also known as investment trusts) during periods of high inflation.

The Intelligent Investor – Benjamin Graham – 1949: Graham adjusted Security Analysis and targeted it for layperson investors. Graham had the view that investors can achieve “a creditable if unspectacular result with a minimum of effort and capability”, and equal the returns of the market averages, by holding a representative list of equities (the first theoretical expression of passive investing).

Graham advocated for a responsibility of increased shareholder activism, and that institutional shareholders should exercise their rights as business owners in expressions to management.

Common Stocks And Uncommon Profits – Philip A. Fisher – 1957: Fisher’s investing philosophy is focused on investing in companies when they are still small. Fisher stress the need to research a company’s management, its sale force, its research and development division, its employee relations, and other qualitative factors to determine whether a company’s earnings will grow over the long term.

Fisher outlines 15 points to consider and 5 factors to avoid, which are not necessarily ground-breaking in themselves, but follows a very logical way to rationally assess investments into companies that can have sustained growth. Fisher is against excess diversification, against trends or fashion stocks and outlines the processes to be successful when following a buy-and-hold forever strategy.

Investing in Companies and Markets

Essays in Persuasion – John Maynard Keynes – 1931 (2010 Edition): Keynes compiled a series of articles and essays (from as early as 1919) into a book with lessons for geopoliticians and other policy makers.

Among his articles, Keynes argued that the debts imposed on Germany during the Versailles treaty were injurious, and that the seeking of revenge will inevitably lead to war and worsening international tensions. Keynes argued against the imposition of sanctions and rather for peace talks (Keynes was against protectionism of all kinds).

Keynes highlighted the impact of inflation on savings, on bond owners, and creditors; and deplored any strategy to reduce the supply of money to a growth rate lower than that of industrial growth (in his thoughts on moving away from the gold standard and credit growth). His thoughts that unlimited credit growth would not be inflationary seems a little naive, but many of his other points are visionary.

Where are the Customers’ Yachts? Or, A Good Hard Look at Wall Street – Fred Schwed – 1940: Schwed was a professional trader who lost a lot of money in the 1929 stock market crash and exited the markets. His humorous book is full of irony and satire and is an account of the financial folly that goes on around us. Schwed is particularly scathing of financial forecasters.

Paths to Wealth Through Common Stocks – Philip A. Fisher – 1960: This little gem continues to outline Fisher’s thoughts on qualitative investing. Fisher advises to target companies that show a major and consistent uptrend in sales, as one of the first clues to an unusually attractive investment.

On capital allocation, Fisher advises against larger corporate acquisitions (sellers generally know more about their business than the buyer), but feels smaller acquisitions of an important product or outstanding talent, which can be exploited by a larger buyer, can be valuable.

The Truth About Corporate Accounting – Abraham Briloff – 1981: A book outlining accounting tricks (one of the first published), which includes critical recommendations that eventually lead to improvements in accounting standards and the separation of auditing and management advisory functions in auditors (integration of auditing and legal services seems to be growing currently).

Briloff recommended that the Financial Accounting Standards Board (FASB) only formulate overall standards, rather than detailed rules, with auditors therefore responsible for determining how to apply the general standards to specific situations.

To avoid abuse and to reduce conflicts, Briloff suggested that the self-disciplinary process of the industry is altered by the creation of an independent authority to make judgements on deviations and establish standards of conduct.

A Piece of the Action: How the Middle Class Joined the Money Class – Joe Nocera – 1994: Nocera tracks the invention of financial products like mutual funds, credit cards, money market funds, and discount brokerages. Nocera describes the political machinations to affect banking deregulation and the key players well, and provide a succinct overview of the developmental shifts in the financial landscape.

Investment Made Easy: How to make more of your money – Jim Slater, Edward McLachlan – 1994: This book provides details of key investment principles, with information on gilts, unit trusts and investment companies (investment trusts), along with strategies for making direct equity investments focused on picking growth stocks.

You can be a Stock Market Genius: Uncover the Secret Hiding Places of Stock Market Profits – Joel Greenblatt 1999: Greenblatt focuses on advanced investment concepts where undervaluations are most likely to be found, highlighting areas like special situations, spin-offs, restructurings, merger instruments, rights offerings, recapitalizations, bankruptcies, and risk arbitrage.

Quality Financial Reporting – Paul B.W. Miller, Paul R. Bahnson – 2002: This book reflects the frustration of the authors with the US reporting system, and the obscurity of GAAP reporting and introduces a comprehensive new version, dubbed Quality Financial Reporting with a suggested better balance between the trade-offs of more information and more useful, relevant information.

The Most Important Thing: Uncommon Sense for the Thoughtful Investor – Howard Marks – 2011: Marks uses excerpts of his internal memos to explain the keys to investment return, as well as its pitfalls. Marks details an investment philosophy that acknowledges the complexities of investing as he provides thoughtful attention to many separate aspects that become “the most important thing“.

Dream Big (Sonho Grande): – Cristiane Correa – 2014: A sprawling biography of the early days of three amigos of 3G Capital, Jorge Paulo Lemann, Marcel Telles, and Beto Sicupira. These three Brazilian entrepreneurs built an empire using an ego-free, target-centered, frugal management style focused on a culture of long-term success, meritocracy, and education – long-term value creation.

Index Investing

Winning the Loser’s Game [Timeless Strategies for Successful Investing] – Charles D. Ellis: A key proponent of index investing, providing several reasons why that continues to out-perform “active” indexing.

Ellis highlights the risks and costs of hidden and known fees and the importance of understanding behavioural economics for all investors, and provides guidance on building an investment portfolio and formulating an investment program.

The Little Book of Common Sense Investing: The Only Way to Guarantee Your Fair Share of Stock Market Returns – John C. Bogle – 2007: Bogle is a well-known proponent of passive investing, and the book advocates the best and most efficient investment strategy is to buy and hold all publicly traded US businesses at a low costs.

The Clash of the Cultures: Investment vs Speculation – John C. Bogle – 2012: Bogle’s tenth book includes candid views of the changing cultures of the investment management industry, from capital provision through long-term investing, to an aggressive, value-destroying culture of short-term speculation in the secondary markets.

Bogle laments the failure of institutional money managers to effectively participate in effective investment governance, he bemoans excessive executive pay, and the practice of corporate political contributions without shareholder approval.

Bogle concludes that the costs of investment management — particularly those associated with excessive portfolio turnover — is reducing the returns of investors compared to other cost-effective means of holding a market portfolio.

Fixed Income Investing

Corporate Bond Quality and Investor Experience – W. Braddock Hickman – 1958: In this important economic study, built on by Michael Milken to successfully use high-yield bonds in corporate financing, Hickman analyses the processes of measuring investment quality for bonds and compare that with investor experience (including investment return).

Hickman examines the general measures of prospective bond quality, like the ratings assigned by the investment agencies, the state lists of bonds eligible for savings bank investment, market ratings constructed from price quotations, and other specific characteristics of bond issues like the margin of safety (ratio of net income to gross income of the companies offering the bonds), the times charges-earned ratio (ratio of income before fixed charges to charges), the lien position, the size of issue, and the asset size of the obligor.

Hickman concludes that investment grade bonds do not necessarily outperform high-yield bonds over the long run when adjusting for risk (the investment period considered 1900-1944 included two major wars).

Pioneering Portfolio Management – David F. Swensen – 2000: Swensen, Yale’s former chief investment officer, explains his unorthodox investment policy on how to make capital allocations for the longer term.

Swensen includes chapters on manager selection of private equity and venture capital managers, and views on capital allocations in efficient markets (he recommends passive investing) vs inefficient markets (recommending active investing).

Swensen outlines details of the fee structures and liquidity challenges for the various alternative asset classes, arguing in favour of returns in Real Assets (inefficiencies in pricing of real assets argue for higher expected returns), where Yale’s Endowment has a large allocation.

Company Management

Business Adventures: Twelve classic tales from the world of Wall Street – John Brooks – 1969: This book includes analyses of twelve historical business events, focusing on the characters and character-choices of the key people involved.

The book remains useful in as much as it reminds us of the human element in business. It considers morality, integrity, and digs into details of illegal actions pursued in a belief management could get away with it.

The examples include product development with conscious bias, company cultures that fail to pursue unconventional ideas developed by its own researchers, the reasons for internal corporate miscommunications, the principal-agent dilemma, and the world’s monetary system.

Master of the Game: Steve Ross and the Creation of Time Warner – Connie Bruck – 1995: A compelling biography of Steve Ross, who built his funeral company into Time Warner, one of the largest media companies in the world, by acquisition of parking garages in New York city, a rental cars business, music businesses, movies, and cable TV.

Ross unfortunately then raided the corporate treasury for his own gain.

The Essays of Warren Buffett: Lessons for Corporate America, 1st Edition – Lawrence A. Cunningham – 1998: A compilation of essays from Warren Buffett’s shareholder letters of Berkshire Hathaway.

The articles highlight issues around Corporate Governance and ethical choices along with technical aspects of accounting and finance, and clearly sets out Warren Buffett’s time-tested decentralised management style and value-based investment philosophy.

The Warren Buffett Portfolio: Mastering the Power of the Focus Investment Strategy – Robert G. Hagstrom – 1999: Hagstrom presents his view of the mindset and thought processes Warren Buffett uses when qualitatively assessing people and companies for possible investment. Hagstrom intersperses dialogue of how Buffett manages a very concentrated portfolio with occasional huge bets on great opportunities, with examples of Hagstrom’s own attempts to emulate this process.

First A Dream – Jim Clayton and Bill Retherford – 2002: An autobiography of how James Clayton built Clayton Homes into the USA’s largest producer and seller of manufactured housing, eventually exiting to Berkshire Hathaway.

Jack: Straight from the Gut – Jack Welch, with John A. Byrne – 2003: An autobiography co-written with the help of Business Week journalist John Byrne, telling the story of how Jack refocused General Electric.

How to Get Rich – Felix Dennis – 2006: An honest autobiography, this time from the United Kingdom, where Felix Dennis started and built a flourishing magazine business empire. It has a lot of insights for entrepreneurs and those looking to start their own business.

Well worth a read!

Other publications

We include a series of articles we believe continue to hold immense value for shareholders looking to boost their investment return. The articles express themes promoting a rational value-investing style targeted on the long term investment return.

Value Line – 1931 to PRESENT:

The Walter Schloss Archive – letters and articles c/o Elevation Capital – 1946-2012:

Frank K Martin BLOG – 1971-PRESENT

How Inflation Swindles the Equity Investor – Warren Buffet (Fortune Magazine) – 1977

A Lesson on Elementary Worldly Wisdom – Charlie Munger – 1994

Berkshire Hathaway – Letters to Shareholders – Warren Buffett, Charlie Munger with Carol Loomis – 1977-2020

Wesco – Letters to Shareholders – Charlie Munger – 1997-2009

Today you don’t need to be a subscriber to access free ebooks, as amazing producers and distributors like Project Gutenberg make many classics available online. Go search and you might find some of the key concepts to boost your investment return over the long term.

Psychology

Influence: Science and Practice – Robert B. Cialdini (4th Edition) – 2001

Thinking, Fast and Slow – Daniel Kahneman – 2011

We created this list because the articles and writings still remain relevant for long-term investors today. If you’d like to suggest another worthwhile link, please send us details in the comments below.

Thank you

If you liked this article, please help us reach more readers by sharing it. If you have any advice, questions, thoughts, or recommendations on investment return, feel free to send us a comment. Which books are you reading to boost your investment return?

END

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