The Most Important Thing – Howard Marks
Chairman and co-founder of Oaktree Capital Management, Marks brings decades of hard-earned market intelligence to bear on a book about investing successfully. A memoir peppered with insight and tried-and-tested methodologies, he teaches by example, using passages from his own memos to illustrate points.
Through an honest evaluation of his own successes and failures, he explores price/value relationships, opportunism, defensive investing, the art of second-level thinking, risk tasking and being a contrarian investor. He advises on ways to navigate the complexities of volatile markets, avoiding investment disasters and career-ending mistakes.
We get to understand how his investment philosophy was shaped. Core to his strategy is learning to judge market cycles, developing an attention to detail that will inform you when to respond with aggressive but measured action. Packed with wisdom, it’s a must-read for amateurs as well as more experienced investors. Highly quotable nuggets – “investing is a popularity contest, and the most dangerous thing is to buy something at the peak of its popularity” – populate every page.
The Black Swan: The Impact of the Highly Improbable – Nassim Nicholas Taleb
Black swans were not thought to exist until they were sighted in Australia in 1697, after which the phrase became a way to describe an event that occurred despite seeming impossible. Former options trader Nassim Nicholas Taleb uses it as a metaphor as he argues that banks and trading firms are exposed to larger losses that risk models can predict during negative Black Swan events.
Encompassing science, math and aesthetics, he comes up with “black swan thinking” and uses stories and vignettes to relay his ideas in memorable ways. That our outlook is often too narrow for accurate prediction of events. That risk is better managed by understanding what you don’t know. That it is possible to “turn the black swans white” and build robustness against extreme, unpredictable events.
It was a best seller on its launch in 2007 and is still relevant for anyone in the business of risk.
Buffet: The Making of an American Capitalist – Roger Lowenstein
Even though it was first published in 1995, “The Making…” is still essential reading if you want to understand the development of Warren Buffett's business philosophy and his do-or-die values. For would-be investors there’s plenty to learn from his insights and methods, and c-level execs will find much of interest in the way he steered the fortunes of Berkshire Hathaway as CEO.
At the very least it’s a larger-than-life story of Buffet who accumulated one of the greatest personal fortunes of the 20th century. Lowenstein’s unprecedented access to friends and family help him unpick Buffet’s unlikely mix of homespun wisdom and razor-sharp business acumen, and a trading philosophy that hinges on buying stock in undervalued companies and sticking with them until the tide turns.
Buffet books are a publishing industry in their own right at this stage, shining a light on different aspects of his life. Alice Shroeder’s “The Snowball: Warren Buffet and the Business of Life” is more recent and arguably better on biographical detail, while “The Warren Buffet Way”, by Robert G Hagstrom, cuts to the chase on his deal-making skills.
The Intelligent Investor – Benjamin Graham
A mentor to Warren Buffett, the so-called Dean of Wall street learned the hard way, refining what would become market-winning techniques after suffering huge losses in the 1929 crash. Although it was written in 1949, the approach to profiting in stocks while minimizing downside risk still stands up today.
There is a good deal of psychology at play as he does deals with ‘Mr Market’, the imaginary business partner that he uses to personify prospective investments. The ability to ignore Mr Market and wait for him to come back with a better deal is a favorite negotiating ploy. Core to all his investment activity was retaining a margin of safety, only buying stock at a price that was below the more conservative valuations of a business, which means potentially bigger profits if stock jumps and less risk if it goes down.
A master of low risk and high return, Benjamin Graham is still a guru of financial trading. No better endorsement for one of the best-selling investment books of all time comes from Buffett himself, who describes it as “by far the best book on investing ever written”.