Book Marks:
4 Good Reads — and/or Holiday Gift Ideas

Categories Author: Patrick O'Shaughnessy, Investing

The holiday season and long nights of Winter are upon us. Whether gift-listing or curling up by the fire, here are some books to warm the brain in the months ahead:


The Misbehavior of Markets: A Fractal View of Financial Turbulence
by Benoit Mandelbrot, Richard L. Hudson

book cover

I’ve read this book three times now, and need to recommend it again. It is a Top 5 investing book of all time. It will make you question all or large parts of your investing philosophy. It is an absolute classic. A unique take on (and dismantling of) the “efficient market” hypothesis. I adopted and extended my favorite chart ever from his book, shown here:
2016-11-29_01


Quality Investing: Owning the Best Companies for the Long Term
by Lawrence A. Cunningham, Torkell T. Eide, Patrick Hargreaves

book cover

“Quality” means too many things. There are so many definitions of quality that when I hear the word now, it means nothing to me. This book was a nice antidote. There isn’t anything revolutionary in here, but for the fundamental stock analysts out there, this book offers a lot to chew on.

In our view, three characteristics indicate quality. These are strong, predictable cash generation; sustainably high returns on capital; and attractive growth opportunities. Each of these financial traits is attractive in its own right, but combined, they are particularly powerful, enabling a virtuous circle of cash generation, which can be reinvested at high rates of return, begetting more cash, which can be reinvested again.


The Money Game
by “Adam Smith” (aka George Goodman)

book cover

The Money Game nails investor psychology. Smith had a nose for market truths and a sharp tongue. You’ll read this quickly and enjoy the hell out of it. A few choice passages:

When there is a gap between perception and reality, it is only a matter of time until the gap is reconciled. But since reality is so stubborn and tolerates no gamesmanship, it is impossible for reality to rise to meet perception. So it follows that perception must decline to meet reality. Après moi le deluge.

 

How do you find smart people? Those who have just finished being smart are sometimes the dumb ones in the next part of the cycle.

 

“If you don’t know who you are, [the market] is an expensive place to find out.”

 

Any remarks about portfolio theory are an attempt to freeze some pattern into rationality, and Lord Keynes rightfully said that there is nothing so disastrous as a rational policy in an irrational world.


And, if you like Money Game, also by “Adam Smith”…

Supermoney

book cover


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