Useful Reading

If you are interested in learning more about the investment approaches we use, you may find the following books useful:

Common Stocks and Uncommon Profits by Philip A. Fisher (John Wiley & Sons)

Philip Fisher became a securities analyst in 1928 and made his name by espousing the importance of extensive research and owning only a few growth companies. This book is an investment classic. Fisher’s techniques enable one to make intelligent investment commitments.

In Fisher’s own words: “Two matters were significant influences in causing this book to be written. One, which I mention several times elsewhere, is the need for patience if big profits are to be made from investment. Put another way, it is often easier to tell what will happen to the price of a stock than how much time will elapse before it happens. The other is the inherently deceptive nature of the stock market. Doing what everyone else is doing at the moment, and therefore what you have an almost irresistible urge to do, is often the wrong thing to do at all.”

Security Analysis by Benjamin Graham and David Dodd Cottle (McGraw-Hill)

This is what we consider the textbook on investing, though it is a very heavy read. In the preface, they comment: “The danger lies not so much in the emphasis on future earnings as on a lack of standards used in relating earnings growth to current values. Without standards no rational method of value measurement is possible.”

This book provides the tools to analyze the inherent value of a business. Although 700 pages, it is an invaluable guide for analyzing financial statements. The quote that all value investors take refuge in begins the book: “Many shall be restored that are now fallen and many shall fall that are now in honor.”

One Up on Wall Street by Peter Lynch with John Rothchild (Simon & Shuster)

This folksy but wise book was written by the very successful manager of the Fidelity Magellan Fund. It is full of practical advice. Peter Lynch had hundreds of stocks in his portfolio, while Phil Fisher had only a few – yet both were successful. Perhaps Buffett is correct when he states that each investor needs to paint his own canvas. The principles these great investors use are much the same; the difference is in their application.

“Whisper stocks have a hypnotic effect and usually the stories have emotional appeal. This is where the sizzle is so delectable that you forget to notice there is no steak.”

“If you find a stock with little or no institutional ownership, you’ve found a potential winner. I’m equally enthusiastic about once popular stocks the professionals have abandoned.”

“All of the major advances and declines (in the stock market) have been surprises to me.”

“The trick is not to learn to trust your gut feelings, but rather to discipline yourself to ignore them. Stand by your stocks as long as the fundamental story of the company hasn’t changed.”

“The big winners come from so-called high risk categories, but the risks have more to do with the investors than with the categories.”

The Essays of Warren Buffett: Lessons for Corporate America, by Warren Buffett and Lawrence Cunningham (The Cunningham Group)

This book organizes Warren Buffett’s investment views thematically. If you do not have time to read the last twenty years’ worth of Berkshire Hathaway annual reports, this book is an excellent alternative. Some of our favourite quotes:

“Your goal as an investor should simply be to purchase, at a rational price, a part interest in an easily understandable business whose earnings are virtually certain to be materially higher five, ten, and twenty years from now. Over time, you will find only a few companies that meet these standards – so when you see one that qualifies, you should buy a meaningful amount of stock.”

“If you aren’t willing to own a stock for ten years don’t even think about owning it for ten minutes. Put together a portfolio of companies whose aggregate earnings march upward over the years, and so also will the portfolio’s market value.”

“Charlie and I have not learned to solve difficult business problems. What we have learned is to avoid them.”

“The institutional imperative is the tendency of executives to mindlessly imitate the behavior of their peers, no matter how foolish it may be to do so.”

The Intelligent Investor: The Definitive Book on Value Investing by Benjamin Graham (Harper Business)

Warren Buffett has said that he re-reads Chapter 20 of the book (called “Margin of Safety”) annually, because it is the central concept of investing to him. However, after reading Graham’s biography and discovering that from 1929 to 1932 the cumulative losses for his partnership were 70 percent, it is understandable that Margin of Safety is the cornerstone of Graham’s approach as well. This is why “The Intelligent Investor” is a must read book.

We also encourage people to read this book as it includes wonderful case histories with concluding morals. It comments at length on human nature. “The investor’s chief problem – and even his worst enemy – is likely to be himself. We have seen much more money made and kept by “ordinary people” who were temperamentally well suited for the investment process than by those who lacked this quality, even though they had an extensive knowledge of finance, accounting and stock market lore.”

Historical perspective is everything to Graham: “No statement is more true and better applicable to Wall Street than the famous warning of Santayana: ‘Those who do not remember the past are condemned to repeat it.'”

Other insightful quotes:

“Several years ago, Ben Graham, then almost eighty, expressed to a friend that he hoped every day to do something foolish, something creative and something generous.”

“What’s needed is a sound intellectual framework for making decisions and the ability to keep emotions from corroding that framework.”

“The one principle that applies to nearly all those so-called technical approaches is that one should buy because a stock on the market has gone up and one should sell because it has declined. This is the exact opposite of sound business sense everywhere else, and it is most unlikely that it can lead to lasting success on Wall Street.”

“While enthusiasm may be necessary for great accomplishments elsewhere, in Wall Street it almost invariably leads to disaster.”

“Buy your stocks as you buy your groceries, not as you buy your perfume.”

“Few people were willing to consider seriously the possibility that the high rate of advance in the past means that stock prices are ‘now too high’, and hence that the wonderful results since 1949 would imply not very good but bad results for the future.”

“We can urge that in general the investor should not have more than one-half in equities unless he has strong confidence in the soundness of his stock position and is sure that he could view a market decline of the 1969-70 type with equanimity.”

“Experience teaches that the time to buy preferred stocks is when their price is unduly depressed by temporary adversity … in other words, they should be bought on a bargain basis or not at all.”

Buffett: The Making of an American Capitalist by Roger Lowenstein (Main Street Books)

This is the definitive biography on Warren Buffett, one of the greatest investors of all time. It tells the tale of this legendary mid-American who turned $10,000 in 1956 into $350 million today.

The Money Masters by John Train (Harper & Row)

This is a fascinating account of nine investors and their approach to their craft. They are Warren Buffett, Paul Cabot, Phil Fisher, Ben Graham, Stanley Knoll, T. Rowe Price, John Templeton, Larry Tisch and Robert Wilson. The great value in this book is the conclusions drawn from these investors’ dos and don’ts. If you are short on time, we suggesting you at least read the winning strategies section.

Other excellent books worth reading include:

  • Value Investing: A Balanced Approach by Marty Whitman
  • John Neff on Investing by John Neff
  • Beating the Street by Peter Lynch
  • The Midas Touch by John Train
  • Margin of Safety by Seth Klarman
  • The Warren Buffett Way: Investment Strategies of the World’s Greatest Investor by Robert G. Hagstrom
  • Contrarian Investment Strategies: The Next Generation by David Dreman
  • The Little Book of Value Investing by Christopher Browne

Someone’s sitting in the shade today because someone planted a tree a long time ago.

– Warren Buffett