Tuesday, August 25, 2009

What should I read if I want to become a money manager?

Economists are not known for their money management skills, so I asked for advice from Merle Hazard, one of the best money managers around.  He likens money management to Plato's Allegory of the Cave.  The puppets are analogous to "fundamental value" and the shadows cast by the fire on the wall (what we can see) are analogous to prices. 

1.  The Money Masters by John Train.  A terrific book that would inspire someone getting started in the field.   Is a side-by-side study of different money managers (perhaps inspired by Plutarch’s Parallel Lives).  In any case, this is a desert-island book that can be understood and loved by novices and experts alike. At the end Mr. Train reaches some conclusions as to the personality traits that the great investors have in common.  It won’t give you ideas on specific stocks to buy but that’s OK, it is deeper than that.  Train is (or was) a money manager for many years himself in New York, with literary leanings.

2.  Warren Buffett’s letters to Berkshire Hathaway shareholders.  Easiest way to get these is to get a copy of a compendium by Lawrence Cunningham titled, Essays of Warren Buffett.  Basically, Cunnigham, who is a law professor, cut and pasted Buffett’s shareholder letters with the passages arranged by topic.  You can also get each year’s letter to Berkshire Hathaway shareholders for free at www.berkshirehathaway.com, going back a couple of decades.  Actually reading Buffett’s letters directly is best, but most people would not want to do that first.  The real fans definitely will, however.  When asked if he will ever write a book for investors, Buffett has answered that he is already doing so “on the installment plan,” and he is referring to these letters.  Here too, you can look up what he owns or is buying and make your own judgment whether you agree.

3. Value Line. You can subscribe via www.valueline.com.  It costs a few hundred dollars per year BUT a trial subscription is only maybe $75 --- that’s what you should get, then just don’t subscribe when the trial is up.  You can look up individual companies and get a wealth of info on each one.  It’s at Vanderbilt’s business school library, too.  Morningstar has a good website for stock information, too.


4.Classics II Another Investor’s Anthology (ed:  C. Ellis).  Terrific anthology.  Even better than Classics I, which was OK but not as good.  A rare case of a sequel being better than an original.  The best of this second group.

5.  The Intelligent Investor by Benjamin Graham.  Easier to read than the true classic of the field, Security Analysis by Graham (the 1934 edition).  Graham was a professor at Columbia.  He was the first person to impose order on what was until then a very unprofessional profession.

6.  Buffett:  The Making of An American Capitalist by R. Lowenstein.  A deep book on the Einstein of the field.  Several years old, but very insightful.

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