BR 188: The Only Investment Guide You’ll Ever Need by Andrew Tobias

only investment guide, andrew tobias

Category: 2 – BUY it! (All Categories are 1 – Read ASAP!, 2 – BUY it!, 3 – SHELF it, 4 – SOMEDAY it)

Comments: The Only Investment Guide You’ll Ever Need was a recommendation on Seth’s blog. I picked it up at a time when I needed a bit of a refresh on all things investments since I’d taken all money off indexes to pay for graduate school. It was nice to “get back” with this book and, as with all Seth recommendations, this didn’t disappoint. It definitely lives up to its name as the “only” investment guide you’ll ever need. It is witty, smart and worth following.

If this topic interests you, do check out a learnographic I co-created here.

Top 3 Learnings:

1. A penny saved is a lot more valuable than a penny earned. The quote from Benjamin Franklin was from a time when there were no taxes. Now that we live with taxes, it actually takes a lot more than a penny earned to save a penny. So, spend less than you earn, save and watch it grow. This is a lesson that has stuck with me since the book.

2. When there are too many borrowers, governments raise interest rates. This means bond prices fall. When there are less borrowers, bond prices go up. High interest rates tend to affect stocks since they discourage people from investing in risky stocks. They also affect business’ cost of borrowing.

3. Keep short term money somewhere safe and convenient. Then, invest long term money in stock indexes where you must buy low, buy low, buy low. This is opposite what everyone else does. A simple vanguard index will outperform everything else in the long run.

I would still recommend reading 2-3 investment guides before you zero in on your investing strategy. That is not because the advice in the only investment guide is any different. However, if you haven’t been exposed to this world before, it is reassuring to see the same principles at work everywhere.

Book notes here.

BR 153: Flash Boys by Michael Lewis

Category: 3 – SHELF it (All Categories are 1 – Read ASAP!, 2 – BUY it!, 3 – SHELF it, 4 – SOMEDAY it)

Comments:  If you have any interest whatsoever on the financial markets, this book is a must read. If not, well, put it on your shelf. Michael Lewis’ books are like art – you’ll never tire of flipping the pages. He makes  a heavy financial book feel like a fascinating novel.

Top 3 Learnings:

1. Every time a new regulation is put in place, it creates an unforeseen set if market conditions that inevitably results in arbitrage by those looking to game the financial system. This sort of quick money scheme repeats itself – the housing bubble in the 80s, the credit default swaps in early 2000s and then high frequency trading in the late 2000s and perhaps now.

2. Such arbitrage causes billions of dollars to move from the pockets of investors to middlemen.

3. The behavior of the big Wall Streets bank is shocking. That’s not to say the people in these banks are bad. Somehow, the incentives and existing cultures result in horrible short term decision making. (I can’t help but wonder if the system of reporting earnings every quarter does more harm than good. It seems to drive short term thinking everywhere!

BR 150: How an Economy Grows and Why it Crashes by Peter D Schiff and Andrew J Schiff

Category: 1 – Read ASAP! (All Categories are 1 – Read ASAP!, 2 – BUY it!, 3 – SHELF it, 4 – SOMEDAY it)

Comments: First, let me get the obvious out of the way – yes, this book isn’t perfect. It can be very simplistic at times and the writer does have a clear political agenda against the US government’s financial policy.

Now that I’ve said that, this book is a must read for everyone. I say everyone because we all deserve to understand how an economy works. The authors lay out the principles of economics and call bullshit on the idea that micro economics is essentially different from macro economics. They do it by taking us through the growth and crash of an island’s economy (and do this with lots of digs at the US-China relationship. The islands are called Usonia and Sinopia :))

Fantastic book. It points to a scary conclusion – the whole idea of a paper currency anchored in nothing but trust is a massive experiment and one that could result in mass default and failure.

Top 3 Learnings:

1. Why should a country be treated differently from a household? Why should a country be allowed to spend more than it makes (via taxes)?

The reason governments take on so much debt is because the economic policy is driven by political agenda. As a result, instead of taking the hard decisions and cutting public spending, the government always attempts to take the easy way out by printing more money.

2. Deflation is not a bad thing. Deflation means productivity is increasing and things are getting cheaper. This means it is time to allocate resources to new investments – the technology industry is a good example of this. The American economy was deflationary until the 1930s when Keynesian economists came along and said inflation is the way to go. This has resulted in economists insisting that inflation needs to be maintained. When you hear that, ask why.

3. American consumption has been lauded as a strength. Well, it is not. Production is a strength. Consumption is not. An economy’s strength is built on savings. It is because of savings that interest rates fall and allow for cheaper credit and cheaper investments. America is surviving on the fact that China is hugely invested in it and the fact that it’s currency is global reserve currency. Things could fall very quickly (ominous, I know)

 My summary of the full book is on The Bookbytes Project.

BR 148: Boomerang by Michael Lewis

Category: 2 – BUY it! (All Categories are 1 – Read ASAP!, 2 – BUY it!, 3 – SHELF it, 4 – SOMEDAY it)

Comments: This was a really good read. I have to say this about all Michael Lewis books. His books are a real lesson in writing. He really takes you on a journey with him and beautifully extracts the insight out of it. He doesn’t do many interesting stories and anecdotes. Instead, he runs a few stories in parallel bringing out a central theme or insight. Just fantastic.

Boomerang is about his travels in Europe following the credit crisis. He explores what Iceland,  Greece, Ireland and Germany did with the explosion of cheap credit.

Top 3 Learnings:

1. It’s hard to do the right things when conflicts of interest are afoot. Banks, for example, employed analysts who were supposed to give an unbiased view of the markets. However, in the case of Phil Werner, who predicted the Irish property bubble, this didn’t work in practice because Merrill Lynch’s angry clients were the banks who were behind the property bubble.

2. It’s amazing how quickly old financial institutions let go of traditions when a new upstart comes in with a ridiculous idea that seems to make money.

Anglo Irish Bank was that upstart. A property developer could practically walk in the morning and walk out by afternoon with 100s of millions of euros. Soon, all Irish banks had divisions which paid their staff based on the amount of money they lent (talk about bad incentives). Allied Irish even had a department called ABA – anybody but Anglo with salespeople focused on poaching anglos customer.

3.The effect of cheap credit had different effects in different places. Americans decide to use it to buy houses they couldnt afford. The Greeks decided to use it to fund a lifestyle that was definitely beyond their means. The Irish used it to buy more of Ireland from each other. The Germans behaved responsibly within but went crazy in enabling everyone else. In fact, the Germans were the ones who bought all crap assets until the very end. The followed the rules and took AAA rated bonds at face value to devastating effects

Book notes here.

BR 146: Liar’s Poker by Michael Lewis

Category: 3 – SHELF it (All Categories are 1 – Read ASAP!, 2 – BUY it!, 3 – SHELF it, 4 – SOMEDAY it)

Comments: Liars poker was a quick breezy listen about Michael Lewis 2 years at Salomon Brothers in the 1980s. He tells it as it is and walks away after 2 years at the end of which he’d made about 400,000 dollars just out of school.

The experience clearly had an impact on Lewis as he’s gone onto write about one Wall Street head fake after another calling for tougher action and more regulation on the industry. Interestingly, while he wrote this book intending to keep people away from investment banking, he revealed later that he received one thank you note too many from trader hopefuls who said his book really inspired him.

Not a book you get tons of specific insights from but definitely one that gives you insight into what still is a very sought after industry for its ability to make people rich.

BR 135: The Millionaire Teacher by Andrew Hallam

Category: 2 – BUY it! (All Categories are 1 – Read ASAP!, 2 – BUY it!, 3 – SHELF it, 4 – SOMEDAY it)

Comments: Really good book. This book was recommended to me by one of my favorite authors William J Bernstein when I asked him for Singapore specific investment advice.

A must-read for folks living outside the US looking for solid money and investment advice.

Top 3 Learnings:

1. Live like a millionaire. Millionaires wear cheap watches, buy second hand cars, and live in the suburbs. Real millionaires live frugally and invest wisely.
2. Compound interest is the most important mathematical concept you need to know. The earlier you start investing, the better it is for you as compound interest will take over. Invest in simple plain vanilla index funds (same as Bernstein’s advice.. the value add here is clear steps for folks living in Canada, UK, Australia, and Singapore) and remember that financial service firms are out to eat into your money. Actively managed mutual funds are a no-no.
3. Every generation is gripped by irrational financial madness at some points (the tech bubble being an example). When you see a market behaving irrationally, be fearful. The relationship between the value of a stock and it’s earning is similar to a dog on a leash with it’s master. One can be far ahead of the other for only a short while.

Click here for book notes from the book

BR 134: I Will Teach You To Be Rich by Ramit Sethi

Category: 2 – BUY it! (All Categories are 1 – Read ASAP!, 2 – BUY it!, 3 – SHELF it, 4 – SOMEDAY it)

Comments: Ramit’s book is very US centric but many of the principles hold true wherever you are. I think this book is worth reading because he explains very basic personal money management concepts very well. I liked his no-bullshit approach and his simple-yet-good advice.

Top 3 Learnings:

1. Don’t buy the Dave Ramsey advice of “cancel all your credit cards.” If you are sane about using your credit cards, improving your credit score and credit history can save you 1000s of dollars in terms of better interest rates over a lifetime.

2. The following ratios off your paycheck are healthy –
50-60% Fixed costs – rent, utilities, debts, transport, normal food, health
10% Investment
10% Savings for upcoming expenses vacation, gifts for friends and family
20-30% Guilt free spending

3. Conscious spending is key. Spend on great experiences and never regret.

Book notes.

BR 132: The Ascent of Money by Niall Ferguson

Category: 1 – Read ASAP! (All Categories are 1 – Read ASAP!, 2 – BUY it!, 3 – SHELF it, 4 – SOMEDAY it)

Comments: This is the sort of history book I enjoy. Hot on the heels of “A Splendid Exchange” and “Guns, Germs, and Steel,” this book is fantastic for those interested in understanding the story behind the financial infrastructure that exists today. Given the increasing spotlight on financial instruments (thanks largely to their failure), this is compulsory reading for anyone interested in understanding the real “infrastructure” of our development.

Top 3 learnings:

1. The world would NOT be a better place without our financial evolution. Credit and debit are critical to the growth of economies, businesses, and are the foundation to economic progress. Finance has underlined the big shifts in our societies. For example, the era of colonialism (or the first attempt at globalization) was only made possible by financial innovation – the dutch VOC was the first “public” company with a swath of public shareholders. The British emulated the Dutch and did it better.

2. War is the mother of all things. War was the real reason behind financial innovation. The concept of the bond market was created to fund wars between Italian states, the stock market was invented for better success in colonial wars.. and finance also played it’s part by being the real cause for wartime success and failure. The British triumph against Napoleon and the defeat of the south in  the American civil wars were determined more by financial causes than any other.

3. Credit is critical for growth. The biggest benefit of the modern day financial system is that a larger proportion of the population are able to escape the clutches of loan sharks who charge interest rates upto 11 million percent and thus keep the poor poor.

Book notes here

BR 130: The Investors Manifesto by William J Bernstein

Category: 2 – BUY it! (All Categories are 1 – Read ASAP!, 2 – BUY it!, 3 – SHELF it, 4 – SOMEDAY it)

Comments: William Bernstein deals with the very basics of investing and dispels some commonly held myths. An excellent book. May not interest everyone but if you are interested in understanding personal finance and investing, it’s a great book.

Top 3 learnings:

1. You don’t invest to get rich, you invest so as to not die poor. Great investments are not risky investments that produce prolific returns. They produce steady returns and avoid worst case scenarios. Of course, you cannot get great returns without great risk.

2. Understanding financial history is critical for a good investor. Long term capital management’s famous failure was because their equation did not take financial history into account.

3. You are your worst enemy. You cannot time the market. Don’t try. And don’t look for patterns in the financial markets. There are none.

A collection of other conclusions I put together – if it interests you

A pre condition to being a successful investor is a firm grasp of financial history

– High returns can only be achieved with high risk

– losing money in a bear market is a part of being investor

– study and understand the Gordon equation to calculate real returns

– whenever you buy or sell an individual stock or bond, you are competing against the best in the world

– Stocks: a growth company stock generally pays out less than a collection of bad company stocks

– primary decision as investor is overall mix of stocks and bonds. Diversify diversify.

– focus on the portfolio. Do not pay too much attention to best/worst. They change.

– You are your worst enemy. You cannot time the market. Don’t try.

– Don’t look for patterns in the financial markets. There are none.

– Stock brokers are out to fleece you. It’s the nature of the business

– Mutual funds aren’t different unless they are owned by stakeholders/ are private

– Live as modestly as you can and save as you can for as long as you can

– The best gift to your heirs is not cold hard cash. Rather its the ability to save, spend wisely and invest prudently

– Remember pascal wager – goal of investing is not to get rich but to not die poor

– index fund – consistent 8/10. It will never hit 10/10 but it won’t be a 1/10 either. Returns are proportional to risk…..

– Pro Tip – House: Whenever you go to a realtor, find out what the house rents at and multiply by 150. If you are charged above that, you are paying too much.

BR 107: The Big Short by Michael Lewis

Category: 2 – BUY it! (All Categories are 1 – Read ASAP!, 2 – BUY it!, 3 – SHELF it, 4 – SOMEDAY it)

Comments: I am fast becoming a Michael Lewis fan. I loved the 2 movies his books inspired ‘The Moneyball’ and his fantastic article on Vanity Fair detailing the Irish bubble. ‘The Big Short’ was recommended to me by a colleague as a great book on the financial crisis.

This book takes a look at the unique characters who actually saw the collapse of the financial system coming and details the trials, tribulations and change they went through before and after the crisis.

Great book. A Dan Brown-esque page turner for those with an interest in understanding how we got to the biggest financial crisis since the great depression.

Top 3 Learnings:

1. ‘There is a fine line that divides investing and gambling.’ Not a new learning but the whole book’s essential synthesis was re-learning this concept.

2. The concept of rating agencies like S&P, Moody’s, Fitch and the like are broken. They are easily fooled by the smarter investment bankers far too often.

3. It’s amazing how badly broken the financial system was/is. When we pause for a moment, the financial system doesn’t really create anything. Yet, it accounted for 40% of the US economy in 2007. Banks essentially went from organizations that helped provide capital to businesses to profit generation machines. Sprinkle generous amounts of greed and take away any sense of principles/values from the dish and you can see the recipee for disaster.

And one more..

4. It’s amazing how each of the ‘outliers’ who actually saw the crisis coming was, by all accounts, a weirdo in his own right. Even the smartest people out there drank their own kool aid and got deluded in the mass hysteria.