10 Investment Books Everyone Should Read

May 25, 2017May 27, 2017 / 416Investor / Leave a comment

The best investment you can make is in yourself.

-Warren Buffett

The most successful individuals, ranging from Bill Gates to Mark Cuban have always been avid readers, and deeply value learning. It is no secret that the greatest investor in the world, Warren Buffett alongside his partner, Charlie Munger spend the majority of their time reading and thinking. In fact, Buffett contributes a lot of his success to reading, picking up a book at the Columbia library led to a chain of events that forever changed his life. Reading has numerous cognitive benefits; it can improve knowledge, intelligence, increase abstract thinking and creativity.

I constantly see people rise in life who are not the smartest, sometimes not even the most diligent, but they are learning machines.. they go to bed every night a little wiser than they were when they got up.

-Charlie Munger

Here’s a list of 10 must-read investing books:

1. The Intelligent Investor by Benjamin Graham

Benjamin Graham is regarded as the father of value investing. His contributions on margin of safety and financial analysis paved the road for investors. This book has heavily influenced Warren Buffett’s life and is considered one of the bibles of value investing. “Chapter 8 and 2 have been the bedrock of my investing strategy for more than 60 years years. I suggest that all investors read those chapters and reread them every time the market has been especially strong or weak” – Warren Buffett

2. Security Analysis by Benjamin Graham and David Dodd

Graham and Dodd’s Security Analysis is the foundation of The Intelligent Investor. It is widely regarded as the fundamental textbook for analysis of stocks and bonds. It explores numerous topics on analysis of balance sheets, intrinsic value, margin of safety, fixed securities and much more. Many of the greatest financial figures were fascinated by this book, notably Warren Buffett, Jamie Dimon and Seth Klarman. This is an absolute must-have for every serious value investor. Find it: here.

3. A Random Walk Down Wall Street by Burton G. Malkiel

Burton G. Malkiel explores numerous investing topics such as the efficient market hypothesis, castles in the air, “smart” betas, risk management and low cost indexing strategies. It is captivating from the start and the author provides actionable investing plans for individuals in different age groups. Find it: here.

4. The Most Important Thing Illuminated by Howard Marks

With brief segments from his valuable memos, Howard Marks describes the components of successful investing and discusses the mistakes that investors often make. Through 20 important sections (21 including the conclusion), the author emphasizes “second level” thinking, price in relation to value, conservative investing, and numerous crucial factors for successful investing. Additionally, this book includes commentary from four famed value investors, notably, Seth Klarman, Christopher C. Davis, Paul Johnson, and Joel Greenblatt; making it one of the most important books an investor should own. Find it: here.

5. You Can Be A Stock Market Genius by Joel Greenblatt

Joel Greenblatt, successful manager at Gotham Capital explores numerous uncommon investment strategies such as spin-offs, restructuring, bankruptcies, warrants, options and mergers. He explains each strategy exceptionally well, and structures the book so it is easy to follow. Additionally, the case studies in every chapter make this book all-the-better. There are many hidden opportunities in investing, this book will definetly shine light on where to look. Find it: here.

6. Value Investing: From Graham to Buffett and Beyond by Bruce Greenwald, Judd Kahn, Paul D. Sonkin and Michael van Biema

If you ever want to learn the basics of value investing, this is it. Relatively easy read, so just about anyone can pick this up. The book consists of three parts, this includes an introduction to (I) value investing, (II) three sources of value, and (III) value investing in practice. This book provides a wonderful application of the three sources of value (part II) with a case study of WD-40 and Intel, explaining in detail the valuation process. In addition, it profiles 8 of the very best investors, from Graham to Buffett, to Edwin and Walter Schloss and beyond. Find it: here.

7. The Essays of Warren Buffett: Lessons for Corporate America by Lawrence Cunningham

This book is a reorganized compilation of letters from the Oracle himself. Buffett addresses numerous business and investing issues with his personal memos to his Berkshire Hathaway partners every year. The memos are organized to cover specific subjects such as finance and investing, investment alternatives, mergers and acquisitions, valuations, in addition to a numerous financial topics . Buffett’s investing prowess is so great that it takes the spotlight away from his immensely kind and humble character. After reading this book, you will definetly gain an appreciation for his kindness and contributions to the world and infinitely more important, gain a vast array of business and investing knowledge. What better way to learn business and investing than from Warren Buffett himself? A must-read for all investors. Find: it here.

I am a better investor because I am a businessman, and a better businessman because I am an investor.

-Warren Buffett

8. Common Stocks and Uncommon Profits by Philip A. Fisher

Known as a pioneer of Growth Investing, Philip A. Fisher’s contribution to the investing world will not be forgotten. In this book, consisting of 3 parts, he lays out the a general description in what to look for in stocks, and when to buy. He opens the book with his concept of “Scuttlebutt”, then puts in 15 detailed points to look for in common stocks, as well as 10 investor don’ts. In the second part, Fisher outlines his 4 dimensions in which he describes cues to look for in companies. He notes the importance of employees and management, investment characteristics of certain businesses, conservative investments and much more. Fisher closes the book with his philosophy along with its evolution that has made him one of the most influential investors. Find this book: here.

9. Strategic Value Investing: Practical Techniques of Leading Value Investors by Stephen M. Horan, Robert R. Johnson and Thomas R. Robinson

Strategic Value Investing explores the main strategies and valuation techniques in value investing. It consists of three sections: (I) An introduction to value investing and the how to analyze companies, (II) The valuation methods such as Dividend Discount Models, Free Cash Flow Models, Residual Income models, and more, (III) The application of the models, variations of value investing styles. The information is very practical (includes case studies) and detailed, and it emphasizes on core value investing principles such as margin of safety. Different valuation methods are a must-know for investors and the authors do great work shining light on them. A must-read if have not. Find it here.

10. One Up on Wall Street by Peter Lynch

Peter Lynch is without question one of the greatest investors of all time. He is famous for managing the Fidelity Magellan fund from $14 million to $20 billion in 1977 to 1990, greatly outperforming the benchmarks. One Up On Wall Street is filled with investing knowledge and where to search for what the author calls “tenbaggers” (10x your return). Lynch shares his views on the requirements of picking a winner, six categories in which stocks are grouped, in addition to long term aspects. Lynch makes this an easy read with his intriguing and lesson-filled stories, perfect for new investors. Find it: here.

Other mentions include The Manual of Ideas by John Mihaljevic, Margin of Safety by Seth Klarman and The Alchemy of Finance by George Soros.

Happy reading 🙂

The best thing a human being can do is to help another human being know more.

-Charlie Munger

Disclosure: I wrote this article myself and it expresses my own opinions, I am not a financial advisor. This is for educational purposes only. I do not get any compensation from this, other than from Amazon Affiliate links and advertisements.

The Basics of Value Investing

May 22, 2017May 22, 2017 / 416Investor / Leave a comment

The stock market is filled with individuals who know the price of everything but the value of nothing.

– Phillip A. Fisher

*Phillip A. Fisher was one of the greatest pioneers of growth investing. His contributions to investors include Conservative Investors Sleep Well, and notably Common Stocks and Uncommon Profits.

Some investors believe that growth and value are two opposite extremes, be one or the other. But the reality is, as Buffett puts it; value and growth are actually joint to the hip. Growth is always a component in the calculation of value, constituting a variable whose importance can range from negligible to enormous and whose impact can be negative as well as positive. Value Investing: From Graham To Buffett and Beyond written by Greenwald, Kahn, Sonkin and Van Biema greatly captures the framework that is value investing.

The book consists of three parts, this includes an introduction to (I) value investing, (II) three sources of value, and (III) value investing in practice. This book provides a wonderful application of the three sources of value (part II) with a case study of WD-40 and Intel, explaining in detail the valuation process. In addition, it profiles 8 of the very best investors, from Graham to Buffett, to Edwin and Walter Schloss and beyond.

Below I will briefly review some specifics of part II; the three sources of value, as I believe it is critical in investing, and would be highly beneficial for anyone looking into this field. I will generalize the concepts in part II, but I strongly recommend that you give this book a read to truly understand the frameworks and the information it intended to provide.

Greenwald et al. places emphasis on valuation as follows: The value of assets, earnings power value (EPV), and the value of growth, all in that exact order.

The liabilities are always 100% good. It’s the assets you have to worry about.

-Charlie Munger

The Value of Assets:
Using a Graham and Dodd valuation, we begin at the balance sheet and evaluate the company’s assets. This shows us the health of the company: is the firm loaded with cash or debt? What are the shareholders entitled to if all debt was paid? If we are in a declining industry, we value the assets at liquidation cost. In a stable industry, we must value assets at reproduction cost (which is the cost a competitor or new entrant would incur to reproduce all its assets).

Under the asset side of the balance sheet, we find the two main component of current assets and long term assets. Assuming accurate information of the balance sheet, under reproduction cost we would likely value current assets such as cash, marketable short-term securities without any adjustments. Accounts receivables and inventory should be adjusted depending on allowances and turnover ratios. Longer term assets such as PPE should be estimated based on consistent depreciation rate, market value and reproduction of equipment costs. Interesting accounting entries are goodwill, intangibles, R&D (hidden assets); these all require thorough analysis as their value may range significantly. For instance, Coca Cola’s extensive value lies in its Goodwill. Its years of advertising, customer loyalty are ingrained in its intangibles, for a competitor to replicate Coca Cola (or attempt to), it would pay dearly, in money and time.

Moving away from assets to liabilities, Greenwald et al. classifies liabilities in three categories. Applying a reproduction approach to these liabilities, it is likely to take these liabilities as stated. These categories include (I) Operational liabilities (spontaneous): which include liabilities such as accounts payable to suppliers, wages, accrued taxes and expenses related to operations, (II) Past circumstances liabilities (circumstantial): one time or uncommon charges that would not be pertinent to new entrants, these include deferred tax liabilities and legal liabilities (breaking the law), (III) Outstanding debt: includes long term debt.

Now with the value of asset reproduction and value of total liabilities, we subtract the latter from the first (asset reproduction value – total liabilities) and assess the potential for investment. Clear examples along with accounting entries are provided in Chapter 4.

Earnings Power Value:
The EPV formula is as follows:

EPV = Adjusted Earnings x 1/ R
R = Current Cost of Capital (usually measured in terms of WACC)

Adjustments to earnings include resolving discrepancies between depreciation and amortization, taking into account business cycle, and applying other reasonable modifications in specific situations. The reason for adjustments is to smooth out one time outlier expenses to arrive at distributable cash flow; money that the shareholders are entitled from the firm while keeping operations intact. This method assumes that earnings are constant (so, there must be a relatively sustainable competitive advantage) and no growth.

There are 3 identifiable cases after applying the formula: (I) If your calculated EPV is lower than the value of asset reproduction, then the assets are not being used efficiently, (II) when your calculated EPV equates (or is close) the value of asset reproduction, it may be because the industry has no competitive advantage (perhaps no one has a significant “upper hand”), (III) when your calculated EPV relatively exceeds the asset reproduction value, the evaluated firm may have some form of competitive advantage. Chapter 5 discusses EPV, while later chapters will walk you through its application.

Growth Value:
As previously stated, we begin by valuing asset reproduction value, then earnings power value, and lastly growth; in that specific order. The reason the value of growth is prioritized last, according to Greenwald et al. is because it is most difficult to estimate. A conservative value investor is concerned about not losing money, and projections entail a great deal of uncertainty, especially long future projections which are prone to error. Growth itself has to be supported by in increase in assets, sales, accounts receivables or equipment. In order to do so, it must be funded through either new borrowings, retained earnings, or issuing new shares; all which cut into the cash and value to be available for shareholders. For this reason, growth value is not the primary concern for conservative value investors. Chapter 3 and 7 details growth value.

I highly recommend this book to anyone looking to start with a value investing approach. I liked that it illustrates valuation in a conservative order, starting with the balance sheet, moving onto earnings power (although perhaps free cash flow should be considered too- JMO) then growth. Greenwald et al. thoroughly applies the three valuation process in Chapter 6 and 7 using WD-40 and Intel as case studies, making it clear and understandable. The study of some of the greatest value investors is a valuable plus. You can find this book on Amazon: here.

Thank you for reading 🙂

The most important investment you can make is in yourself.

-Warren Buffett

Must Read: Deep Value Investing by Jeroen Bos

December 15, 2016May 22, 2017 / 416Investor / Leave a comment

A cynic is man who knows the price of everything but the value of nothing.

– Oscar Wilde

In 1934, Benjamin Graham and David Dodson paved the road for all value investors with their contribution of “Security Analysis“. Graham went on to publish “The Intelligent Investor“, the book that heavily shaped Warren Buffett’s life. Some decades later, a short practical book on value investing, “Deep Value Investing” by Jeroen Bos strongly compliments the classics by Graham and Dodd.

Deep Value investing is also known as the cigar-butt investing style that Buffett had famously, and successfully practiced during his earlier days. To begin, we compare the stock’s price with its net asset value (NAV), or in other terms, a stock that is selling for less than its working capital. The focus of deep value investing is on assets, particularly liquid assets. Deep value investors look for stocks whose current assets minus its total liabilities are worth more than its current stock price or market capitalization. The logic is that if the company were to shut down, liquidate all its assets, repay debtors and redistribute all wealth to its shareholders; you would still walk away with some profit, leaving you with a substantial margin of safety.

To make things better, we know that the current assets minus the total liabilities is still worth more than the market price. This means that the long term assets (equipment, long term investments, etc.) are essentially “free”. Of course, deep value stocks are rare, and falling prey to value traps is always possible. Therefore, deep value investors must evaluate every detail of the company’s information along with possible catalysts.

Author and fund manager at Church Investments, Jeroen Bos provides 15 exceptional case studies of his own investment ideas in this book. He walks the reader through not only his successful, but equally important, his failed cases of investments allowing readers to learn from his mistakes. For each of the 15 companies explored, Bos provides a company background, an investment case and the outcome of his decisions. He further provides exit reasoning for his stocks; an added value for the reader.

In his writings, Bos explains the benefits of service-based sector stocks. Service firms are flexible, they can contract and expand alongside its economic environment. Well managed service firms are likely to sustain recessions (by nature; unlike manufacturing and machine-heavy firms, their expenses are not fixed, so they just lay off workers to cut their expense in order to survive through economic storms).

Moreover, Bos augments the prioritization of assets (balance sheet), as earnings (income statement) and its expectations can be manipulated (quite legally) which may result to poor valuations. Other interesting aspects the reader will appreciate is Bos’ unique style of deep value investing: occasionally, he holds deep value stocks even after its gone up past its fair value (and he explains his reasonings). Throughout his investment cases, Bos illustrates that the long term is what matters, that deep value investing, at its very core involves limiting the downside while having a substantially high upside potential, and is not as risky as the crowd believes.

Perhaps the most important lesson that Bos reinforces; is that there are no golden rules in deep value investing, all variations can be appreciated and every investment case has its own unique merit. It is virtually impossible to find a “perfect” deep value stock, as they all come with their own distinctive history and, as Bos describes,”their negative baggage”.

All in all, deep value investing involves swimming against the tide, buying stocks that are beaten up, and selling them when everyone else is buying. Jeroen Bos’ contribution is nothing short of exceptional, and definitely and eye opener for newer investors. Of course, deep value is more detailed than this post has intended to explain. Bos’ provides the reader with an invaluable perspective, rather than strict formulas and quantitative valuation methods. I would recommend deep value investing be practiced by more seasoned investors, and not the novice (but it doesn’t hurt to know). You can find this book here.

As I started with a quote from Oscar Wilde, it is only plausible that I close with one. If you are an investor seeking deep value stocks, you will find this particular analogy interesting.

The only difference between a saint and a sinner is that every saint has a past and every sinner has a future.

-Oscar Wilde

5 Must-Read Investing Books

July 29, 2016May 22, 2017 / 416Investor / 2 Comments

The most successful leaders always had one thing in common: they never stopped learning. As Charlie Munger, Vice Chairman of Berkshire Hathaway puts it:

“Those who keep learning will keep rising in life“

If you’re looking on improving your investing knowledge, you’ve come to the right place! Here are the 5 must-read investing books:

1. The Intelligent Investor by Benjamin Graham

Benjamin Graham forever changed the investing world with this timeless contribution. He builds the foundation of value investing by providing the concept of Mr. Market, defensive investing and margin of safety. This iconic book is considered by many the bible of investing, and for Warren Buffett:

“I picked up a copy of The Intelligent Investor. It not only changed my investment philosophy, it really changed my whole life- I’d be a different person in a different place if I hadn’t seen that book…it was Ben’s ideas that sent me down the right path.”

Pick up your copy of this classic: here.

2. The Most Important Thing Illuminated by Howard Marks

Howard Marks shares his thoughts on value investing in this mind-shattering book. He gets straight to the point on investing subjects such as second-level thinking, market efficiencies, value, contrarianism, risk, randomness and the other aspects that make up the 20 most important things. To make this book even better, there are even commentaries from other leading investing managers such as Seth Klarman, Christopher Davis and Joel Greenblatt. Marks’ work is even praised by legendary founder and former CEO of The Vanguard Group, John C. Bogle:

“Few books on investing match the high standards set by Howard Marks in The Most Important Thing…If you seek to avoid the pitfalls of investing, you must read this book!”

Find this invaluable book: here.

3. A Random Walk Down Wall Street by Burton G. Malkiel

Burton G. Malkiel’s best seller is jam-packed with quality investment insights and financial history. It takes a look at stocks and their values, analyzes both fundamental and technical analysis while comparing them to the random walk theory. Furthermore, he explores the concepts of EMH (efficient market hypothesis), smart-beta and rebalancing. He puts much emphasis on indexing and diversification through no-load, low cost funds and ETFs. The later chapters consists of personal finance and investing strategies for different age groups. Whether you’re a starter or expert in investing, this book is a must-read. Find it: here.

4. Common Stocks and Uncommon Profits by Philip A. Fisher

Known as a pioneer of Growth Investing, Philip A. Fisher’s contribution to the investing world will not be forgotten. In this book, consisting of 3 parts, he lays out the a general description in what to look for in stocks, and when to buy. He opens the book with his concept of “Scuttlebutt”, then puts in 15 detailed points to look for in common stocks, as well as 10 investor don’ts. In the second part, Fisher outlines his 4 dimensions in which he describes cues to look for in companies, such as the company’s superiority in production, research, marketing and financial skills. He notes the importance of employees and management, investment characteristics of certain businesses, conservative investments and much more. Fisher closes the book with his philosophy along with its evolution that has made him one of the most influential investors. Find this book: here.

5. Technical Analysis of the Financial Markets by John J. Murphy

John J. Murphy provides the fundamentals of technical analysis in simple enough terms for anyone to understand. You’ll learn the trends and essentials of chart analysis. This book gives excellent graphical examples of various price patterns and reversals. Furthermore, it teaches the basic methods of analysis, you’ll learn about moving averages, MACD, RSI, Bollinger Bands, and all the other fancy technical indicator terms. Whether you’re a beginner or experienced investor, this is a classic for the technical investor. Find it: here.

Through chances various, through all vicissitudes, we make our way…

-Aeneid

Those are the first words printed on The Intelligent Investor. I read this timeless classic some years ago and this quote made an impression on me. I’ve revisited it twice since, and every time I read it, not only does it get better, but I appreciate this quote more and more.

If it’s your very first time reading The Intelligent Investor, know that I am envious of you, the feeling of learning new knowledge of this quality is rare, and no words can describe that state of enlightenment. I invite you take your time and enjoy the invaluable information you will gain. I hope you will enjoy it as much as I have, and that you will revisit it in years to come.

Kickstart your Day with 5 Funny Economics Jokes

July 21, 2016May 22, 2017 / 416Investor / Leave a comment

Here are some economic jokes that will brighten up your day at work, or give your boss a good laugh. And if you’re in the economic discipline like myself, it doesn’t hurt to laugh at yourself once a in a while. Since these jokes have been passed around and modified, they might differ from the “original”, but the core is still the same:

1. A chemist, a physicist and an economist are stuck on a deserted island with no food. A can of food floats ashore. The physicist says “let’s smash it open with a rock”. The chemist says “let’s build a fire, and heat it first”. The economist says “let’s assume that we have a can opener…”

2. Economic forecasters assume everything, except for responsibility.

3. A mathematician, an accountant and an economist all apply for the same job. The interviewer calls in the mathematician and asks: “What do two plus two equal?” The mathematician replies “Four.” The interviewer asks “Four, exactly?” The mathematician firmly looks at the interviewer and says “Yes, four, exactly.”

It’s the accountant’s turn, the same question is asked: “What do two plus two equal?” The accountant answers “On average, four – deviated around ten percent, but on average, four.”

Then the interviewer calls in the economist, tells him to sit down and asks the same question: “What do two plus two equal?” The economist gets up, locks the door, closes the shade, sits down right next to the interviewer and says “What do you want it to equal?”

4. If you teach a parrot to say “supply and demand”, you have an economist.

5. A chemist, an engineer and an economist are shipwrecked with no food except for a single can of soup. They have no tools, and can’t afford to spill the insides as it is their only means of survival. The chemist sets up evaporating pans to collect caustic salts to etch the can lid through. The engineer piles sand to build a drop, that with precise calculation will be tall enough to crack the can open without spilling the insides. And the economist lays down on the beach, relaxing and laughing at them. After a day’s hot labor with nothing achieved, frustrated, the chemist, bursts out at the economist and says, “Okay, you’re so smart, how would you do it?!?!” The economist picks up the can and stands up straight, shining with confidence he presents the can grandly to the other two, and says, “ASSUME this can is open.”

All jokes aside, economics is a great discipline. Many economists have changed the world with their lifelong contributions, notably Adam Smith, John Maynard Keynes, John Kenneth Galbraith and many more. If you are interested in reading a book to understand the very basics of economics, I would recommend: Basic Economics by Thomas Sowell. It was well put together and covered much of the essentials for understanding the basics and flow of the economy. I will have a review for it soon. Meanwhile, you can find the book here. Of course, JMO (just my opinion).

We all love ourselves more than other people, but care more about their opinion than our own.

-Marcus Aurelius

For starters: Index and ETFs investing in your 20s according to Burton G. Malkiel

July 21, 2016May 25, 2017 / 416Investor / 2 Comments

Suppose you are new to investing, and would like to participate in the market but don’t have the time or knowledge to research individual stocks (or you’re just lazy), what should you do? Let’s explore a few options from the book: A Random Walk Down Wall Street by Burton G. Malkiel. For this article, let’s focus on two things, the importance of low fees and the asset allocation for the folks in their 20s according to Burton G. Malkiel.

HIGH FEES? WE DON’T NEED NO STINKIN’ HIGH FEES.

Now before you purchase that mutual fund your bank advisor is trying shove down your throat, consider looking at the different expense fees. Recently, many funds have come under criticism for their high fees and poor performance (compared to the benchmark), and rightfully so. Be aware of the MER, TER, front and back loads on these funds. A MER (Management Expense Ratio); is whats going to cost you for them to manage your money per year. A simple example is the following:

You find a nice mutual fund you’d like to invest in, and decide to place your hard earned $10,000 into that fund with an MER of 2.5% (this is high, and quite common). Essentially, you’ll lose $250 just to management expense fees. Now let’s assume the benchmark is the market, and it’s returning about 7%. Simply put it, you better hope your fund returns at least 9.5% just to get even with the market. Note that many funds, after fees don’t consistently outperform the market.

Now I know what you’re thinking, what’s 2.5% to you? Don’t think 2.5% is a lot?

Consider the following:

Let’s say you choose a fund that performs just as well as the market but has an MER of 2.5%. You invest $10,000 for 20 years.

Market performance: $10,000 at 7% compounded for 20 years: $38,697.

Fund performance: $10,000 at 4.5% (7-2.5) compounded for 20 years: $16,386.

You’ve indirectly lost $22,311, or about 136% to that “tiny” 2.5% fee. The longer the time, the more you lose indirectly to fees. High fees are crippling, and most people (especially starters) don’t notice them, so be careful.

“It is not necessary to do extraordinary things to get extraordinary results… By periodically investing in an index fund, the know-nothing investor can actually outperform most investment professionals.”

– Warren Buffett

For beginners, Burton G. Malkiel recommends diversifying to decrease risk by purchasing different Indexes or ETFS: Stocks, Bonds and REITs and by weighing them differently during the stages of your life. For starters in their early 20s, diversify, seek a no-load, low expense, broad-based index funds, and it’s advisable to make these purchases in a Tax-Free Savings Account (TFSA).

Because you’ve got much time in your 20s before retirement, Malkiel recommends consistent contributions (to a no-load fund) and that the majority of your holdings:

–(70%) be of stocks. He recommends to put one half in U.S. small cap growth stocks (no-load, low expense Index and ETFs) and the other half in international stocks, including emerging markets.

-Cash (5%) should be in money-market fund or short term bond funds.

-Real estate (10%) should consist of high quality REIT portfolio.

-The remaining bonds (15%) should contain: no-load, high grade corporate bond fund, foreign bonds, some Treasury inflation protection securities or dividend growth stocks.

Some Equity Index Funds and ETFs tickers from A Random Walk Down Wall Street:

FSTMX, SWRXX, VFIAX, VOO, VTI, IWB, TWOK, VEMAX, VTIAX.

Now as you enter your 30s, 40s and so on, the mix of stocks, bonds, real estate (REITs) and cash will change. For instance, according to Malkiel, in your 30s, your Stocks-Cash-Bonds-Real Estate allocation would be: 65%-5%-20%-10%, respectively. You would slowly move to “safer” investments as you age.

If you’re relatively new to stocks, don’t expect quick gigantic returns, especially not from Malkiel’s recommendation. This type of diversified allocation has the goal to decrease risk through exposure of broad indexes. Long term index and ETFs are made to pay off in the long term. Briefly, for starters: the takeaway would be to look out for high fees and contribute to index and ETF funds according to your age. Always do your own research.

All in all, you can find the full asset allocation by age from: A Random Walk Down Wall Street. It was an amazing book, written like no other and it sheds new light to numerous important topics such as the efficient market hypothesis (EMH), behavioural finance, random walk theory, diversification and much more. I will have a review on this book soon. Meanwhile, you can find the book here.Of course all this, JMO (just my opinion).

In investing money, the amount of interest you want should depend on whether you want to eat well or sleep well.

-J. Kenfield Morley

Disclosure: I have no positions in any of the recommended ETFs or Indexes at the date of this article. I wrote this article myself and it expresses my own opinions, I am not a financial advisor. I do not get any compensation from this, other than from Amazon Affiliate links and advertisements. On the date that this article was posted, I have no affiliation with any of the ETFs or Indexes.

The Best Investment Book for Starters

July 3, 2016May 22, 2017 / 416Investor / Leave a comment

We’re all aware of the importance of starting early and we all know the costly price of starting late. That last minute 10 page essay, that last minute “studying” (if you even call that studying anymore) before the math exam always ends up with you always asking yourself: “Why didn’t I start earlier ?”

Procrastination is a terrible habit and we’ve all been guilty of it, some more than others (I, for one, am – you are too, no need to lie). On the other hand, procrastinating on that 10 page history paper isn’t the worst of the last minute bullsh***ing. It’s when you procrastinate on more important things such as learning to invest that you will pay the costliest price.

Starting your investments early will allow you to take advantage of time; giving you the ability to ride out some mistakes and more importantly use compound interest. I cannot stress the importance of compound interest. You can check out the article about why you should start early here.The earlier you learn about investing, the earlier you can start; the earlier you make capital gains. Now, you can’t learn EVERYTHING about investing, but without a doubt you need to learn the fundamentals before even thinking of starting.

In my opinion, one of the very best investment book ever written (if not, THE best) is The Intelligent Investor by Benjamin Graham (the second investment book I’ve read). Although I strongly recommend Graham’s “investing bible” to anyone, it’s not the book of choice when people ask me what to read as their first book.

The first book I ever read, was “The Neatest Little Guide to Stock Market Investing” by Jason Kelly, and I strongly recommend it for starters as their first book. Now before, I get stoned by the crowd for thinking I’m not recommending “THE best book” first, hear me out first. When I was a beginner in investing, there would have been no way for me to fully understand and appreciate The Intelligent Investor (you need to read it a few times), had I read it first. It’s not an easy read for beginners, especially if you have no background in business. It can be intimidating, and the length can turn people off.

Let’s jump straight into it: Why “The Neatest Little Guide to Stock Market Investing” is the best book for the Jon Snows of investing (those who know nothing):

1. It’s a very easy read. It teaches you the very basics of stocks, what they are, how they work and how you can make money while owning stocks. It teaches you the basics of evaluating stocks and touches upon growth investing and value investing. Additionally, the basics on how to read stock pages.

2. It will briefly touch upon Fundamental vs Technical Analysis. You will learn the basics of fundamental stock measurements such as Dividend Yield, EPS, ROE, Net Profit Margin, etc. You’ll also learn a bit about technical analysis basic measurements such as RSI, SMA, MACD, etc.

3. It introduces you to some of the most successful investors. The highlight of this book is that it summarizes the basic points and strategies of the most successful investors, notably : Benjamin Graham, Warren Buffett, Philip Fisher, Peter Lynch, Bill Miller and William O’Neil. This allowed me to follow up on my investing journey by reading “The Intelligent Investor” which changed my life.

4. The author also gives you a list with a description of numerous resources that provide research on stocks. Furthermore, he describes a few long term strategies. He also suggests ways to get started (setting up an account) and provides a few of his very own strategies he uses/ made.

Again, I cannot stress enough the importance of starting early in your investing journey. For me, this book eased my way into the investing world; it easy to read and has the right amount of important content so I didn’t lose interest (I get bored easily). It was very well structured and the summary of the greatest investors allowed me to follow up on my learning after I finished reading the book.

It will answer most, if not all questions of the beginner investor. All in all, I’m glad it was my first book, and I’m sure you’ll enjoy it as your first investing book too. It will provide you all the information you need to start your investing journey, as it did for me, long ago. Again, like preparing for your math final: start reading (and actually learning) about investing early– not later. In the end, when you’re looking at your account, you never want to say “I wish I started earlier“, instead you want to say: “I’m glad I started early“. Remember, you can bulls**t your history paper, but don’t bulls**t with your investments. Of course, JMO (just my opinion). You can find the book here.

6 Life Lessons from The Little Prince

July 3, 2016May 22, 2017 / 416Investor / 2 Comments

The Little Prince was written by Antoine de Saint-Exupéry, a famous French writer and poet. It is one of the top translated books in the world and voted one of the best 20^th century books in France. This book embodies many conceptual lessons regarding loss, love, friendship and “grown ups”. It was written for kids, but really for adults (you’ll understand when you read it). Here are some life concepts from this book:

1. “All grown ups were once children, but few of them remember it”

Our body may grow old, but our heart need not to: Lose the inner child and you may lose your creativity and without creativity innovation becomes very difficult.

2. Be honest, to yourself and others. If not, it might cost you dearly.

In this book, there’s a rose that The Little Prince cares for deeply. He waters her and protects her from predators. One day, the rose says that she does not need him to survive. Her pride causes The Little Prince, the only one person who loved her, to leave. Be true to yourself, don’t let your pride cloud reality.

3. The essential is invisible to the eyes.

One of the main messages of the book (The Fox’s secret):

“One sees clearly only with the heart. The essential is invisible to the eyes.”

We see things too much on the exterior, we judge too fast and think too little. There are wonderful people in this world that cannot be discovered simply with the naked eye.

4. Don’t be a geographer, be an explorer.

During his journey, The Little Prince meets a geographer. The geographer states that he knows every place and everywhere but never actually been to any of them. He knows about some distant stars but has even never explored his own homeland. It is beneficial to know something; but to feel, that is something entirely different. We reach towards the stars, but forget the beauty that is underneath.

5. Enjoy the ride, you’ll only get this one.

In the Little prince’s journey, he encounters a worker whom follows his job orders on a planet that revolves every minute. He never gets a moment of rest. Some of us are the same, we work so much that we forget to enjoy the things some others don’t have the privilege to. Appreciation is key to happiness.

6. The person in the mirror.

On his journey, The Little Prince meets a King whom can only speak of others and only knows what he rules. It is easy to speak of others, but it is hardest to judge oneself. This theme is essential in investing. Judging yourself is what helps one grow. Knowing your own limitations may prevent disastrous investments.

*Here’s an exercise to improve your qualities, suggested by Warren Buffett: Take a notepad and write down the greats that you admire, and why you admire them. Then, list qualities of these greats that you find attractive or would like to have. If you think of it, most of those qualities aren’t special skills, and with practice, you can make them your own.

I discovered this book through my father, who has a passion for French literature and education. This book has been a huge influence in my life philosophy and creativity. I highly recommend reading it, it’s very short (you can read it within an hour). If it’s your first time reading this, don’t rush it, enjoy it. You can find The Little Prince here.

Of course, JMO (just my opinion).

This Book Will Change Your Life

June 22, 2016May 24, 2017 / 416Investor / Leave a comment

When Warren Buffett was 19, he stumbled upon this book that forever changed his life. He even says that it’s “By far the best book on investing ever written”. Much of Buffett’s investing style has been influenced by his mentor and the author of this book; Benjamin Graham.

The Intelligent Investor was the second book I read, and YES, it was absolutely life changing. I read it again a few times again and will continue to re-read it in the future, as you should.

It doesn’t require excessive intelligence nor does it require much math, most calculations is elementary level (lucky for us, or at least, for me).

Not only has it provided me with great investment knowledge and shaped by investment style, it also strongly shaped my business perspective. This book opened my mind to the investment world and it allowed me to easily read every other investing book that followed.

Every student, let alone business students, should read this; the sooner the better. You can get the book here. Below I outline the main concepts from a few important chapters:

Chapter 1: Investing vs Speculating

There is an important line between investing and speculating. Benjamin Graham states it as follows:

“An investment operation is one which, upon through analysis promises safety of principal and an adequate return, operations not meeting these requirements are speculative”.

Proper investing requires necessary fundamental analysis, margin of safety and excellent temperament.

You hear speculation often: “I bought shares of XYZ because the price dropped, I feel like its going to go up tomorrow, I’ll sell it when it goes back up”: this is a gamble, not an investment.

Chapter 8: The concept of Mr. Market

The stock market is paralleled with a character that Graham calls Mr.Market. Imagine you own a share of a small business with your partner, Mr. Market. Everyday Mr. Market will tell you what he thinks your interest is worth and can offer to buy or sell you shares. Mr. Market has wild mood swings; sometimes he’s very optimistic and sometimes very pessimistic. Sometimes his valuation of your interest in plausible, and often other times, his valuations are illogical and silly.

Should you let Mr. Market’s daily evaluation of your share of the business influence and determine your view of the value of the share?

Only when you agree with him or want to trade. You may be happy to sell it to him when he quotes you a very high price for your share, and would be delighted to buy from him if he sells you his share for a cheap price. The rest of the time, you’re better off thinking for yourself and forming your own ideas of your value based on the business’ financial reports and operations.

Chapter 14: Defensive Investing

Graham notes 7 criteria for defensive stock selection:

1. Adequate Size and Enterprise: “All minimum figures must be arbitrary and especially in the matter of size required”. Avoid small companies, and companies with less than $100 million of annual sales for industrial companies, and not less than $50 million of assets for public utility.

2. A Sufficiently Strong Financial Condition: Current assets should at least double liabilities. Long term debt should not exceed net current assets.

3. Earnings Stability: Earnings are stable for past 10 years.

4. Dividend Record: Constant dividend payments for last 20 years.

5. Earnings Growth: Minimum increase of one-third of earnings per share during the last 10 years, calculate it by using 3 years averages at the beginning and end.

6. Moderate Price/ Earnings Ratio: P/E should be less than 15 for the past 3 years.

7. Moderate Ratio of Price to Assets (Price to Book Value): The price should not exceed more than 1.5x the most current report of book value.

Chapter 20: Margin of Safety

“The risk is not in our stocks, but in ourselves”

This is one of the most important chapters (along with chapter 8) according to Warren Buffett. This chapter explores the risk factor. Determining a stock’s “true” value can be highly subjective, therefore intrinsic value isn’t a concrete value. By purchasing a “good company” at a significant discount, you leave yourself a margin for unforeseen errors (margin of safety). Think of it like this: “If I’m right, I can make a good sum of money, but what if I’m wrong”? You want to determine and minimize your exposure to risk.

If you’re building a sofa to support 6 people weighing 1000 lbs, you really want it to be able to support 1500 lbs; in case of a rainy day.

“If you understood a business perfectly and the future of the business, you would need very little in the way of a margin of safety. So, the more vulnerable the business is, assuming you still want to invest in it, the larger margin of safety you’d need”.

If you’re driving a truck across a bridge that says it holds 10,000 pounds and you’ve got a 9,800 pound vehicle, if the bridge is 6 inches above the crevice it covers, you may feel okay, but if it’s over the Grand Canyon, you may feel you want a little larger margin of safety“

-Warren Buffett

I strongly recommend this book to anyone, it will help shape the way you think as an investor and a businessmen or businesswomen, as it did for The Oracle; Warren Buffett, myself, and all those whom have read it.

You can get a copy of The Intelligent Investor here.

“The fault, dear investors, is not in our stars- and not in our stocks, but in ourselves”

– Benjamin Graham, The Intelligent Investor

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