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Investment Books - A Review of the Investment Classics

Value Investing

'The Intelligent Investor' - Benjamin Graham (1949)

'The Warren Buffett Way' - Robert Hagstrom (1996)

'Invest Like the Best' - James O'Shaughness (1994)

'Dogs of the DOW' - Michael O'Higgins (1991 & 1999)

'Contrarian Investment Strategies' - David Dreman (1981 & 1998)

'Dividends Still Don't Lie' - Kelly Wright (1988 & 2008)

'The Little Book That Still Beats the Market' - Joel Greenblatt (2010)

Technical indicators

'Big Money Little Effort' - Mark Shipman (2008)

'Dow Theory For the 21st Century' - Jack Schannep (2008)

Trading / Speculating

'Way of the Turtle' - Curtis M. Faith (2007)

'Reminisces of a Stock operator' - Jesse Livermore (1936)

Growth Stock Investing

'The Zulu Principle' - Jim Slater (1992 & 2010)

Other

'The Most Important Thing' - Howard Marks (2007)

Many highly successful investors have also written books detailing their own investment and life experiences and these books are part of the collection of 'Investment Classics'. In this short note, I profiles some of the great books on stock market investing and the authors that have stood out over time not only for their investment success but also for the stories they tell and the lessons that they invariably hand down to the rest of us. We hope you find their stories and lessons as fascinating as we do. Most, if not all, of the books profiled are available for purchase through any of the online books stores.

GillenMarkets exists to assist and encourage the ordinary person to invest through the stock market with the aim of generating wealth over the medium to long term. The direct share value-investing approaches available in the subscribers' area of the website replicate how some of the great investors select shares.

The phrase 'no one learns in a vacuum' applies equally to the stock markets and everyone needs assistance along that journey. I firmly believe that GillenMarkets offers a unique package which will equip you well to start investing sensibly through the stock markets where, although volatile, the returns should be attractive over the long haul.

We run regular FREE Investment Workshops, which introduce you to GillenMarkets, and provide you with an insight into what is on offer as a subscriber to the website as well as at our flagship 1-Day Investment Seminars. Both the FREE Workshop and the Investment Seminar can be booked on-line via the links provided or by calling us on (01 2871400) or by emailing is at info@investrcentre.com .

'The Intelligent Investor' - Benjamin Graham

Intelligent Investor

Benjamin Graham is considered the dean of value investing, the art of finding a share which is worth a dollar but is on offer for 50 cents. Born in New York in 1894, he spent his life on Wall Street, mainly on the investment as opposed to the stock broking side. Graham lived through the 1929 stock market crash and the subsequent depression in the US, which saw the US stock market fall by 89% by July 1932. To supplement his income during those dark years, Graham started to teach finance and Stock Market investing in Columbia University at that time. His course became the 'must attend' course of the time.

In 1949, Graham wrote the first of five editions of 'The Intelligent Investor', which remains the most authoritative book of stock market investing and 'value' investing ever written. Of the many investment principles outlined in the 'Intelligent Investor' we outline only a few here in an attempt to provide readers with a better understanding of sound investing as laid out by Graham.

  • Graham highlights the danger of the public relying on traditional stock brokers for advice with the following quote.

'Since Stock brokers thrive mainly on speculation and because stock-market speculators as a class are almost certain to lose money, it is logically impossible for brokerage houses to operate on a thoroughly professional basis. To do so would require them to direct their efforts towards reducing rather than increasing their business.'

  • Graham believed that few could time the market and the majority was better of concentrating on buying value.

'Since share prices are subject to recurring and wide fluctuations in their prices, the intelligent investor should be interested in the possibilities of profiting from these pendulum swings. There are two possible ways by which he may try to do this....by way of timing or by way of pricing. By timing, he meant the endeavour to anticipate the action of the stock market, to buy or hold when the future course is deemed to be upwards and sell when downward. By pricing, he meant the endeavour to buy stocks when they are quoted below their fair value and to sell when they are above such value.'

Graham stated that he was sure that if an investor places his emphasis on timing, he/she will end up as a speculator and most likely with a speculator's return, which as a class he felt would be zero.

  • In terms of selecting stocks, Graham argued that

'The future (stock market investing) can be approached by way of prediction or by ways of protection'

What Graham meant was that an investor did not have to always be able to predict but rather by concentrating on assembling a diversified portfolio of stocks which contained a sufficient 'Margin of Safety' an investor could ensure that he/she would get the returns available and most likely a bit more. Graham's own style was to look for value in a company in terms of either assets on the balance sheet, consistency of earnings or dividend yield.

GillenMarkets's investment strategies help investors implement the wisdom contained in Graham's teachings i.e. building a portfolio of shares with a 'margin of safety' that should ensure a satisfactory outcome over the medium term. 'The Intelligent Investor - can be purchased on-line from any of the on-line bookshops.

'The Warren Buffett Way' - Robert Hagstrom

The Warren Buffett Way

Having turned a $10,000 investment in 1965 into $28.7 million by end 2004, Buffett is without question the most successful Stock Market investor of all time. He is the second richest man in the world, behind Microsoft's Bill Gates, and he is unique for having built his fortune entirely through his stock market investment activities. Buffett is Chairman of Berkshire Hathaway, his investment company, which is quoted on the New York Stock Exchange like any other company. Coincidentally, Buffett's stock market education started when he attended Benjamin Graham's finance course at Columbia University in the late 1940s. He widely credits Graham for the principles Graham instilled in him. In the 1950s, Buffett established his own investment partnership, and concentrated on buying companies with a significant 'margin of safety'. This approach stood him well and between 1955 and the end of 1968 he compounded his monies at nearly 30% per annum. By the late 1960s, he was already a wealthy man. He ended the partnership in early 1969 because he felt he could no longer find the value he was used to. In his own words, he was out of touch with the times. In fact, he was a shrewd judge of value, as the US Stock Market entered a bear market shortly thereafter.

From 1969 onwards, Buffett concentrated his activities through his publicly quoted vehicle, Berkshire Hathaway, which he had taken control of in 1965. Also at this time, he started to move away from the strict value principles of Graham and migrate towards buying big positions in growth companies when they were on offer at decent prices. The opportunity to buy such holdings arose with the onset of the severe bear market of 1973-74. And when he moved, he moved decisively. As an example, in mid 1973, Buffett bought 8% of the Washington Post for $11m. Berkshire Hathaway still holds this original investment and today its Washington Post holding is worth in the order of $1.7 billion.

Another example of his ability to buy big during difficult times was his purchase of a 7% holding in Coca Cola throughout 1988 for just over $1.3 billion. The stock market were very nervous at that time following the crash of late 1987. It was a huge commitment for Berkshire as the Coca Cola investment represented circa 35% of Berkshire Hathaway's assets at that point in time. In early 1989, when asked in a television interview about the risk of buying such a large holding in Coca Cola, Buffett quipped that it would not concern him if the stock market closed for the next ten years. His message, of course, was that in the stock market he sees only businesses and not prices, and he recognizes that it is not the daily fluctuations of share prices that determine the value of a business but a company's ability to increase profits and cash flows over time. Today, Berkshire Hathaway's holding in Coca Cola is worth $8.3 billion.

Buffett's genius is that he can predict which companies are sure to deliver a much greater level of profits and cash flows on a ten and twenty year view. He then has the patience to wait and only buy such companies when they are on offer at good value, which is normally during difficult Stock Market conditions. Buffett is as comfortable buying 100% of private businesses as he is buying a portion of publicly quoted companies.

In the book 'The Warren Buffett Way' (published in 1996), which examines the Buffett phenomenon, Robert Hagstrom provides a brilliant analysis and understanding of how Buffett identifies his investments. The book and a sequel (published in 2004) can be bought on-line at any of the recognized on-line book retailers.

An investor who had invested $10,000 in Berkshire Hathaway when Buffett took control of it in 1965 would today have an investment worth $28.7 million. This represents a compound return of 22% per annum. A similar $10,000 invested in the S&P 500, the Index representing 500 of the leading US companies, would today be worth $537,000 representing a compound annual return of 10.7% per annum over that same period.

Buffett, therefore, effectively more than doubled the returns of the Index in each year over this 40 year period, a feat unequalled by any other individual investor or company in history.

In the late 1990s, Buffett had eschewed technology shares and the investment community began to question whether Buffett had 'lost his touch'. The technology stocks were powering ahead and delivering massive returns for investors. But the returns proved a short term illusion as, by mid 2000, the technology sector crashed, wiping out the majority of the gains made in the late 1990s. Once again, the investment community had been taught a valuable lesson. Buffett's argument in the late 1990s regarding his decision not to buy technology shares was that he could not determine - with a high degree of certainty - what any technology company would be earning on a ten or twenty year view. If he could not do that then he certainly could not value the company, in which case he would not even consider buying the share. His reputation became legendary.

'Invest Like the Best' - James O' Shaughnessy

Invest Like the Best

'Imagine yourself in a room with the quarterly reports for 1600 companies. Assuming each of the 6400 reports is about an eight of an inch thick, stacking them would build a 66-foot-high tower of information. The reports would include myriad data on the companies, such as earnings, dividends, stock prices, and price-earnings ratios. If each report covered just 59 individual pieces of information for each of the 1600 stocks, you'd have more than 377,000 different pieces of data, just for one year.

Now imagine your response if your boss walks into the room and tells you to sift through each of these reports and isolate all the stocks that meet just four criteria, telling you to make sure that only the stocks that meet each of the four criteria are included. You'd probably quit on the spot. Isolating a handful of stocks from 1600 is overwhelming for people. But it is not overwhelming for a computer.'P 500, the Index representing 500 of the leading US companies, would today be worth $537,000 representing a compound annual return of 10.7% per annum over that same period.

Buffett, therefore, effectively more than doubled the returns of the Index in each year over this 40 year period, a feat unequalled by any other individual investor or company in history.

In the late 1990s, Buffett had eschewed technology shares and the investment community began to question whether Buffett had

Invest Like the Best

Now imagine your response if your boss walks into the room and tells you to sift through each of these reports and isolate all the stocks that meet just four criteria, telling you to make sure that only the stocks that meet each of the four criteria are included. You'

The above was the opening paragraph in the classic investment book 'Invest Like The Best', written by James o' Shaughnessy in 1994.

In it, he profiled a number of the more successful fund managers in the US and with the aid of a computer he isolated the financial criteria that defined their portfolios. Successful fund managers, he argued, were successful because they were using superior stock selection criteria, and O' Shaughnessy was out to prove it. When he had isolated the criteria that appeared to define a winning fund manager's portfolio, he would use the criteria to back-test the approach in time. In almost all instances, when he had isolated the winning criteria, the criteria picked portfolios that consistently beat the market.

This is hugely important for the average investor as it provides proof that if you select shares using winning criteria and invest in a disciplined way then you have as good a chance as 'the best' at beating the returns available from the market. By isolating some simple but 'winning financial criteria', investing in the Stock Market is not so

overwhelming and the task of understanding how to build a portfolio of stocks is not so daunting. In fact, with the power of computers, access to the internet and an ILTB plan to follow, you can invest wisely from your armchair with a little effort as an hour a month, and often a good deal less. 

'The Dogs of the DOW' - Michael O' Higgins

Dogs of the DOW

'In the complex and often intimidating world of Stock Market investment, the idea that an approach so simple could result in superior returns must surely intrigue any investor trying to save through the Stock Market. Yet this is exactly the proposition put forward by Michael O' Higgins in a landmark book written in 1991- 'Beating the DOW'. His approach has often been referred to as 'The Dogs of the DOW'.

O' Higgins' essential point was that by buying the 10 highest yielding DOW stocks on an annual basis, any ordinary investor had a chance to outperform the DOW index itself, perhaps not every year but certainly over time. He also put forward a five stock approach which delivered even better returns. The DOW Index is made up of 30 of the largest corporations in the US. His point is that the DOW companies are giants, which makes them different and less risky. The companies in the DOW Index have enormous diversity, immense asset backing, unequalled financial resources, adaptability and resilience. The key to O' Higgins approach is that it forces investors to buy DOW stocks when they are low and sell when they have recovered, and a portfolio of 10 DOW stocks provides sufficient diversification.

O' Higgins approach encapsulates what GillenMarkets's direct stock picking approaches are all about, putting sensible investment frameworks, that have been proven to work well over time, in front of ordinary investors some that they have a plan to adhere to while saving through the Stock Market.

'Reminisces of a Stock Operator' - Jesse Livermore

Reminisces of a Stock Operator

'Reminisces of a Stock Operator' is a fascinating portrayal, in the form of a series of interviews, of the life story of one of Wall Street's legendary traders, who operated from 1890 through to the 1940s. Livermore was a speculator with a difference.

GillenMarkets does not advocate 'trading the market' in a manner akin to speculating, on the premise that few can master the art, and most go broke trying. As Warren Buffett so eloquently put it, speculating is like a game of poker - some will win, some will lose - but no new money leaves the room. Investment is different. Overtime, all investors can generate a return on sound businesses bought at reasonable prices on the assumption that these companies are operating in a democratic and pro business environment. That said, we believe that you will find 'Reminisces of a Stock Operator' a compulsive read, while also gaining a good understanding of certain Stock Market operations.

Livermore started off at the age of 15 by getting a job in what was, at the time, called a 'bucket shop' in his home town. These 'bucket shops' were where people of the time congregated to bet on the movement in share prices rather than to buy and sell the actual shares themselves. In essence, they were the equivalent of the 'bookies'. Most clients obviously lost money but it passed the time. Livermore, however, had gained a unique ability to read a share chart or 'tape' as it was called then and could predict which way the price of a share was going. He didn't care if the price was going up or down, he would bet either way. He had such early success that he was nicked-named the 'Boy Plunger' in recognition of his ability to bet on a share going down. After a short while, he was banned from his local bucket shops. As he move further a field and his reputation preceded him, he was eventually banned from all bucket shops as the owners simple could not afford to have him winning most of the time. Banned from the bucket shops for being too successful, Livermore had little choice but to turn to the real market and try his skills there. The remarkable thing was that he was still only 21 when he moved to a firm on Wall Street. But he encountered some initial difficulties in transferring his skills into the live market. In the bucket shops, his activities had no influence on real prices and he could ignore the bid/offer spreads on stocks and the activity of others.

Within six months of joining the real action on Wall Street, he went bust. However, ever the survivor, he was soon back and, having analyzed the problems, he tried again. Soon, following a few critical changes to his approach, Livermore's unique ability began to pay off. He bought or sold shares, commodities, futures or anything where there was a market and with enormous success.

At one stage, when he was trading coffee futures, he reportedly cornered the entire supply of coffee into the United States just as 'World War 1' was about to break out. The ensuing world shortage of coffee was likely to see the price of coffee sky rocket. However, in this instance, in a most unusual and probably highly illegal intervention, the US government stepped in and cancelled his contracts, ensuring that he forfeited the enormous gain he was sure to make.

Livermore's basic strategy was to judge when a share price or commodity price was ripe for a strong move in either direction. As he said himself, he sought 'the line of least resistance' and followed it. When he was confident that he had found a trend, he would perhaps invest 20% of his intended position. If his judgment was confirmed by the price of the share or commodity moving in the intended direction then he would continue to buy. If, on the other hand, the price moved against him, he would sell immediately on the assumption that his earlier analysis had been wrong. Human instinct is to do the opposite - i.e. most people will buy a bit more if the price comes back on the assumption that their original analysis was right and buying more averages the price downwards.

Readers should not, however, confuse this very important lesson in the game of speculation with that of investing. In investment, if you have picked a solid company then it matters little whether the stock moves up or down immediately after you have bought. What is important is that you have a sensible investment framework to follow, which should ensure that you are building a portfolio of stocks that offer good value on a medium term view.

Livermore and all traders are after something different. The book goes on to describe his activities before, during and after the infamous Wall Street crash of 1929. Livermore had reportedly been selling short (selling shares that he did not own in the hope of buying them back later at a cheaper price) huge quantities of shares before the great crash and at times during the crash he appeared as the only buyer. He reportedly made millions during that crash. To put it into context, the GDP of Ireland at that time was €3m.

 'Reminisces of a Stock Operator' can still be bought on-line, almost 80 years after it was first written.

'Way of the Turtle' - Curtis M. Faith (2007)

Way of the Turtle

I'm not sure if the film 'Trading Places' was based on the truth behind this book but the parallels are striking. In 1983, two highly sucessful US commodity traders decided to undertake an experiment to see if they could hire complete novices and turn them into seasoned traders within a few weeks by teaching them systematic trading techniques that they, as traders, had used for many years.

Thirteen complete novices from all walks of life were hired and, after a three-week induction period, were given real money to trade, increasing to one million dollars if they could show that they were adhering to the trading rules taught.The results are fascinating and although all they had to do was follow the rules they had been given many could do so in a real life environment. The pressure of emotional noise in the market place together with a lack of discipline saw many break the rules at critical stages in the mistaken belief that judgement was called for.

This book together with 'Reminisces of a Stock Operator' above are two great reads on the opportunities and pitfalls of trading markets and how difficult it can be in real life. Both are cracking yarns.

'Contrarian Investment Strategies, the Next Generation' - David Dreman

Contrarian Investment Strategies

David Dreman is a hugely successful US investment manager with a distinct emphasis on value investing. He wrote 'Contrarian Investment Strategies' in 1998, which can still be bought on-line today. The book has undoubtedly become another investment classic. On the back cover of his book, Dreman wrote in 1998 that 'investors should avoid the Nasdaq like the plague'. How right he was!

Dreman provides a compelling analysis of the weakness of the traditional approach to share recommendations by stockbrokers. He believes analysts overload with information, which doesn't help their conclusions but makes them more confident and prone to serious error. He argues, and with plenty of evidence, that since analysts and investors do not know their limitations as forecasters, they continually and predictably over-react to companies they consider to have excellent or poor prospects - i.e. they over-sell companies that are doing poorly in the near term and they over-buy companies doing well in the near term.

This observation, then, is the key to his theme. His book contains a very valuable study covering a 27 year period in the US Stock Markets from 1970 -1996 inclusive. He shows conclusively that by concentrating on large companies with either a low price-to-earnings ratio, a low price-to-cash ratio or a high dividend yield an investor has a very strong chance of doing better than the market over time.

The chart opposite details the findings of his studies on the low price-to-earnings approach over that 27 year period. He chose the top 1500 companies in the US market by size for his study and then he ranked these companies by the price-to-earnings ratio. He then split the group of 1500 companies into what he called quintiles (or fifths) so that he ended up with 300 shares in each quintile. He would re-do the ranking by low price-to-earnings ratio each year. Then he examined the returns of each quintile on an annual basis. His findings proved conclusively that the 300 stocks on the lowest price-to-earnings ratio provided the strongest subsequent returns.

In our view, his findings are very important for the individual investor because they suggest that if an individual buys a basket of large-cap companies on low price-to earnings ratios, then he/she has every chance of generating a better return than the market itself.

GillenMarkets has replicated Dreman's US study in the UK Market (FT 100 Index) over the 10-year period 1995-2004. Interestingly, the returns from a basket of 15 FT 100 companies on the lowest price-to-earnings ratio (and revamped annually) delivered better returns than the market over that time frame, mirroring the results of Dreman's US study. These and a number of other strategies form the core of the investment strategies ILTB puts forward at its 1-Day Investment Seminar. We not only give you an understanding as to why it is a good approach to follow but we also show you where you can source the information to allow you to implement it in practice.
 

'The Zulu Principle' - Jim Slater

The Zulu Principle

Jim Slater is the private investor's champion in the UK and his career is a fascinating one. His focus has always been on emerging growth companies and he outlined his approach in 'The Zulu Principle' and 'Beyond the Zulu Principle', both written in the 1990s. Both books can still be bought through most on-line book shops. His career started as an accountant and, while still working in what became British Leyland, he wrote the very successful 'Capitalist' share tipping column in the Sunday Telegraph during early 1960s.

In 1964, after having become Deputy Sales Director of British Leyland in his early thirties, he left to establish his own company, Slater Walker Securities, in partnership with Peter Walker (who went on to become a member of Parliament). As the Financial Times put it, Slater Walker exploded on to the financial scene and, in a short few years, became the leading UK conglomerate of the time, pouncing on underperforming companies, selling off assets and moving on to the next deal. At its height in the late 1960s, Slater Walker was listed among the top 20 companies in the UK from a standing start in 1964, and Jim Slater himself epitomized what was good in the post-war era of British business. The rise was meteoric, but the fall was catastrophic. Slater Walker was essentially a trading company and with too many disjointed assets and not enough steady cash flow it was vulnerable to the upward march of interest rates that followed the outbreak of inflation in the early 1970s. The ensuing bear market in the UK was the severest since the 1920s and Slater Walker had to make a 'dash for cash' in its efforts to stay liquid. At the age of 44, Jim Slater resigned from Slater Walker and effectively retired from the city. The story was brilliantly encapsulated in his autobiography 'Return to Go' but, unfortunately, it has been out of print for some time.

Jim Slater showed great strength of character by reinventing himself as a writer of children's books in the late 1970s and early 1980s, and a number of his books achieved No. 1 position in the age category that they were aimed at. Slater's main investment thesis is that if an investor is to succeed, he/she must become an expert in a small area of the market rather than trying to master every aspect of the market. reluctant to buy a share that has already gone up. Slater's approach is the complete opposite to that adopted by Dreman as outlined earlier. But both can succeed so long as an investor does not mix and match.

GillenMarkets has done its own research on Slater's approach and has defined several strict financial criteria for identifying small-cap growth stocks in the UK market. That said, we no longer follow Slater's UK growth-stock investing approach on the website for fear of information over-load, although that might change in the future.

Dividends Still Don't Lie - Kelly Wright

Dividends Still Don't Lie

In my view, the US is miles ahead when it comes to good book on stock market investing. 'Dividends Still Don't Lie' is the sequel to the 1988 classic 'Dividends Don't Lie'. The latest version was written by Kelly Wright, manageing director of Investment Quality Trends, an online investment newsletter and investment management house.The Zulu Principle and

In 1964, after having become Deputy Sales Director of British Leyland in his early thirties, he left to establish his own company, Slater Walker Securities, in partnership with Peter Walker (who went on to become a member of Parliament). As the Financial Times put it, Slater Walker exploded on to the financial scene and, in a short few years, became the leading UK conglomerate of the time, pouncing on underperforming companies, selling off assets and moving on to the next deal. At its height in the late 1960s, Slater Walker was listed among the top 20 companies in the UK from a standing startThe method outlined is quite similar to the TTD Approach that is adopted on the investrcentre.com website forselecting stocks from the US Dow Index. I like the approach outlined in 'Dividends Still Don't Lie'. It is investing with a good margin of safety and has a demonstrated track record .i.e. it is a time-tested approach to invsting is the US stock markets with an edge over the medium to long term.

Investment Quality Trends also uses its propriatory data, which is complied fortnightly, to determine whether there is value or not in the overall market. Its reseacrh indicates that bear markets are near an end when 70-80% of stocks screened using its selection criteria fall into the undervalued area (i.e. their shares are trading at historically high yields). The indicator also works well in reverse - when 20% or less of stocks screened are trading at historically high yields it is a warning sign that there is little value in the over all US stockmarket.

Annual Returns (%)

Year 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Lucky 13 31.2 15.2 10.9 30.2 13.2 8.0 16.0 -3.3 -23.4 23.9 11.4
S&P 500  

 

 

 

 

 

 

 

 

 

 

Out/Under Perf.

 

 

 

 

 

 

 

 

 

 

 

'The Little Book That Still Beats the Market' - Joel Greenblatt (2005 & 2010)

Little Book that still beats the market

In 2005, 'The Little Book That Beats the Market' was written by US investment banker Joel Greenblatt. It was written in a very distinctive, easy to follow style yet the message was striking. Any investor can out-perform the US stock market by employing a simple numbers-based, value approach outlined in the book. It is Greenblatt's approach that GillenMarkets adopts for the selection of Irish stocks. What's more, he provides a free website service that allows you to select the stocks yourself.

I was delighted to see that Greenblatt recently published an update of the original book with the amended title 'The Little Book That Still Beats the Market' (2010). US book publisher 'Wiley' has a series of investment books titled 'The Little Books'. For the price of circa $150 you could buy them all and it would be a great starting pointing to improve your own investment knowledge. You can order over the phone using Harriman House in London (as I do) or using Amazon.com for online ordering.

This updated version updates the track record of the approach up to the end of 2009 an, importantly, includes the critical period during the global credit crisis. In addition, he now shows the returns using the approach on

  • all US stocks no matter what size
  • stocks with a market value greater than $1,000 million ($1 billion).

In short, Greenblatt shows that using two financial criteria, based on historical data alone, an investor can generate returns superior to the market. No forecasting is required. From 1988 to 2009, a 22-year period that encompasses good, bad and atrocious market conditions, Greenblatt's 'All-stock' approach delivered a 23% compound per annum return while the 'Large-cap' approach delivered a 19% compound per annum return. Both of these approches substantially outperformed the 9.5% compond per annum delivered by the S&P 500.

It is Greenblatt's approach that GillenMarkets uses to select stocks in the Irish market. And the track record in the Irish market is also excellent.  

'Big Money Little Effort' - Mark Shipman (2008)

Big Money Little Effort

A deceptively simple book containing a very useful market timing indicator. The market is always volatile both on the way up and on the way down. Using a moving average trend line helps us to see which way the trend in heading. In rising markets, set-backs look scary but when judged against something like a 30-week moving average the near term oscillations are seen for what they are, normal sell-offs in a rising market. Likewise, strong rallies in a declining market often fail to make it above the declining 30-week moving average highlighting that despite the near term rally in prices the trend most likely remains down.

Shipman shows how to combine the 30-week and 50-week moving averages to create market buy & sell signals. And the signal has, on average, a 67% success record i.e. it is right two out of three times.

It's a useful indicator and can assist you to avoid a deep bear market. The book is good on facts and produces good historical evidence to back up its claims which is why I include it in the 1-day investment seminar as a tried & tested approach.

'Dow Theory for the 21st Century' - Jack Schannep (2008)

Dow Thoery for the 21st Century

Dow Theory for the 21st Century, written by Jack Schannep in early 2008, is a terrific book on market timing and I pass it on for any subscriber who has an appetite to learn more through reading. The book assumes some market experience so it is not for everyone. Nonetheless, we all have to start somewhere.

Dow Theory is one of the oldest methods of 'timing the market' based on price action alone and Jack Schannep provides his own take on this ancient science (some would call it art). I don't refer to Dow Theory much in the 'Weekly Investment Bulletins' but I do keep a very close eye on the market signals provided by Dow Theory on account of its excellent long term market calls. The book can be bought via most of the online book stores including the specialist investment book website http://www.harriman-house.com/ . If you have trouble finding it online, then just call them on the phone - contact details are on the website. It'll cost circa £33 including postage. Alternatively, it is also available at www.amazon.com

Schannep also provides a very useful guide on some of the US economic indicators that can assist an investor in predicting bear markets & the likely follow on recessions and in predicting market recoveries.

'The Most Important Thing' - Howard Marks (2011)

The Most Important Thing

When an investment book is endorsed by Warren Buffett, Jeremy Grantham, Seth Klarman, John Bogle and Joel Greenblatt you just know it is most likely a classic. Howard Marks is Chairman and Co-founder of OakTree Capital Management in the US and as this week's quote from the author highlights the book is all about controlling risk.

As Marks also says throughout the book, we seek returns but we must control risk. I consider this one of the very best investment books and I think you will enjoy the read. The book is written around a series of letters Marks wrote to his firms clients over many years.

 

Rory Gillen
11th November 2010