A Collection of 24 Stock Speculation Classics by Kirkconnell

Stock Speculation Classics:

A Random Walk Down Wall St. by Burton Malkiel

• 2010/07 CFA interview w/ Jim Rogers:
  • http://www.cfapubs.org/doi/pdf/10.2469/cp.v27.n4.6
  • Speece: What are your thoughts about indexing in an efficient market?
    Rogers: I have no problem with indexing. Burton Malkiel, a great thinker about the markets, says in A Random Walk Down Wall Street (2007) that indexing the majority of a portfolio makes sense for investment committees, except for that uncommon committee or staff that has a unique gift for finding value. If you cannot look inside yourself and know that you have a special gift, indexing the majority of your assets makes the most sense.

Common Stocks and Uncommon Profits by Phil Fisher

I got this book because it was recommended by Mike Burry, who predicted the subprime crisis before anyone else and went from being middle-class to being worth $100 million off it. Here's the forum post where he mentions the book:
http://www.siliconinvestor.com/readmsg. ... id=2865794

After having read a good chunk of it, I think this is probably my favorite investing book so far. I may be a bit biased, though, b/c I already knew the basic ideas of value investing by the time I read "The Intelligent Investor", while I didn't have a clear idea of how scuttlebutt worked before I read Uncommon Stocks. ATM it seems to me that Phil Fisher is a better writer than Ben Graham.

Contrarian Investment Strategies by David Dreman

• Cited by Jim Rogers in a July 2010 interview (p2, 3):
  • http://www.cfapubs.org/doi/pdf/10.2469/cp.v27.n4.6
  • "In his book Contrarian Investment Strategies, David Dreman (1998) emphasizes the importance of buying stocks with low price-to-earnings ratios and at a significant discount. We think both are critical to the value equation."
  • "Although it was not called behavioral finance at the time, I believe that David Dreman’s work provided some of the earliest insights into behavioral finance."
  • Speece: When do you sell?
    Rogers: We watch three things. First, we track the private market value of a stock every week and rigorously update it. When a stock moves toward its private market value, when all the research reports are positive and people believe in the story, and when the stock is no longer selling at a discount, we sell. Second, if a management team is no longer executing according to its plan to win, if it seems to have lost its way and seems unlikely to return to its core beliefs, we sell. Third, we study the balance sheet. If management does not allocate capital effectively, if it makes poor strategic decisions or does not seem to act in the best interests of the shareholders, we sell.

Finance for Non-Financial Managers by Gene Siciliano

After a quick skim this book doesn't seem as good as the other one I got ("Financial Intelligence"), but it may still be worth the read. We'll see.

Financial Intelligence by Karen Berman and Joe Knight

*********
Contents
*********

***Part One: The Art of Finance (And Why It Matters)***
Chapter 1. You Can't Always Trust the Numbers
Chapter 2. Spotting Assumptions, Estimates, and Biases
Chapter 3. Why Increase Your Financial Intelligence?

***Part Two: The (Many) Peculiarities of the Income Statement***
Chapter 4. Profit is an Estimate
Chapter 5. Cracking the Code of the Income Statement
Chapter 6. Revenue: The Issue is Recognition
Chapter 7. Costs and Expenses: No Hard-and-Fast Rules
Chapter 8. The Many Forms of Profit

***Part Three: The Balance Sheet Reveals the Most***
Chapter 9. Understanding Balance Sheet Basics
Chapter 10. Assets: More Estimates and Assumptions (Except for Cash)
Chapter 11. On the Other Side: Liabilities and Equity
Chapter 12. Why the Balance Sheet Balances
Chapter 13. The Income Statement Affects the Balance Sheet

***Part Four: Cash Is King***
Chapter 14. Cash Is a Reality Check
Chapter 15. Profit =/= Cash (And You Need Both)
Chapter 16. The Language of Cash Flow
Chapter 17. How Cash Connects with Everything Else
Chapter 18. Why Cash Matters

***Part Five: Ratios: Learning What the Numbers Are Really Telling You***

-+-Chapter 19. The Power of Ratios-+-
- a ratio is the relationship between two numbers
- ratios show things that you wouldn't be able to see by looking at each number individually.
- e.g. a $1,000 profit is good for an initial investment of $100, not as good for an initial investment of $1,000,000.
- author explains how one analyst used days sales outstanding (DSO) ratio to figure out that the CEO of Sunbeam was using tricks to make it look more profitable than it really was: DSO had skyrocketed b/c the CEO had said to his customers, "hey let me sell you stuff that you would've bought next year at a discount this year".

-+-Chapter 20. Profitability Ratios-+-

- These are the ratio of profit to some other thing (revenue, assets, etc.)
- There are five ratios that seem to be the most common among managers.

i. Gross Profit Margin Percentage
- The Problem This Solves: You want to see how your Cost of Goods Sold has changed across time, or you want to compare your COGS to a similar company's, but you can't compare the raw #s because they correspond to different levels of revenue.
- This ratio is equal to (gross profit) / (revenue) aka (revenue - COGS) / (revenue)
- A negative trend in gross margin generally indicates either:
a. Decreased revenue - The company is under severe price pressure and is being forced to discount
b. Increased costs - Materials and/or labor costs are rising, forcing up COGS or COS.

ii. Operating Profit Margin Percentage



iii. Net Profit Margin Percentage Ratio
iv. Return on Assets Ratio
v. Return on Equity Ratio

-+-Chapter 21. Leverage Ratios-+-

i. Debt-to-Equity Ratio
ii. Interest Coverage Ratio

-+-Chapter 22. Liquidity Ratios-+-

i. Current Ratio
ii. Quick Ratio

-+-Chapter 23. Efficiency Ratios-+-

i. Inventory Days (DII) and Turnover
ii. Days Sales Outstanding (DSO)
iii. Days Payable Outstanding (DPO)
iv. Property, Plant, and Equipment Turnover (PPE)
v. Total Asset Turnover

***Part Six: How to Calculate (And Really Understand) Return on Investment***
24. The Building Blocks of ROI
25. Figuring ROI: The Nitty-Gritty

***Part Seven: Applied Financial Intelligence: Working Capital Management***
26. The Magic of Managing the Balance Sheet
27. Your Balance Sheet Levers
28. Homing In on Cash Conversion

***Part Eight: Creating a Financially Intelligent Department (and Organization)***
29. Financial Literacy and Corporate Performance
30. Financial Literacy Strategies
31. Financial Transparency: Our Ultimate Goal

Fortune-Building Commodity Spreads by Thomas Kallard

I got this because it was recommended by Mike Burry.

Here's the post where he mentions buying the book:
http://www.siliconinvestor.com/readmsg. ... gid=285090

How to Protect Your Life Savings from Hyperinflation etc.

I got this book because I lost $2k in the stock crash of 2008 (money from my grandmother which my mom had put in a stock market index fund), and the experience really left an impression on me. In the past, whenever I heard about the crash of 1929 I would always think to myself, "Oh, I could have avoided that; I would just spent more time understanding the market and what factors would have affected it." I found it embarrassing that I had not avoided it. I've since regained almost all the value in the fund (I'm ~$300 under, not accounting for inflation), so it wasn't a huge deal, but I'd rather not have something similar happen to me in the future if I can avoid it.

***Questions I have***
Q: What _exactly_ has caused stock values to go down in the past?
A: Preliminary answer: stock values go down when people aren't as willing to trade their money for it, which means that those people do not expect the value of stocks to continue going up, which may mean that they expect that those businesses may not do as well in the upcoming future.

Q: What factors triggered the switch to inflation in the late '70s after low interest rates?
A:

Q: It seems like QE is designed to solve a completely different problem than the current debt/deficit problem we have, which might mean that QE wouldn't really have an effect on the debt/deficit problem (by debasing the currency). Is that right?
A: From reading Bernanke's 2009 LSE speech (see below) it seems that there are two different problems with the economy: 1) the debt/deficit by the gov, and 2) the housing/bank crisis.

***informed people who are predicting inflation***
John T Reed - well-read, harvard MBA, long-term real estate guy
Peter Thiel - got rich off paypal, facebook; well-versed in finance
Thomas Hoenig - President of the Federal Reserve Bank of Kansas City; this guy's on the Federal Reserve


Bernanke speech explaining his "credit easing" strategy:
http://www.federalreserve.gov/newsevent ... 90113a.htm
- It seems like the basic idea is analogous to hooking up a heart-attack victim to an artificial heart: the artificial heart keeps pumping blood around the body to keep everything alive, and once the "real" heart is repaired the artificial heart can be disconnected.

Official Fed Announcement of QE2: [only 1 dissenting vote; see below]
http://www.federalreserve.gov/newsevent ... 01103a.htm

2010 Speech by Thomas Hoenig, the lone dissenting vote on QE2:
http://www.bis.org/review/r100625f.pdf
- He basically likens the current situation to the 2003 and late 1970s recessions, where we're trading lower current unemployment for future inflation and bubbles. He thinks that continued low interest rates could end up causing a lot of problems in the next few years b/c people are going to be mis-investing the money that they're able to borrow for such low rates. In Bernanke's CBS interview, he seemed to favor QE2 to avoid the danger of dipping into deflation.

Good 2010 article on Hoenig's view (including an audio interview at the bottom):
http://www.huffingtonpost.com/2010/08/1 ... 70212.html

Some article I saw and haven't really read yet:
http://www.safehaven.com/article/12403/ ... ion-coming

Federal Reserve Study on QE in Japan:
http://www.federalreserve.gov/pubs/ifdp ... dp1018.pdf

Fed Study on Predicting Recession via an "Economic Stall Speed":
http://www.federalreserve.gov/pubs/feds ... 124pap.pdf

Interview with Ben Bernanke:
Part 1 - http://www.youtube.com/watch?v=LxSv2rnBGA8#t=6m22s
[linked directly to the discussion of inflation]
Part 2 - http://www.youtube.com/watch?v=NaPoeg4z4CU

I have to say that Bernanke gave me a very good impression from the video; he seems like a smart guy who's trying to help. He seems to directly contradict what John T Reed and Hoenig were saying about inflation, though, which confuses me. [later: below is a good article that explains what bernanke meant]
http://butnowyouknow.wordpress.com/2010 ... ey-supply/

Inside the House of Money by Steven Drobny

nothing to go here yet

One Up on Wall Street by Peter Lynch

Contents:

Part I - Preparing to Invest
1. The Making of a Stockpicker
2. The Wall Street Oxymorons
3. Is This Gambling, or What?
4. Passing the Mirror Test
5. Is This a Good Market? Please Don't Ask

Part II - Picking Winners
6. Stalking the Tenbagger
7. I've Got It, I've Got It--What Is It?
8. The Perfect Stock, What a Deal!
9. Stocks I'd Avoid
10. Earnings, Earnings, Earnings
11. The Two-Minute Drill
12. Gettings the Facts
13. Some Famous Numbers
14. Rechecking the Story
15. The Final Checklist

Part III - The Long-term View
16. Designing a Portfolio
17. The Best Time to Buy and Sell
18. The Twelve Silliest (and Most Dangerous) Things People Say About Stock Prices
19. Options, Futures, and Shorts
20. 50,000 Frenchmen Can Be Wrong

Options as a Strategic Investment by Lawrence McMillan

Rec'd by Michael Burry
http://www.siliconinvestor.com/readmsg. ... gid=169841
1996/7/12 - Larry McMillan wrote a great book with an excellent chapter on covered writes called Options as a Strategic Investment. I recommend it.

Poor Charlie's Almanack by Peter Kaufman

Principles by Ray Dalio

"Principles" is basically Dalio's explanation of things he's learned over the years, and thus how he wants Bridgewater to work.

The full book/essay can be downloaded here:
http://www.bwater.com/Uploads/FileManag ... ciples.pdf

The Black Swan by Nassim Taleb

Michael Burry's thoughts on the Black Swan, via his 2008 1Q Letter:

The Gorilla Game by Geoffrey Moore

read but not followed by Burry:
http://www.siliconinvestor.com/readmsg. ... id=9577378

Wall Street on Sale by Timothy Vick

Read by Michael Burry:

Why Stocks Go Up (And Down) by William Pike

Contents:

Part One - Basics: Starting a Business, Financial Statements, and Common Stock
1. Getting started
2. Ownership and stock
3. Borrowing money as the company grows
4. Ratio analysis
5. Going public
6. JMC Corporation goes public
7. Over-the-counter trading

Part Two - Securities Other than Common Stock: Bonds and Preferred Stock
8. Bonds
9. Convertible bonds
10. Preferred stock

Part Three - Accounting for Assets
11. Fixed assets and depreciation
12. Cost versus expense, other long-term assets, and write-offs
13. Inventory accounting -- impact on company earnings

Part Four - Why Stocks Go Up
14. Listing and trading on the stock exchange
15. Price earnings ratios -- when is a stock "low" or "high"?
16. Wall Street
17. Making an earnings estimate
18. Why stocks go up -- an 18 year history of Polaroid's stock

Appendix one: Short selling
Appendix two: Buying and selling on margin



I got this book because it was recommended by Michael (Mike) Burry, who predicted the subprime crisis before anyone else and went from being middle-class to being worth $100 million off it. Here's the forum post where he mentions the book:
http://www.siliconinvestor.com/readmsg. ... id=2865794

After having read it in its entirety, I think this is probably one of the best overviews I've read so far on investing; Pike apparently created this book after many years of teaching an introductory course on the stock market, which means he knew from experience how quickly to introduce the material and what things needed explaining. He covers a lot of ground that I thought I knew well already, but there are a lot of tidbits that I picked up that I was surprised by.

The first two thirds (200pp) of the book introduce people to the stock market, and the last third of the book (100 pages) follow Polaroid's stock over 18 years. This last third taught me a very, very valuable lesson, which is that there may frequently/always be a compelling argument for both sides of a trade. Pike does a fantastic job of laying out arguments for both sides so that you go, "Hmm...I have no idea whether the stock will go up or down based on the information I have." Those 100 pages have done a great favor for me by making me extremely skeptical of all future predictions, including my own.

When Pike is explaining how the stock market works (the first 200pp) he does it by following an imaginary company, the Jones Mousetrap Company, as it grows from a tiny one-man shop into a huge corporation. He explains how a company will seek out different kinds of financing depending on how large it (the company) is and depending on what other kinds of financing it (the company) has already gotten. For example, if you've already borrowed a lot of money from banks, they're not going to be as willing to lend even more money to you, so you'll need to go look elsewhere to borrow more (selling bonds or issuing stock). Basically you shop around for financing on the best possible terms.

re: When is a price "high" or "low"?
His answer: I don't really know...just look at its past range and treat the low end of the range as "cheap" and the high-end of the range as "expensive".

You Can Be a Stock Market Genius by Joel Greenblatt

i got this book after it was mentioned in the vanity fair article on mike burry (which was an excerpt from "the big short".

from the article:
"As he scrambled to find office space, buy furniture, and open a brokerage account, he received a pair of surprising phone calls. The first came from a big investment fund in New York City, Gotham Capital. Gotham was founded by a value-investment guru named Joel Greenblatt. Burry had read Greenblatt’s book You Can Be a Stock Market Genius. (“I hated the title but liked the book.”) Greenblatt’s people told him that they had been making money off his ideas for some time and wanted to continue to do so—might Mike Burry consider allowing Gotham to invest in his fund? “Joel Greenblatt himself called,” said Burry, “and said, ‘I’ve been waiting for you to leave medicine.’” Gotham flew Burry and his wife to New York—and it was the first time Michael Burry had flown to New York or flown first-class—and put him up in a suite at the Intercontinental Hotel."

The book is mentioned later in "The Big Short" as the book that turned Jamie Mai and Charlie Ledley onto LEAPs, which was how they ended up realizing that they could purchase cheap insurance on things that were far more likely to happen than the counterparties thought.