When my 7-year-old daughter, Julia, asked me what I do all day, I told her that I spend most of my time reading. Julia, a book fiend, brightened and said, "They pay you for that?" Yes, they do -- indirectly. The best investors read all the time. As Berkshire Hathaway vice-chairman Charlie Munger has said in assessing the success of his sidekick, Warren Buffett: "If you want to be an outlier in achievement, just sit on your ass and read most of your life."
Billionaire hedge-fund manager Bill Ackman loves to read, too, according to Confidence Game, a fine new book about his ultimately correct bet against the shares of bond insurer MBIA. In the book, one of his best friends describes a week spent at a beach house with Ackman and his family: "Bill did what he always did on vacation" -- he read financial statements.
Why it helps. You don't have to be a compulsive consumer of 10-Ks to improve your investment performance (although the more you know about the stocks you own, the better you should do). In my view, reading offers investors three distinct benefits. First, it crowds out the TV noise. The folks on CNBC's Fast Money may be smart, but their Whac-A-Mole approach always makes you feel as if you should be doing something -- anything -- to make a quick buck. Not a good attitude for a successful long-term investor. Second, reading helps you develop all the qualities that go into successful investing. Third, reading can give you specific investment ideas. But don't become a voracious reader to finance a Caribbean spree. You read not to make a quick killing but to learn more about the investing process and the world around you.
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So where do you start? My must-read list includes wonderful books by Benjamin Graham (The Intelligent Investor), Seth Klarman (the hard-to-get Margin of Safety), Joel Greenblatt (You Can Be a Stock Market Genius) and Philip Fisher (Common Stocks and Uncommon Profits). Michael Lewis's new book, The Big Short, offers a terrific peek into the minds of some smart, iconoclastic investors.But books aren't enough. ("If past history were all there was to the game," Buffett has said, "the richest people would be librarians.") You need to understand the present, too. By far the best investment publication available today, for both the astuteness of its stock picks and the depth of its study of the investment process, is the Value Investor Insight newsletter (www.valueinvestorinsight.com; $349 per year for 12 issues). I devour my monthly copy as soon as it arrives. (VII is produced by Kiplinger columnists Whitney Tilson and John Heins.)
The next essential read is the monthly letter from Howard Marks, chairman of Oaktree Capital Management (www.oaktreecapital.com). Marks is a more philosophical version of Warren Buffett, a great investor who always makes you think. In a recent missive, Marks observed that stock-market bulls were, in effect, betting that Congress would be able to cut spending. He was dubious that our elected leaders would succeed. I also find valuable the monthly comments of Bill Gross (www.pimco.com), the quarterly letters of Jeremy Grantham (www.gmo.com) and the daily commentary on RealMoney Silver (www.thestreet.com; $900 a year).
Most of the time, reading leads to contemplation, which keeps you from acting. That's a good thing. Most investors are too active for their own good. Having a solid background in investing history and, in particular, in value investing (the approach that works best over time) can be especially helpful at market extremes. If I had read less, I would not have been so quick to sell technology in early 2000, near the peak of the bubble, or dive into bank stocks at the market lows in March 2009.
Reading helps remind you that everything you're seeing has happened before. It just looks a little different each time.
Columnist Andrew Feinberg writes about the choices and challenges facing individual investors.
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