Wednesday, August 16, 2017

Partridge, Superinvestors

Matthew Partridge’s Superinvestors: Lessons from the Greatest Investors in History: From Jesse Livermore to Warren Buffett & Beyond (Harriman House, 2017) is a superficial book. In about 150 pages Partridge, who writes for MoneyWeek magazine in Great Britain and bases this book on a weekly column he did for the magazine in 2016, profiles and rates 20 so-called superinvestors. The idea was to look at “their strategies, performance, best investments and the lessons that ordinary investors could learn from them.”

Featured are an eclectic lot: Jesse Livermore, David Ricardo, George Soros, Michael Steinhardt, Benjamin Graham, Warren Buffett, Anthony Bolton, Neil Woodford, Philip Fisher, T. Rowe Price, Peter Lynch, Nick Train, Georges Doriot, Eugene Kleiner and Tom Perkins, John Templeton, Robert W. Wilson, Edward O. Thorp, John Maynard Keynes, John ‘Jack’ Bogle, and Paul Samuelson.

For those who like to keep score, Partridge rates these investors on four metrics: “their overall performance, their longevity, their influence on other investors and investing in general, and how easy it is for ordinary investors to emulate them.” For each metric an investor could earn between one and five stars. Leading the pack, with 18 points each, are Bogle and Graham. The runners-up, with 17 points each, are Fisher and Buffett.

Partridge’s takeaways from the investing careers of these men are: (1) the market can be beaten, (2) there are many roads to investment success, (3) be flexible ..., (4) … but not too flexible, (5) successful investing requires an edge, (6) when you do have an edge, bet big, (7) have an exit strategy, (8) ordinary investors have some advantages, (9) big isn’t always beautiful, and (10) it’s good to have some distance from the crowd.

Sunday, August 13, 2017

Nevins, Economics for Independent Thinkers

Daniel Nevins, a veteran of the asset management industry and a self-taught economist, takes on the mainstream, predominantly Keynesian establishment in Economics for Independent Thinkers: A Practical, No-Nonsense Guide to Understanding Economic Risks (Wallace Press, 2017). For a more realistic, fertile paradigm he recommends returning to the likes of John Stuart Mill, Alfred Marshall, Walter Bagehot, and Arthur Cecil Pigou and, for more recent inspiration, to Wicksell, Mises, Minsky, Schumpeter, and behavioral economists.

Providing the structure for Nevins’s view is what he calls the C-H-B triad: credit cycles, human nature, and business environment. This structure is “intentionally nonmathematical. Whereas modern economists require all ideas to be expressed as models …, C-H-B tells us that abstract modeling is ill-suited for big risks like recessions, depressions, and crises.” Nevins, by the way, started his career as a quant.

Nevins lays out ten rules of economic analysis, including “Major changes in the economy are shaped largely by public policies,” “Some sources of financing are riskier than others,” “If you’re searching for clues about the future, production indicators don’t produce,” and “We shouldn’t torture the data until they speak.”

Today, Nevins argues, there are “extraordinary connections between the economy and investment results,” so “investors who ignore the economy may be setting themselves up to fail. … Decision makers who understand the economy’s stress points fare best.” They have “a better understanding of what might happen next in the economy” and, as a corollary, in the financial markets. Economics for Independent Thinkers provides an economic framework for improving investment decisions.

Wednesday, August 9, 2017

Faber, The Best Investment Writing

Meb Faber has assembled a wonderful collection of 32 short pieces in The Best Investment Writing, volume 1 (Harriman House, 2017). The contributors are Jason Zweig, Gary Antonacci, Morgan Housel, Ben Hunt, Todd Tresidder, Patrick O'Shaughnessy, Meb Faber, David Merkel, Norbert Keimling, Adam Butler, Stan Altshuller, Tom McClellan, Jared Dillian, Raoul Pal, Barry Ritholtz, Ken Fisher, Chris Meredith, Aswath Damodaran, Ben Carlson, Dave Nadig, Josh Brown, Wesley Gray, Corey Hoffstein and Justin Sibears, Jason Hsu and John West, John Reese, Larry Swedroe, Cullen Roche, Jonathan Clements, Michael Kitces, Charlie Bilello, and John Mauldin.

There’s such an abundance of research and thought in this volume that it’s hard to pick out a couple of pieces to write about. My choices are decidedly idiosyncratic.

First, Wes Gray’s “Even God Would Get Fired as an Active Investor.” Who can pass up a title like that? Gray’s “God” knows what stocks are going to be long-term winners and losers and initially constructs a long-only portfolio that will be the top decile five-year winner. The problem with “God’s” portfolio, rebalanced monthly and analyzed from 1927 to 2016, is that it has terrible drawdowns. Unfortunately, “God’s” long-short hedge fund has the same problem. As Gray writes, “The relative performance on God’s hedge fund is often abysmal and he’d surely make the cover of Barron’s or the WSJ on multiple occasions throughout his career. The passive index would eat his lunch on multiple occasions—often getting beaten by 50 percentage points—or more—on multiple occasions!” The moral of the story is that active investors must have a long horizon. And, I would add, the faith that they, or their fund managers, are more god-like than their competition.

Second, Jason Zweig’s “A Portrait of the Investing Columnist as a (Very) Young Man.” Zweig’s parents were antique dealers (as were mine), and young Jason was a quick study (I wasn’t). He recalls a sale he made and “a dirty old rag” he discovered—an early Frederic Church painting which ended up in the collection of the White House. He notes “how important it is to be in the right place at the right time. The art and antiques business in the 1970s was a remarkable confluence of inefficiencies and opportunities to exploit them.” That market has now changed dramatically: “undervalued art and antiques have all but disappeared.” The stock market, like the antiques market, has also stopped handing out rewards to the well-informed stock-picker. “If you’re applying the tools that worked so well in the inefficient markets of the past to the efficient markets of today, you are wasting your time and energy. … If investors are to prosper from inefficient markets, they have to evaluate which markets still are inefficient. Areas like microcap stocks or high-yield bonds, where index funds can’t easily maneuver, offer some promise.”

Monday, August 7, 2017

Coll, The Taking of Getty Oil

There are takeover battles and takeover battles. The Getty Oil-Pennzoil-Texaco battle in the 1980s was one of the ugliest and most litigious, finally resulting (thanks to Carl Icahn’s shuttle diplomacy) in Texaco, on the day that it emerged from bankruptcy protection, owning Getty Oil and settling the Pennzoil lawsuit against it for $3 billion. In 1987 Steve Coll wrote a masterful account of the maneuvering for Getty Oil by a large, some still well known, cast of characters. It has recently been republished—and is still a compelling read.

Coll, currently a staff writer for The New Yorker and dean of the Graduate School of Journalism at Columbia University, is the author of seven books, several of them winners of major prizes. A seasoned journalist who spent two decades at The Washington Post, Coll knows how to keep the reader engaged in a story, even one that’s long (in this case nearly 500 pages) and complicated. For one thing, he uses a lot of dialogue. And he keeps the players in the drama, such as the “flaky” Gordon Getty, front and center.

I’m very glad that The Taking of Getty Oil was republished and that a new generation of business people and investors can make its story part of their knowledge base.