Components to being a good investor
In my opinion, they are two main components to being a good investor,
- Psychological Control.
And because of the nature of investing, it’s actually something where you get better at the older you are. Because investing is all about knowledge and life experience, and these things like money, compound over time.
If you’re a wiser person, you’re a better investor. If you’re a more rational person, you’re a better investor.
This is one of the reasons, why I think Mr Ooi Teik Bee’s returns, became so fantastic after he took Mr Kcchongnz’s FA course. That sheer amount of life and market experience and knowledge, which comes with decades of experience as a remisier, where he has literally seen it all, suddenly found a way to be channeled productively and profitably.
As this a post about reading, we’ll stick to the knowledge component.
Knowledge in Investing
When it comes to knowledge in investing, there is predominantly two types.
- Investment principles
- General or specialized understanding of life.
And the first (investment principles), I think consist of only 10% of the knowledge you need to be a good investor. It’s a small amount, but absolutely essential.
The second and remaining one, is something that comes from a wider and deeper understanding of science, history, psychology, nature, philosophy etc etc. You can literally never learn enough about life. Every single life experience and additional knowledge you acquire, makes you that much better of an investor. This is what makes investing the last true liberal arts of the world.
Books for Investment Principles.
We will start with this, as they are really only a few books you need to read, in order to understand investment principles as well as me, or close to anyway. They are not placed in any particular order, but I think it may be a little better to read them in this order.
The Miss Universe list
- The most important thing – Howard Marks
The first thing you will learn from this book, is what being conservative really means, what is risk, how to manage risk, the nature of investment and market psychology, and cycles.
I’m honestly not sure how I can properly describe this book in order to convey how incredible it is, and its value to me.
You just have to read it I suppose.
- One Up on Wall Street – Peter Lynch
This book really taught me a lot about the different businesses that exist, and their economic characteristics. It also thought me how to look and value businesses growing rapidly.
It’s also unbelievably funny and a very easy and fun read. Peter Lynch really is a wonderful writer.
- Margin Of Safety – Seth Klarman
This one is a very famous book on wall street, with original copies selling upwards of USD2,000 per copy, with mint one’s going for much much higher. Luckily for us, scanned or pdf copies are also widely available, so you can just google.
As the title says, this one really helped me properly understand margin of safety, and the different types of margin of safety, as well as their nature. Really a great book.
- The Essays of Warren Buffett – Lawrence Cunningham
If there is only one book in the world that will properly convey the genius and investment philosophy of Warren Buffet, it’s this one. Even Warren Buffett have said as much. Why? This is not written by someone, but by Warren himself.
This book was made by extracting and editing the annual letters of Berkshire Hathaway from 1965 to 2018, and basically taking all the great ideas from there and putting it into one book. Having said that, I think the best way is to actually read all the letters.
- Poor Charlie’s Almanack – Charlie Munger
If there is only one book you can read in your life, I think this might be the one. Trust me, the competition is incredibly intense when it comes to the best books I’ve read.
But none have taught me more than this book, and I only read this last year. And this is despite me having a very illustrious career in reading, and having read truly incredible books.
This book will teach you about life, psychology, history, investment, philosophy and so much more.
There is also a copy in Chinese, because of how incredibly popular it is in China. It does have a certain streak of Confucianism in it after all.
- The intelligent Investor – Benjamin Graham
The most important chapters are Chapter 8 and Chapter 20, where you learn about margin of safety and Mr Market.
But your reading career and life would be less interesting and deep, if you were to not read the rest of the book. You still learn a ton.
- The Art of Value Investing – Whitney Tilson
As said in some of my post, all intelligent investing is Value Investing. But they are as many kind of value investors, as they are types of people.
Some focus more on growth, some really like net nets. Some concentrate very heavily, some diversify very widely. Some have incredibly long holding periods, some have shorter ones. Some much much prefer buying down trending stocks, some do like buying upward momentum stocks.
This book is basically a book of quotes, with answers by very different people, on any questions you may have regarding value investing.
- The Black Swan – Nassim Nicholas Taleb.
This book came out just before the 2008 crisis, and was particularly prescient.
This book will teach you about risk, why most people are stupid when they are looking at risk, how incredibly asymmetrical and dynamic risk is. Really fantastic.
And he is also a very good trader, so the traders here will like him.
Miss Astro List (Other reading)
I am not saying these books are not as good, but they mainly expand a lot more on ideas that may not be as key, or go into the deeper details of key ideas.
- Seeking Wisdom From Darwin to Munger – Peter Bevelin
Well, if you want wisdom, read this. Not much to be said. It changed a lot of my perspective when looking at things.
Peter Bevelin also wrote a few other books, must reads really.
- Ray Dalio – Principles
“To know how to simultaneously think for yourself and know that you know virtually nothing, so that you have to take in the best thinking that’s available to you and critically analyse it.”
“Recognize that you are a dumb shit who doesn’t nearly know what you need to know in order to have the life you want to have, and that life is an adventure in which making mistakes and knowing how to learn from that is the best part”
Ray Dalio is the founder of the world’s biggest hedge fund “Bridgewater Associates”. He is also a very prolific trader. Those two lines above may best describe the entire book.
This book contains all the principles of life he has learnt throughout his entire career, really really really good.
- Berkshire Hathaway Letters to Shareholders – 1965 to 2018Transcripts of Berkshire Shareholder meetings – 1994 to 2018
Buffet Partnership Letters – 1957 to 1970
The Best of Charlie Munger Daily Journal Shareholder Meetings – 1994 to 2011
Combined, these four books are about 10,000 pages. If you want to mould your mind into being able to think like Warren Buffet and Charlie Munger, there is nothing better.
By the time you’re done reading this. The next time you see an investment or anything really, you pretty much instantly know “WWWBD” “What would warren Buffet do”.
Its might be too much for some, but I loved it. I did stop reading about warren buffet, Charlie Munger and Berkshire Hathaway for a few months after that though.
- Nassim Nicholas Taleb
Just read everything from him. He’s arrogant and a little lohsoh, but he knows what he’s talking about. And thank god he’s lohsoh, because that’s how you really understand.
- A man for all markets – Ed Thorpe
This guy was the man who broke casino’s around the world, he was one of the first to count blackjack, count roulette tables etc. And when they banned him, he went to the biggest casino, where he cannot be banned.
He met warren buffet while he was still not that famous, and said then that he will be the richest man in the world. And this was the only trader that warren buffet actually publicly recommended to his friends.
This man learned how to price options before anyone even heard of black scholes model. Really interesting fellow.
- Micheal Lewis and Roger Lowenstein
Just read anything by them, really good writers. Writes a lot about the stories on wall street and the characters in them.
- Peter L Bernstein
He writes very well about the history of various key concepts as well as key points in financial history.
- Zero to One – Peter Thiel
If you want to know how to value venture capital and how business disrupts or get disrupted, read this. Utterly fascinating.
Books for General or specialized understanding in life.
I honestly don’t even know how to list these out, as they are just way too many, but I’ll try.
- Lee Kuan Yew
One of the luckiest thing that ever happened to me, was this book of speeches by Lee Kuan Yew, which my dad had. I read it when I was 11, and I didn’t know just how great a mind I was reading, but I knew it was good, and every year thereafter, for some reason i’ll read it again. In some years, I read it more than 10 times. There was just something about his thinking that was so clear and attracted me greatly in many ways.
In my college years, I got some money and started buying every single book by him (they are impossible to torrent online). I also watched and listened to every single important speech by him.
If there is one person that contributed to how I think, my mental structure, as well as how I break things down critically, it was him.
One of my greatest regrets in life, was not paying him homage and my respects by attending his funeral. I should have at the very least, been there in the rain, given how much he has contributed to my life.
- Philosophy – Ayn Rand, Marcus Aurelius, Seneca and many more,
Ayn Rand lit a fire under my ass, and taught me what independent thinking, taking responsibility, pride in ones work and integrity really means. Start with “Atlas Shrugged” and “Fountainhead”.
Marcus Aurelius was a roman emperor, one of the last philosopher kings. The book is “Meditations”.
Seneca, well he is the best gateway into stoicism. “Letters from a Stoic” was only 300 pages, but it took me a week to finish. And it’s not that hard to read, or I’m slow (my speed is 100 pages an hour). It’s the sheer weight of the ideas, and the amount of times you have to pause and think. “On the shortness of time” taught me how precious my time is.
Michel De Montaigne also has a fantastic book called “Eassays”, huge and wonderful book on philosophy.
- Bill Gates etc
Bill gates have a book review website called “Gates Notes”. He is a very wide reader, and if he recommends something, its usually really good. Just keep track of that.
Etc etc etc. I’m tired. So I’ll stop here. But one of the best ways to find books to read, is look for the recommendations of people you admire, or from authors of books you found really good.
Why should you read?
Well, that questions is usually, quite self-explanatory. But for some reason, many of the comments I get here, seem to view reading with some derision.
Or maybe it’s just their insecurity flaring up.
Having said that, people have a point, the number one teacher is life. And life experience is what you get when you fail.
The thing about life and investing is that, as long as you live long enough, life and the markets will teach you everything you need to know.
But, one of the incredible things about books, is that they often represent 1-2% of all the life lessons learned by someone much older and wiser than you, whether via life experience or reading.
And often, this 1-2% is the ones they consider to be the most important, and carried the heaviest weight in their life.
One should strive to learn by living, but where possible supplement by reading. Your life experience will never be as wide as the one offered to you by reading, and any reading you do enhances your life experience.
All these 1-2% of other people thinking and life experience, when constantly accumulated, makes you much larger than you really are, and remember, knowledge is not additive, it’s multiplicative, it compounds. Everything new you learn, increases the understanding of everything you already know.
Charlie Munger reads or skims through roughly 20 books a week. I personally do about 3 a week, but there are times when I go turbo mode, and read one book a day for 3 months in a row. My goal is to retire by 35, or find an analyst job in a pure long only value investment firm, so that i can read 20 a week.
Why do I not take the time to trade or try and predict where steel price is going to be? Well, the price of steel 3 months from now, is not going to give me a deeper understanding of the world that read another good book will.
At the end of the day, we have 24 hours a day, you need to choose how you spend it.
Well, as it turns out, I definitely do deserve my Jon Lohsoh moniker. Hahaha. This turned out way longer than I expected.
In life and in the markets, they are somethings that are better learnt via the mistakes and experience of others. You do not need to get burnt yourself. And they are some things that cannot be learnt and enjoyed in any other way, but by experiencing and trying again and again, sex for example. Hahaha.
The market, like the Lord, helps those who help themselves. But, unlike the Lord, the market does not forgive those who know not what they do.
Good luck! And I hope this one is useful.