Forbes Cruise for Investors (we have two in 2016, so sign up now as a Christmas present to yourself and loved ones), FORBES columnist and self-made billionaire Ken Fisher said it’s vital to keep your investing formulas fresh.
Things change, and so must investors. Simple contrarianism is no longer fail-safe. Momentum investing has become a huge opposing force, driven by fund managers under pressure to meet quarterly performance goals. High stock prices can and do go higher. Low ones can go lower. Unless you have deep pockets, the markets will happily outlast your good old Benjamin Graham-type common sense.
Warren Bufett evolved from his early Graham infuence. In the 1950s and 1960s he would spend the day reading Standard & Poor’s reports. His near photographic memory for numbers and natural ability to see correlations and anomalies let him fnd the needles in the haystack. But tomorrow’s Bufett won’t be able to start the same way. Computers and software have made the unique skills of the 1950s Bufett available to everyone.
In the 1970s the Oracle of Omaha began to think more about brands, moats and free cash fow as competitive edges. Yet he didn’t abandon his Graham discipline on prices; he added to it. With Berkshire Hathaway as his vehicle Bufett had an expanded formula: Use the free cash fow from the insurance companies and other investments to buy—at Graham discount prices—businesses that have natural monopolies owing to brands and moats.
Finally, as he grew more worldly and wise, Bufett began to put more weight on the quality of the managers within his Berkshire empire. I doubt the young Bufett, who sat at a desk memorizing S&P reports, was as capable of judging management talent as he later became.
Ken Fisher told the Forbes cruisers that contrarian investing still works, but you have to look harder to fnd anomalies and investment edges that the world’s fund managers, with their mighty supercomputers and algorithms, have overlooked. This is difcult work that requires constant education, evolution and the eradication of emotional biases.
With that in mind, here’s a Christmas list of investment and business books—some classic, some newer—that may help you fnd your investment edge.
common Stocks and Uncommon Profts— by Philip A. Fisher (John Wiley & Sons, $24.95). Lesson: Do the fnancial analysis. But also talk with people who know your potential investments, including customers, vendors and competitors. the Little Book of common Sense Investing— by John C. Bogle (John Wiley & Sons, $24.95). Beating the market is a full-time job, and few consistently win. Buy Bogle’s book, follow his directions and get some sleep. Predictably Irrational— by Dan Ariely (Harpercollins Publishers, $15.99). Everyone thinks they are rational thinkers, but few really are. This book explains how to spot emotional biases in yourself and others. the Innovator’s Dilemma— by Clayton M. Christensen (Harperbusiness Essentials, $17.99). This 1997 classic remains the book on disruption and why startups often dislodge entrenched, proftable companies. Although this isn’t written as an investment book, it nevertheless puts a dagger into pure value investing. Why? Cheap companies don’t always bounce back. The only quibble I have with Clay’s book is that in the years since he wrote it, rich and powerful companies such as Apple and Amazon have learned to be disruptors, too. Getting things Done— by David Allen (Penguin Books, $17). This book on stress-free productivity will keep you on an even keel. Zero to One— by Peter Thiel and Blake Masters (Crown Business, $27). How great digital entrepreneurs and investors think. Thiel is both. Knowledge and Power— by George Gilder (Regnery, $27.95). Knowledge is everything, and the market has caught on. Gilder’s framework is spot-on when it comes to assessing which companies and countries are moving the fastest toward greater knowledge and knowledge application. reviving america— by Steve Forbes and Elizabeth Ames (Mcgraw-hill Education, $26). America faces many problems, but most of them will recede or vanish with faster economic growth, higher real employment and a more widely shared prosperity. This is the blueprint.
Have a happy holiday and a prosperous New Year!