For the Investor on Your List

I hope that you had a wonderful Thanksgiving and that you’re recovering well from your turkey hangover. Thanksgiving is a holiday where we celebrate all that we are grateful for, our friends and family, a long weekend and our health, among others. But it’s also a holiday of retail deals, holiday sales and shopping. Many Americans start their seasonal gift buying on Black Friday, the day after Thanksgiving, waking up in the early morning hours to stand in the cold until stores begin their notoriously good sales.

You may have even joined the legions of shoppers yesterday, but if you didn’t, or if you have more presents to buy, this issue is for you. Today I’m going to highlight some of the best books for the investor on your gift list, all recommended by the Cabot editors. The market has taught us all a lot of lessons this year, but there’s always more to learn and a great investing book is the perfect way to get started. As Cabot’s founder, Carlton Lutts, was known to say about reading books,  “All I’m looking for is one good idea.”

How to Trade in Stocks by Jesse L. Livermore, recommended by Michael Cintolo
In his 1940 book, How to Trade in Stocks, Jesse L. Livermore gives step-by-step guidance on reading market and stock behaviors, analyzing market sectors, market timing, money management and emotional control. Livermore, an investing legend, said there are just a handful of times each year when he would be active–near the intermediate-term turning points in the market. Other than that, he let his account his idle, either holding his winners, or patiently sitting in cash, preparing for the big swing when the market changed course.

Hedgehogging by Barton Biggs, recommended by Michael Cintolo
Barton Biggs, author of Hedgehogging, is a Morgan Stanley veteran who teamed up with a couple others to start his own hedge fund back in 2003. Much of the book is indeed about his efforts to start a hedge fund, but the best part is the first 100 pages or so, full of two to four page short investment stories about people he knew in the business.  It was one of the best 100 pages we’ve ever read! This is the best kind of investment book because you can often glean many lessons and insights from reading about others’ investment troubles and successes.

Technical Analysis and Stock Market Profits by Richard Schabacker, recommended by Michael Cintolo
If you’re just beginning in the world of chart reading, this is a good guide.  We don’t subscribe to all of the patterns he talks about, but it’s still a great place to start.

Security Analysis by Benjamin Graham, recommended by J. Royden Ward
Benjamin Graham’s classic book, Security Analysis, laid the framework for the value investing system. Individuals and Wall Street professionals consider the timeless book, published in 1934, an investing bible. Security Analysis thoroughly explains Graham’s value investing methods, including how to value stocks, the margin of safety and guidelines for successful investing.

The Intelligent Investor by Benjamin Graham, recommended by J. Royden Ward
Benjamin Graham penned “The Intelligent Investor” in 1949, and the book has since been called “by far the best book on investing ever written,” by Warren Buffet, one of Graham’s students and followers. Editor and analyst J. Royden Ward uses the criteria outlined in the book to select the stocks for the Classic Benjamin Graham Model found in the Cabot Benjamin Graham Value Letter.

How I Made $2,000,000 in the Stock Market by Nicolas Darvas, recommended by Timothy Lutts
In the book, How I Made $2,000,000 in the Stock Market, by Nicolas Darvas (a professional dancer), the author details how he would have Barron’s shipped to him when on the road to see how various stocks had acted the previous week. Instead of reading through all the articles and opinions, he would simply throw everything away except for the quotes section. That way he could see what was happening in the market and make judgments without being influenced by news of the week. And it worked wonders! Our advice: Take a step back from the day-to-day news and gyrations. Instead, keep focused on the big picture. Yes, it’s fun and exciting to watch things unfold minute by minute, especially during these volatile times. But we contend you’ll make more money by ignoring the loudmouths on TV and just staying focused on the major trends.

New Market Wizards, Market Wizards and Stock Market Wizards by Jack Schwager, recommended by Michael Cintolo
Jack Schwager interviews top traders and investors to find investing insights. All of the books are highly recommended, and each is available cheaply in paperback. New Market Wizards originally published in the early 1990s, contains an interview with William Eckhardt, who was actually a mathematician. The interview touches on the personal side of investing and getting in tune with your own tendencies, which will help you avoid repeating the same mistakes. The books contain many more helpful interviews and you are guaranteed to learn some things, about the market and yourself. In Market Wizards, Reminiscences of a Stock Operator was quoted as a major source of stock trading learning material for traders by many of the people who Schwager interviewed.

Inside the Investor’s Brain by Richard L. Peterson, recommended by Paul Goodwin
Inside the Investor’s Brain provides investors with the tools they need to understand how emotions and mental biases affect the way they react to market movements and how they manage money. Author Richard Peterson provides readers with techniques for understanding their own financial psychology, so that they can improve their performance. “Inside the Investor’s Brain” discusses many mental traps and how they play a role in investing. This book contains descriptions of the work of neuroscientists, financial practitioners and psychologists, offering an expert’s view into the mind of the market.

One Up on Wall Street by Peter Lynch, recommended by Timothy Lutts
In One Up on Wall Street, Peter Lynch writes about his theory that average investors can become experts in their field and pick winning stocks as well as Wall Street professionals just by doing some research. The author writes that there are many investment opportunities for the average investor that can be found by observing business developments and taking notice of what’s going on in the world. Lynch writes that investors will be rewarded in the long run if they ignore the fluctuations of the market and speculation about interest rates.

Winning on Wall Street by Martin Zweig, recommended by Timothy Lutts
Financial adviser Martin Zweig has been fascinated by the stock market since childhood, especially the buying and selling of stocks to make money. The book contains a clear and detailed analysis of market trends, interest rates, Federal Reserve policy, volume and market momentum, among other things, that carries the technical side of stock market theory about as far as it can go. In the book, Zweig calls Jesse L. Livermore one of his heroes and recommends the 1923 book, Reminiscences of a Stock Operator by Edwin Lefevre.

Reminiscences of a Stock Operator by Edwin Lefevre, recommended by the entire Cabot staff
Reminiscences of a Stock Operator, published in 1923, is the classic tale of the fictionalized life of one of the most flamboyant and successful investors ever, Jesse L. Livermore. The book tells the story of Livermore’s progression from day trading in the so-called New England “bucket shops,” to market speculator, market manipulator and finally to Wall Street where he made and lost his fortune several times over. Along the way, Livermore learns and teaches many lessons. Despite the book’s age, it continues to offer amazing insights into the art of trading and speculation. This book is probably the favorite among in-the-know investors—and among all of us here at Cabot.  It’s also cited repeatedly in two of the books on our list, Jack Schwager’s Market Wizards and Martin Zweig’s Winning on Wall Street.