The Warren Buffett Way (by Robert Hagstrom)

“Great investment opportunities come around when excellent companies are surrounded by unusual circumstances that cause the stock to missappraised.”

Legendary Investor Warren Buffett never wrote any book of his own, but his ideas and investment tenets are well summarized in this book. The book traces Buffett’s investment education and the people who have made an impact on his life including his teacher Benjamin Graham and his partner Charles Munger. It looks at some of the key tenets held by Buffett on value, management, business operations and finance. From this we learn to apply Buffett’s techniques to identify good companies to invest in.

Importantly there is a chapter called “The Psychology of Money” which teaches you the correct temperament if you want to be a good investor. True investors are said to be calm, patient and rational and we all know this is easier said than done. A key message in this book is that Warren Buffett is a Focused Investor, preferring to make significant investments in fewer places rather than having a highly-diversified portfolio.

“I can’t be involved in 50 or 75 things. That’s a Noah’s Ark way of investing-you end up with a zoo. I like to put meaningful amounts of money in a few things.”

One Up on Wall Street (by Peter Lynch & John Rothchild)

“The person that turns over the most rocks wins the game. And that’s always been my philosophy.”

Peter Lynch managed Fidelity’s Magellan Fund from 1977 to 1990, during which time the fund grew from US$20 million to US$14 billion. One Up on Wall Street is very different from The Warren Buffett Way but is nevertheless a wonderful book. When you have to manage a portfolio with more than 1000 stocks, the game gets more complicated and Lynch is the master. He talks about his case studies with passion, the mistakes he made, the “ten baggers” (stocks that have gone up 10 times), how to find the perfect stock, the things to avoid and the signals which can provide you with an edge over the market. Interestingly Lynch identifies 6 types of companies to invest in: Slow Growers, Stalwarts, Fast Growers, Cyclicals, Turnarounds and Asset Plays. He provides good guidance on the best time to sell each type of stock.

“In this business if you’re good, you’re right six times out of ten. You’re never going to be right nine times out of ten.”

Besides these two books I also read a whole bunch of Annual Reports (yawn) and hopefully I’ll get to share my observations with you from time to time.

And of course, the most important book of all: The Bible

Whaaaat? What has that got to do with Investment? I hear you ask.

My answer is everything.

THE HOLY BIBLE

Dishonest money dwindles away, but he who gathers money little by little makes it grow.
Proverbs 13:11

For me the most important investment lessons are found in how we can overcome greed and fear. We may have all the techniques and strategies but if we do not know our true enemy the game is lost. Right now we are seeing a financial collapse in the US and I think most people would agree that this tragedy has been fuelled by greed.

God teaches us numerous lessons about money, in fact I had to lose a whole lot of money and learn the hard way. But looking back it was perhaps one of the greatest blessings in my life. Money is a tool that God uses to help us grow spiritually.

Whoever loves money never has money enough; whoever loves wealth is never satisfied with his income: Ecclesiastes 5:10