One Good Idea
Avoided Values Are Best Buys
Stock Market Video
In Case You Missed It
Cabot’s founder, Carlton Lutts, was known to say about investing books, “All I’m looking for is one good idea.” We get a lot of requests asking about which investment books are best, so today I’m going to share the Cabot editors’ favorites. Right now is a great time to brush up on your investing knowledge and reading one of these books can help prepare you for what’s to come as the market tries to find a bottom and eventually moves back up.
Investing Books Recommended by Michael Cintolo, editor of Cabot Market Letter and Cabot Top Ten Trader:
Reminiscences of a Stock Operator by Edwin Lefevre
If you consider yourself a student of the market, there is no better book than Reminiscences of a Stock Operator. This conversational biography of the exploits of Jesse Livermore contains more market lessons than any “how to” book available today … or ever. Divided into reasonably sized chapters, the book allows you to follow one of Wall Street’s all-time great speculators through his winnings and his many mistakes. I’ve read it many times!
How to Trade in Stocks by Jesse L. Livermore
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 sit idle, either holding his winners, or patiently sitting in cash, preparing for the big swing when the market changed course.
Hedgehogging by Barton Biggs
Barton Biggs, author of Hedgehogging, is a Morgan Stanley veteran who teamed up with a couple of 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. These are some 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.
New Market Wizards, Market Wizards and Stock Market Wizards by Jack Schwager
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 (recommended above) was quoted as a major source of stock trading learning material for traders by many of the people Schwager interviewed.
The next two investing books are both recommended by J. Royden Ward, editor of Cabot Benjamin Graham Value Letter:
Security Analysis by Benjamin Graham
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 identify value stocks, the margin of safety and guidelines for successful investing.
The Intelligent Investor by Benjamin Graham
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.
These next three investing books were all recommended by Timothy Lutts, Cabot’s publisher and editor of Cabot Stock of the Month:
How I Made $2,000,000 in the Stock Market by Nicolas Darvas
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.
One Up on Wall Street by Peter Lynch
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
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 (recommended above).
The next investing book was recommended by Cabot China & Emerging Markets Report editor Paul Goodwin:
Inside the Investor’s Brain by Richard L. Peterson
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.
Here’s this week’s Contrary Opinion Button. Remember, you can always view all of the buttons by clicking here.
Avoided Values Are Best Buys
To find treasure, you’ve got to look in places others avoid: the nuclear power industry after the Three Mile Island accident; Johnson & Johnson after the Tylenol scare; Ford Motor after the collapse of the over-leveraged auto industry in 2008. It takes a real contrarian (or at least an independent thinker) to invest against prevailing opinion, but that’s where the greatest bargains are.
In this week’s Stock Market Video, Cabot Market Letter Editor Michael Cintolo says that despite the successful first market re-test last week, stocks remains in a downtrend. The best action for investors right now is defensive, says Mike, holding plenty of cash and tight leashes on your stocks. What the market needs most right now is some time to wear out the weak hands, and allow new leadership to form. Stocks on Mike’s watch list include: Green Mountain Coffee Roasters (GMCR), Cabot Oil & Gas (COG), MAKO Surgical (MAKO) and Universal Display (PANL). Click here to watch the video!
In case you didn’t get a chance to read all the issues of Cabot Wealth Advisory this week and want to catch up on any investing and stock tips you might have missed, there are links below to each issue.
Cabot Wealth Advisory 8/22/11-Will Congress Finally Kill Off Ethanol Subsidies?
On Monday, Cabot Global Energy Investor Editor Brendan Coffey discussed whether Congress would finally kill off ethanol subsidies, as they’ve been promising to for years. Brendan also wrote about several of the stocks in the industry including a Brazilian issue for your watch list. Featured stock: Cosan (CZZ).
On Tuesday, we heard from Paul Tracey, chief investment strategist of Street Authority’s Top 10 Stocks. Paul discussed his theory on how Congressional representatives are able to post better than average stock returns.
On Thursday, Cabot Benjamin Graham Value Letter Editor Roy Ward discussed the many strong value stock opportunities in Canada. Featured stocks: Canadian National Railway (CNI) and Potash Corp. (POT).
Until next time,
Editor of Cabot Wealth Advisory