Irrational Exuberance: Revised and Expanded Third Edition

The stock market is difficult to understand. People try to create explanations as to why they can beat the market, but are almost always wrong. There are many bad tendencies. People will chase past trends, hoping not to miss out. People can also be nudged by small things - even if they do not realize it is happening. In Irrational Exuberance, Shiller uses numbers and anecdotes to explain why the markets are not very explainable. Stocks will often be more closely related to others in the same country than to others in the same industry.

There is a tendency to focus heavily on nominal returns. However, if inflation is higher than the return, the purchasing power of the investment will decrease over time. People often think of houses being a great investment because they are held for so long and have a great nominal gain. The real after-inflation gain is not so rosy. There is a lot of space available to build new housing, but not necessarily where it is most desired.

Stock markets respond to news, but not in a predictable manner. The 1929 stock market crash seemed to occur in a team when no significant new news was reported. There may have been many small items that finally cascaded to put things over the edge. There could also have been feedback loops that made things worse. It is difficult to understand the details of what went on. (But many people tried!)

Warren Buffett and the Art of Stock Arbitrage: Proven Strategies for Arbitrage and Other Special Investment Situations

Stock arbitrage involves making money from pricing differences from essentially the same thing. This book outlines some of the ways that Buffett had made money primarily by relying on differences in value over time. The goal is to minimize most of the risk, while still achieving significant upside. A lot of the items involve changes in companies. A large conglomerate my be priced as the company as a whole. If a section with a large upside is spun off, it could significantly increase in value. Buying the original company is a way to get it on the cheap. Similarly, an acquisition target can often be bought for less than the future acquisition price. A company switching to an MLP that will increase its dividend may be priced with the old dividend in mind.

These seem like fairly reasonable strategies. However, how applicable are they for a retail investor? The ideal time to pounce is when an action appears 100% certain to occur soon, yet has not been fully priced in the market. Are there many of these? Is there enough of a spread that a retail investor can profit with minimal risk? The book gives examples of Buffett's success in some of these, but there is no coverage of his failures. How valid are these today?

The Little Book of Common Sense Investing

Index mutual funds are the best way to invest for the long term. Bogle was the founder of Vanguard and a strong advocate for index funds. Using an index fund minimizes costs management costs, capital gains and the costs of "market risk". Actively managed funds may be the market at times. However, if somebody is overperforming, this comes at the expense of somebody else's underperformance. Higher fees come out of this. The more money that is paid in fees, the less is available for the investor. People also tend to invest in "hot areas", which often causes them to go in at the peak, while leaving at the nadir. 

Bogle was not very keen on ETFs. He acknowledges that they can be more tax efficient and beneficial for people that hold them for the long term. However, they also allow for frequent trading that could reduce returns.

Bogle's book presents a sound case for indexing, complete with plenty of quotes from other sources. He is open to people adding some other "fun" areas to their portfolio as long as indexing is the mainstay. 

The questions that are not discussed include what happens if everybody indexes? Is there a level of indexing where the market fails to function? And what happens if the market enters a long-term doldrum?

The Little Book of Safe Money: How to Conquer Killer Markets, Con Artists, and Yourself

The Little Book of Safe Money emphasizes the safe. Inflation Protected Securities are the gold standard. They are guaranteed to beat inflation. Further investments should be a mix of stocks and bonds. The best are low cost index funds. Any investment with fees or yields that are higher than others is by necessity introducing too much risk. People should understand the market is filled with people. There is a seller for each purchase. Why do you think you are smarter than the person at the other end of a transaction? It is also important to focus on liquidity. If you don't have enough liquid assets you may need sell other investments at times with the market fails. It is also important to manage your "human capital". It is perhaps the greatest returning investment. However, you should also keep in mind that your human capital is invested in your company and industry. If your investments are in the same area, you may be too concentrated in a single area.
It is important to not take more risk than you need to. It is also good to understand psychology weaknesses, especially among men. The emphasis on the book is safety. Following the content will keep you with investments that lose minimal value in a down market, yet do not gain very much in a bull market. The principles do not exclude high risk investments. However, these are treated as "gambles" that can only be taken on with money that can be afforded to be lost.

Einstein of Money

Benjamin Graham was patron saint of value investing. His book, The Intelligent Investor, still pops up on best seller lists, decades after he passed away. Other investors, such as Warren Buffett see him as a significant influence on their investing style. Graham's investing style puts the focus on long term value, regardless of short term market fluctuations. Depending on the dedication of the investor, they can employ screens to narrow down the the list of companies to consider. (Doing these screens were much more difficult a century ago when he started investing.)
Einstein of Money interleaves the story of Graham's life with details of his investing framework. The structure almost works. However, it is easy to get lost as it shifts gears. The writing style can also be very patronizing. The author revere's Graham, and is willing to brush aside his failures (especially with women and family.) He regularly talks about Graham's strong ethics, but does not spend much time in giving positive examples.
Graham was born into a fairly well-to-do Jewish family that had immigrated to the US. The temporary time in New York ended up becoming a permanent residence. The family was initially very well to do. However, they became impoverished as the family business failed and his father passed away. Ben learned to work and study hard and value money. He ended up attending Columbia on scholarship where he studied a multitude of subjects. He expected to go to law school, but ended up with a job on Wall Street. He had great success, eventually starting his own firm and weathering through the great depression. He eventually retired to California, where he taught a class at UCLA on investing. In his "spare time", he had many interests. He wrote plays, translated a book from Spanish, and proposed an economic alternative to the gold standard. He did have trouble keeping a marriage together, and was married multiple times, eventually living the waning days of his life with a mistress. He lived most of his life comfortably, and continued to influence many investors, including Warren Buffett whom he hoped would continue to work at his firm after her retired. Alas, the "Oracle of Omaha" decided he would much rather be back in Nebraska once Graham was retired.