Another source of great investment advice is the following wonderful website. The author of this website, Jacob Wolinsky, has unselfishly gathered a trove of great papers, in particular all the Buffett Partnership letters to partners from 1959 to 1969 as well as the hard-to find Graham-Newman Partnership Letters from 1946 to 1958 and the Charlie Munger Letters to Wesco shareholders from 1997 to 2009. If you are as passionate about investing as we are, you will spend many hours reading and thinking about the ideas discussed in these marvelous documents.
All posts by author
Benjamin Graham. The Intelligent Investor Fourth Revised Edition (Harper and Row, 1973). Warren Buffett has repeatedly told the story of how this book started him on his investing career. In 2009, Buffett told PBS “I read a book, what is it, almost 60 years ago roughly, called The Intelligent Investor and I really learned all I needed to know about investing from that book, and in particular chapters 8 and 20…I haven’t changed anything since”.
Chapter 8 entitled “The Investor and Market Fluctuations” discusses the classic mistake of buying when everyone is buying and selling when everyone is selling. Graham warns (1973, p.94) “It is easy for us to tell you not to speculate; the hard thing will be for you to follow our advice.” And (pp. 106-107)”The true investor scarcely ever is forced to sell his shares, and at all other times he is free to disregard the current price quotation. He need pay attention to it and act upon it only to the extent that it suits his book, and no more. Thus the investor who permits himself to be stampeded or unduly worried by unjustified market declines in his holdings is perversely transforming his basic advantage into a basic disadvantage. That man would be better off if his stocks had no market quotation at all, for he would be spared the mental anguish caused him by other persons’ mistakes of judgment.”
Chapter 20 entitled “Margin of Safety” as the Central Concept of Investment” Graham writes (p. 277) “…to distill the secret of sound investment into three words, we venture the motto, MARGIN OF SAFETY.” What this means is that we need to pay for a stock a price that is lower than its intrinsic value. To guard against over optimism and faulty projections the price we should pay should be lower than intrinsic value by a substantial margin (30% below intrinsic value is a typical margin of safety for value investors although there are times when even Warren Buffett abandons this benchmark).
We have been strongly influenced by Daniel Kahneman’s book Thinking, Fast and Slow that makes us aware of our biases in the way we interpret events and that lead to poor investment advice.
This wonderful list of books and papers on behavioral finance covers the spectrum of what we need to be good investors.