Business 2.0: Israel is One of the Top Places to Do Business in the Wired World

If you were asked to list the 12 top cities to do business in the 'wired world', which cities would you name?

In a recent article by Business 2.0, such a list is given. The cities include:Bangalore, Barcelona, Helsinki, Hong Kong, London, Seoul, Shanghai, Singapore, Stockholm, Talinn, Tokyo and yes - you guessed it - Israel's very own Tel Aviv.

Seeing Tel Aviv included on such a list, with the exclusion of major cities such as Sydney, Paris, Berlin and Rome, arouses a twinge of patriotric pride. Considering the fact that Israel is:

- less than 60 years old

- smaller than the size of Lake Michigan

- with an estimated population of around 7 million

- surrounded on all borders by unfriendly neighbors

- and has fought a war in every decade since it achieved independence

it is no small achievement that Tel Aviv is counted amongst the most technologically-friendly places to do business in the world.

Value Investing Principle #1: Value Investors are Voracious Readers

"Formal education will make you a living;
self-education will make you a fortune."
- Jim Rohn

The more that you read,
the more things you will know.
The more that you learn,
the more places you'll go.
- Dr. Seuss

OK OK – I know what you're thinking – you've already read the post last month on the 'Secret to Becoming a Successful Investor' – and you get it - reading is important. I am repeating the message one last time for good reason: As you will come to discover (and I assure you I will point it out), the 'reading principle' is the essential ingredient and a pre-requisite for almost all other Value Investing principles. Choose to ignore it and one stands little chance of successfully adopting and implementing a Value Investing philosophy.

In studying the Value Investing discipline, I quickly recognized the one trait that all successful Value Investors have in common: they are all voracious readers. They are curious individuals by nature, and possess a keen desire to make sense and meaning of the world they live in. It seems that what they read is not confined to the areas of investment and financial markets, but rather spans a diverse range of subjects that include psychology, economics, and science.

Warren Buffett reads 5 newspapers a day, and devotes 75% - 80% of his day just reading. His partner, Charlie Munger observed:

"Warren is one of the best learning machines on this earth. The turtles who outrun the hares are learning machines. If you stop learning in this world, the world rushes right by you. Warren was lucky that he could still learn effectively and build his skills, even after he reached retirement age. Warren’s investing skills have markedly increased since he turned 65. Having watched the whole process with Warren, I can report that if he had stopped with what he knew at earlier points, the record would be a pale shadow of what it is."

On another occasion Munger declared:

"In my whole life, I have known no wise people (over a broad subject matter area) who didn't read all the time – none. Zero. You'd be amazed at how much Warren reads – and at how much I read. My children laugh at me. They think I'm a book with a couple of legs sticking out of it."

And neither Buffett nor Munger are exceptions to the rule. Legendary GEICO Co-Chairman, Lou Simpson spends 5-6 hours of his day reading. Mohnish Pabrai and Whitney Tilson, two of the most recent generation of successful value investors are also known to read extensively.

So how does adopting the habit of extensive reading benefit your Value Investing performance? The obvious benefits are:

Investment Idea generation: reading will assist you in recognizing global trends that are unfolding and which can be capitalized on.

Learning Value Investing Rationale: As Mark Twain once said:"History does not repeat itself, but it does rhyme." It is highly beneficial to examine and understand the rationale behind the successful investments made by leading Value Investors. Getting into the minds of such investors will allow you to slowly recognize similar opportunities as they arise.

The Habit of Reading is also the secret weapon that allows the Value Investor to:

• Accurately Assess & Expand one's Circle of Competence
• Add New 'Tools' to your Mental Toolbox
• Improve one's ability to perform independent and critical analysis
• Strengthen one's Investment Conviction: enhancing one's ability and to ignore the experts and the 'consensus crowd' and to develop the courage to adopt contrarian positions.
• Enhance one's ability to maintain a rational outlook when the rest of the market is losing their heads and operating on pure emotions ('fear and greed').
• Adopt a Longer-term Investment Horizon and Ignore Short-term market fluctuations.
• Recognize the Difference between Value and Price.
• Identify and Embrace Change, and Learn and Adapt

I will discuss most of these in greater detail in future posts.

On a Personal Note:

Those who know me well will tell you that books have always been an important facet of my life and have played a formative role on how I view the world. As a child and throughout high school I read avidly; whilst doing my military service I always carried a novel in my kit; and since entering the workforce I have always carried a book, journal or magazine that I could turn to whilst riding or waiting for the bus or train. I have relocated 3 times – to 3 different continents – and each time the important books ('the keepers') have come with me. I can look at any one of these books and tell you where I bought it (or who gave it to me), when I read it and who recommended it. I seem to surround myself with friends that are also readers, and I especially enjoy sharing the knowledge with them. I absolutely love and appreciate great book recommendations.

On first dates and in interviewing employees I often asked 'candidates' about the books they were currently reading or what books had influenced them. I firmly believe that you can tell much about a person's intellectual curiosity from what they are 'feeding their mind'.

I'll sign off with some advice dispensed by Emerson and highly applicable when one meets a successful Value Investor:

"If we encounter a man of rare intellect, we should ask him what books he reads." - Ralph Waldo Emerson

You can view a comprehensive list of books recommended by Warren Buffett and Charlie Munger here.

Other Quotes of Significance:

"What we become depends on what we read after all the professors have finished with us." - Thomas Carlyle

"If a man empties his purse into his head, no one can take it away from him. An investment in knowledge always pays the best interest." - Benjamin Franklin

"A home without books is a body without a soul." - Cicero

"I have often reflected upon the new vistas that reading opened to me. I knew right there in prison that reading had changed forever the course of my life. As I see it today, the ability to read awoke in me some long dormant craving to be mentally alive." - Malcolm X

"It isn't what the book costs; it's what it will cost if you don't read it." – Jim Rohn

"Learning is the beginning of wealth. Learning is the beginning of health. Learning is the beginning of spirituality. Searching and learning is where the miracle process all begins." – Jim Rohn

"Ignorance is not bliss. Ignorance is poverty. Ignorance is devastation. Ignorance is tragedy. And ignorance is illness. It all stems from ignorance." – Jim Rohn

"What you don't know will hurt you." – Jim Rohn

What is Value Investing?

The raison d'etre of this blog is to explore Value Investing opportunities that are abound in Israel. Before I begin to discuss why Israel presents some great value investing opportunities, I think it might be worthwhile looking at what Value Investing is really all about. The next 20 or so posts will examine the different principles that make up Value Investing. After that – a bit about Israel – and then – hopefully dear reader, we will have the tools to begin analyzing some real deals.

So what is Value Investing?

Value Investing is an investment philosophy based on the framework developed and taught by the late Benjamin Graham and practiced by some of the world's most successful investors. The entire framework rests on the belief that the stock market will on occasion behave irrationally, and offer to willing buyers prices that are extremely attractive. In such instances, Value Investors, just like savvy shoppers, will swoop down and pick up 'bargains'.

Numerous research studies have demonstrated that Value Investing has shown superior returns over the long term when compared to other investment philosophies. One such recent study can be viewed here.

While Value Investing is easy to learn (there are no complex formulae), the discipline, focus, patience and extent of research that is required makes it difficult to implement.

Value Investors do not buy stocks; they invest in businesses. The difference between the two is like night and day and must be understood at the onset.

A typical Value Investment possesses all three of the following characteristics:

(1) A Great Business
(2) Run by Great Management
(3) Invested at a Great Price

Finding a business that meets all 3 criteria is not easy. This is why when such an opportunity is located Value Investors tend to invest a 'meaningful amount' of their funds – what Mohnish Pabrai refers to as 'backing up the truck'. This is also why Value Investors tend to be long-term oriented – once we've found 'value', we want to benefit as much as possible from the 'value' we discovered. Value Investors ignore the market and daily-fluctuations of stock price, and rather focus on business fundamentals such as sales, profit margins, cashflow, debt levels and inventory management.

Pretty simple huh? No fancy-shmancy PhD-level statistics and no Greek letters – just plain-old common sense.

You probably now have some / all of the following questions on your mind:

(1) What do Value Investors define as a great business?
(2) How do Value Investors locate great businesses?
(3) How do Value Investors recognize 'great' management?
(4) What do Value Investors consider a 'great' price

All these questions – and more - will be addressed in the coming posts.

I'll sign off with a relevant passage from Warren Buffett's 1992 Berkshire Hathaway Letter to Shareholders:

"We think the very term "value investing" is redundant. What is "investing" if it is not the act of seeking value at least sufficient to justify the amount paid? Consciously paying more for a stock than its calculated value - in the hope that it can soon be sold for a still-higher price - should be labeled speculation (which is neither illegal, immoral nor - in our view - financially fattening).

Whether appropriate or not, the term "value investing" is widely used. Typically, it connotes the purchase of stocks having attributes such as a low ratio of price to book value, a low price-earnings ratio, or a high dividend yield. Unfortunately, such characteristics, even if they appear in combination, are far from determinative as to whether an investor is indeed buying something for what it is worth and is therefore truly operating on the principle of obtaining value in his investments. Correspondingly, opposite characteristics - a high ratio of price to book value, a high price-earnings ratio, and a low dividend yield - are in no way inconsistent with a "value" purchase."

Friday Video: SNL on Stock Brokers

Every Friday, in anticipation of the weekend (and Shabbat) I hope to post a video that has some relevance to Value Investing and / Israel.

This first one, a Saturday Night Live classic, is on the stock broking profession. Like most satirical lampooning, there lies much truth within the comedy.

Despite beginning his career as a stock broker, Warren Buffett has often been critical of the stock broking and funds management professions and analysts' research in general. Specifically he has questioned the value of stock recommendations that are short-term oriented and which are based on fickle 'flavor-of-the-month' consensus. Instead he prefers his own independent thinking and ideas, which were mostly generated without a supporting team of research analysts, computers, or research databases.

Three of Buffett's most memorable quotes on the subject that come to mind are:

"Wall Street is the only place that people ride into in a Rolls Royce to get advice from those who take the subway".

"The only role of stock forecasters is to make fortune-tellers look good'.

"I don't read economic forecasts. I don't read the funny papers".

Shabbat Shalom and Have a Great Weekend!

The Value Investor Library

Each year, in my opening lecture I ask my students the same question:

"How much would you pay for a can of a magical soft drink that would raise your level of wisdom?"

The replies are invariably the same - and range from the hundreds to thousands of dollars.

I proceed to explain that such a product has existed for centuries, and that it is now more available to mankind, then ever before in its history. It is cheap, sometimes free, and is even available on the internet. You do not consume it via your digestive system - but rather through your mind. Yes - I am referring to books. The bad news is that you will have to sacrifice some time that you are currently devoting to television, sleeping, or bumming around.

If there is one way to get into the mind's of the world's greatest investors and see the world the way they are seeing it, it is by investing the time in reading what they are reading. Even if you devote ten hours to finishing off one book, and you only take from it one good idea - it is worth it. All it takes is a handful of ideas to become a successful (and wealthy) Value Investor. It is no wonder that when Warren Buffett was asked by a young investor in the Berkshire Hathaway 2007 Annual Shareholder's Meeting:

"What should I do to become a great investor?"

Warren Buffett replied

"Read everything you can".

It is for this reason, that over a decade ago and with the guidance of my mentors and teachers, I embarked on my journey of investing self-education. I was committed to one thing - to read what the world's greatest investors were reading - so that perhaps I could see what they are seeing. Back then, as a junior equity analyst I thought to myself that if I read at least a chapter a day, then in a year I would have read about 10 books - and probably a lot more. I usually have a book with me wherever I go, in the event that I am stuck somewhere, in a queue or on a train and a bus. It is also why I enjoy flying so much - it gives me a chance to get stuck into a book.

The problem is that the more I read, the more I realize how much I don't know, and how much more there is to learn. And these days as any parent of young children will testify, time is my most precious resource, and my own reading time competes head-to-head with Barney the Dinosaur - and is losing.

And so, dear reader, I provide for you a list of books that some of the world's most successful investors recommend. They are divided into 8 categories:

(1) Value Investing Core Texts - These are the MUST HAVE's. These are required reading if you are to build your Value Investing foundations of knowledge. If you don't have these yet, buy, borrow - do what you must - these are essential.

(2) Value Investing Texts: Your second tier of knowledge - these are the books that will hone your value investor skills.

(3) Books on Warren Buffett: There are close to 20 books that have been written on the man. It is not surprising as there is great demand to know what makes this man ticks and what are his secrets.

(4) Books on Charlie Munger: There are 2 in this category and both are brilliant!

(5) Books Recommended by Warren Buffett: Usually these recommendations have taken place at the Annual Berkshire Hathaway Shareholders' Meeting. When the Oracle of Omaha (WB) recommends a book, you would do well to heed.

(6) Books Recommended by Charlie Munger: Generally these are books which have little to do with investing and a lot to do with learning about the world we live in. Charlie believes (and I am convinced) that the best investors are those that view the worlds from the perspective of multiple disciplines and using multiple 'mental models'. He argues that if "if the only tool we have in our toolbox is a hammer, then every problem is a nail". He calls this his 'Latticework'. The books in this section will develop new tools for your investor toolbox.

(7) Other 'Latticework' Texts: Apart from being extraordinary reading, and stretching the mind in new directions, they will also build your reportoire of mental models.

(8) Other Recommendations: Mostly my own personal recommendations.

Be warned - the list is long and may intimidate some. The solution is simple - start now, pick one book - and just begin. If you are disciplined and read a chapter a night, within a couple of years you will possess some of the knowledge possessed by the investment masters. Don't hesitate even for a moment. Life is too short. Feeding your mind with quality reading is something that you won't regret. Do not be daunted by the number of books on this list. Remember 'a journey of a thousand miles begins with a single step' - so choose one and begin that journey today.

(1) VALUE INVESTING CORE TEXTS

Security Analysis - Benjamin Graham



This is the text that started it all.Written by the 'father of Value Investing', and Warren Buffet's university professor, mentor and employer, Benjamin Graham. It is as applicable today as it was in 1951. My investment partner is always finding investment ideas from the book, that are relevant and applicable today.

The Intelligent Investor - Benjamin Graham

Warren Buffett writes in the preface:

"I read the first edition of this book early in 1950 when I was 19. I thought then that it was by far the best book about investing ever written. I still think it is".

In fact, after reading the book, Buffett decided that he needed to study under Graham, and enrolled in Columbia University's Business School. Buy this book, read it cover to cover, read it a second time for good measure, and you will understand why.

I received a copy for my 26th birthday, from Tony Holley, a close friend and mentor, who introduced me to Buffet and Value Investing. For me, it was like someone switching the light on. Chapters 8 (on Mr. Market) & 20 (on Margin of Safety) are worth the price of the entire book.

Common Stocks and Uncommon Profits - Philip A. Fisher

Warren Buffett says:

"I sought out Phil Fisher after reading his Common Stocks and Uncommon Profits...when I met him I was impressed the man as by his ideas. A thorough understanding of the business, obtained by using Phil's techniques... enables one to make intelligent investment commitments. I am an eager reader of whatever Phil has to say, and I recommend him to you."

Buffett has often described his investment style as 85% Benjamin Graham, 15% Philip Fisher. I suspect however that Fisher part of the equation is much higher, and that Buffett understated this in deference to his former teacher.

Fisher's 'scuttlebutt' principle is priceless and should be adopted by any investor that wishes to gain an informational advantage on the investor masses. Tony Holley also gets credit for putting this into my hands. This is another Tony Holley special.

One Up on Wall Street - Peter Lynch

Written by legendary Fidelity Magellan fund manager Peter Lynch. If you had invested $10,000 when Lynch became fund manager of the fund in 1977, your investment would have been worth $280,000 in 1990 when he left his position.

I was given this book by my first boss when I was a junior analyst. Brilliant and easy to read, Lynch shows how the average investor can have an informational advantage over fund managers and large insitutions.

(2) VALUE INVESTING TEXTS

Value Investing: From Graham to Buffett and Beyond - Bruce Greenwald et. al

This book reads like a college textbook, which is not surprising as it is written Professor Bruce Greenwald, Professor of Finance and Asset Management at Columbia University Graduate School of Business. Nonetheless, if you've got the patience (how badly do you want to beat the market?), then read it slowly - chapter by chapter and take lots of notes.

Value Investing Made Easy - Janet Lowe

Written more than 10 years ago, it is a much easier read than most of the core texts or Greenwald's. A good primer for the reader that does not want to work too hard.

The Dhandho Investor - Mohnish Pabrai

Pabrai is one of this decades up and coming money managers. With stellar returns of 20%-plus in the last 8 years, he is committed to the tenets of Value Investing. An ardent follower of Warren Buffett, he attributes his investment success to Buffett's teachings and philosophy.

Chapters 13 & 14, and particularly his walk-through rationale behind his investments in Stewart Enterprises, Level 3 and Frontline should be mandatory reading in any serious investment syllabus. I loved his use of the chakravyuh concept and how he explains the 'low risk / high uncertainty' model. His explanation and use of the Kelly Formula is exceptional. I thoroughly enjoyed this read and will certainly be keeping an eye on Pabrai.

Beating the Street - Peter Lynch

In this sequel to his best seller, One Up on Wall Street, Lynch takes the reader through how he has analyzed several industries, and also candidly discusses his investment mistakes. This really is an excellent account of how he achieved such a stunning trackrecord.

The Little Book That Beats the Market - Joel Greenblatt

I'm a big fan of Joel Greenblatt. Greenblatt, a champion of Value Investing, has one of the best trackrecords - on average 30% per year over the last 20 years. This is superior to Buffett's. This alone should be reason enough to read what he has to say. Both his book's are well-written and easy to read. If you wish to introduce a friend, child or family member to the world of investing - this is the ideal gift. This book was written for his own children in mind, so it is light and simple, and yet heavy with the investment concepts that will develop into a solid foundation.

You Can Be a Stock Market Genius - Joel Greenblatt

See above review.

The Little Book of Value Investing - Christopher H. Browne

The author is a former student of Benjamin Graham (the 'father of Value Investing') and is referred to in Warren Buffet's Superinvestors of Graham and Doddsville.

The Motley Fool Investment Guide - David & Tom Gardner



I am a big fan of 'The Fool'. They have made it their mission to educate the masses about how easy it is to invest, and how easy it is to beat brokers and fund managers. If you are uncertain about buying this book, then have a look at their site. You won't be disappointed.

How to Think Like Benjamin Graham and Invest Like Warren Buffett - Lawrence A. Cunningham



Outsmarting the Smart Money - Lawrence A. Cunningham



Stocks for the Long Run - Jeremy J. Siegel

This book was voted by Business Week as one of the top 10 business books of 1994. Despite the fact that at the 2006 Berkshire Annual Shareholders meeting Charlie Munger called Siegel demented for comparing 'apples to elephants' - I did find much of value in this book. This book provides strong evidence for the long term 'buy-and-hold' strategy. It is good to return to during short-term periods of market turbulence that rock your portfolio.

What Works on Wall Street - James P. O'Shaugnessy



There's a lot of empirical data and discussion in this book, but it is set out in a way that it makes it readable. Valuable for learning how to design stock screens that will generate value ideas. I found it of immense value. A Tony Holley special.

Value Investing: A Balanced Approach - Martin J. Whitman

Marty Whitman is the founder and principal of the renowned Value Funds - Third Avenue Funds. Both his books have had mixed reviews - most probably because he highlights the faults of academics with regards to Modern Porfolio Theory.

The Aggressive Conservative Investor - Martin J. Whitman

See above.

Contrarian Investment Strategies - David Dreman

In his book, Dreman delves into psychology to show that our brains are 'hard-wired' for under- or average performance on the market. By adopting a contrarian approach - buying when everyone is selling - we must over-ride and ignore our most basic instincts of 'flight'.

More Than You Know - Michael J. Mauboussin

Mauboussin who is Chief Strategist at Legg Mason Capital Management, is a brilliant mind - and a great writer. His focus is on 'behavioral finance' - and you can read much of his writing here. This book follows in the steps of Munger's 'latticework of multiple mental models', and leads the reader through psychology, science and other disciplines. Great.

Expectations Investing: Reading Stock Prices for Better Returns - Michael J. Mauboussin

This book teaches you to think about investing by focusing on valuation, expectations of future cash flows and obviously discounted cashflow.

(3) BOOKS ON WARREN BUFFETT

The Warren Buffett Way - Robert G. Hagstrom, JR.



This was the first book that I ever read about Buffett (placed into my hands - yes - by Tony Holley). Very well researched and written, it provides much insight into the man. I try to re-read it once every second year. I highly recommend it.

The Warren Buffett Portfolio - Robert G. Hagstrom, JR.

Recommended by Buffett and Munger as one of the better books to read.

The Essays of Warren Buffett - Warren E. Buffett & Lawrence Cunningham



A MUST READ. A compilation of Buffett's writings, from his 'Letters to Shareholders'. It doesn't get better than this. Raw wisdom. His metaphors and aphorisms are his greatest marketing tools.

Buffett: The Making of an American Capitalist - Roger Lowenstein



This is considered one of the better Buffett biographies. Superbly written, it provides depth of insight into Buffett's character, but does not delve into his investment strategies. Nonetheless, highly recommended.

Of Permanent Value - Andrew Kilpatrick



This is the ultimate Buffett biography. 2 volumes, 9 pounds, 1,800 pages. All that you have ever wanted to know about the man. I have not read this - yet - but it is on my 'wishlist' (hint).

How to Pick Stocks Like Warren Buffett - Timothy Vick



The Tao of Warren Buffett - Mary Buffett

Despite being written by Buffett's former daughter-in-law, and without his consent, Mary Buffett provides for readers 125 meditations (Buffett quotes) - each with a page that explains further the 'thoughts'. It's an easy read - finished in one sitting. Some of the thoughts include: "You can't make a good deal with a bad person", "Wall Street is the only place that people ride to in a Rolls Royce to get advice from those that take the subway", and "What we learn from history is that people do not learn from history".

The Midas Touch - John Train



From the best-selling author of The Money Masters, this is a short and easy read. A good first book on Buffett.

Warren Buffet Speaks - Janet Lowe



An easy read - and probably the most comprehensive collection of Buffett aphorisms. I refer to it often to make sure that I am getting th quote right.

The New Buffetology - Mary Buffett



Written by Buffett's former daughter-in-law. Contains some good case studies on Buffett's investments, and a good investment checklist.

(4) BOOKS ON CHARLIE MUNGER:

What Warren Buffett thinks of Charlie Munger:

“Charlie can analyze and evaluate any kind of deal faster and more accurately than any man alive. He sees any valid weakness in sixty seconds. He is a perfect partner.”

"Charlie shoved me in the right direction of not just buying bargains, as Ben Graham had taught me. This was the real impact Charlie had on me. It took a powerful force to move me on from Graham's limiting views. It was the power of Charlie's mind. He expanded my horizons."

Poor Charlie's Almanack: The Wit and Wisdom of Charles T. Munger

This is without a doubt one of my most valuable books in my library. At $50, it is a bargain for the value that you are getting. I wish I'd bought it 10 years ago! While it looks like a 'coffee table' book, it is much much more. You can open to any page and just learn. It is filled with a biography of Munger's life, his speeches over the past 20 years, and hundreds of quotes and testimonials. My copy sits on our dining room table, and whenever I am waiting for my wife to 'finish getting ready' before we go out, I just randomly flip to a page and soak up some Munger-wisdom. Makes one hell of a gift, and the proceeds go to the Munger Research Center at the Huntington Library.

Damn Right! Behind The Scenes With Berkshire Hathaway Billionaire Charlie Munger - Janet Lowe

This is one of the most enjoyable books that I read this year - I couldn't put it down. An in-depth biography of Buffett's partner - Charlie Munger, it tells the story of a brilliant mind, committed to learning about this world, and to contributing to society. Absolutely inspirational. I can't recommend it enough.

(5) BOOKS RECOMMENDED BY WARREN BUFFETT:

When Genius Failed - Roger Lowenstein

Buffett refers to Long Term Capital Management saga often as an example of the irrelevance of IQ when it comes to successful investing. There is much to be learned from their failure.

Nuclear Terrorism: The Ultimate Preventable Catastrophe: Graham Allison

Recommended by Buffett at the 2005 Annual Berkshire Shareholders meeting. Never in the history of mankind has there been a situation where one man (or 19) has the ability to kill tens of thousands. 9-11 taught us otherwise. What is described in this book is the type of 'black swan' that Taleb refers to in his book. A good op-ed in the Wall Street Journal by the author can be read here.

F.I.A.S.C.O: Blood In The Water On Wall Street - Frank Partnoy

Recommended by Buffett at the 2005 Annual Berkshire Shareholders meeting. Munger said of the book:

"You would be disgusted if you had a fair mind and spent a month really delving into a big derivative operation. You would think it was Lewis Carroll (Alice in Wonderland). You would think it was the Mad Hatter's Tea Party. And the false precision of these people is unbelievable. They make the worst economic professors look like gods. Morever, there is depravity augmenting folly. Read the book F.I.A.S.C.O by law professor and former derivatives trader Frank Portnoy, an inside account of depravity in derivative trading at one of the biggest and best-regarded Wall Street firms. The book will turn your stomach."

The Wealth and Poverty of Nations: Why some are so rich and some are so poor - David Landes

This book explores and attempts to explain why some cultures that possess certain advantages have never become world powers, and why others have become so prosperous. Thought-provoking.

Guns Germs and Steel- The Fates of Human Societies - Jared Diamond

Diamond tackles the same subject as Landes (see previous recommendation), and attempts to explain why certain countries become cultural centers and military superpowers. It provides the reader with an interesting explanation of why the world has developed the way it has.

The Third Chimpanzee - Jared Diamond

A provocative book that attempts to show the reader that with 98% of human genes being identical to chimpanzees, that we are merely another more developed species of ape. The book explores the evolution of mankind from ape to what we are today.

A Short History of Nearly Everything - Bill Bryson

Recommended by Buffett at the 2004 Annual Berkshire Shareholders Meeting. I recently finished this book and highly recommend it. I possess little to no formal science education and this filled many gaps. Bryson is a great writer, witty and brilliant - he takes the reader on a journey - showing him how insignificant mankind and the planet earth are in the greater scheme of things - and yet how significant we are in protecting an environment that is becoming ever more fragile.

Personal History - Katherine Graham

Owner of the Washington Post, Kay Graham was a close friend of Buffett and a remarkable woman. This is an inspirational read. This book is a 1998 Pulitizer Prize winner.

Titan: The Life of John D. Rockefeller, Sr. - Ron Chernow

A biography of history's first billionaire.

Bull: A History of the Boom and Bust - Maggie Mahar

The Smartest Guys in the Room - Bethany McLean

The full story behind the Enron scandal.

In an Uncertain World - Robert Rubin

Warren Buffett says of the author:

"As Secretary of the Treasury, Robert Rubin ranked with the best. The drama-packed account of his years on the job should be read by all who are interested in what happens when politics and economics intersect."

Liar's Poker - Michael Lewis

(6) BOOKS RECOMMENDED BY CHARLIE MUNGER:

Influence: The Psychology of Persuasion - Robert Cialdini

This is my favorite Munger recommendation and another Tony Holley special. Charlie Munger actually gave the author one Berkshire Hathaway share (worth today $120,000) as a show of appreciation. This is one of the most useful books that I have read in the past decade. Makes you realize what suckers we really are and how easily we are manipulated. In the book, Cialdini describes six psychological principles that drive our powerful impulses to comply to the pressures of others, and shows how we can defend ourselves against manipulation or use them to make our persuasion techniques more effective.

The Martians of Science - Istvan Hargittai

Recommended at the 2007 Annual Wesco Shareholders Meeting. Munger said: "It's a hell of a book about five Hungarian physicists driven to the U.S. by Hitler, who contributed much to science here. I can't recommend it enough." You can read an excerpt from the book here.

Einstein: His Life and Universe - Walter Isaacson

Recommended at the 2007 Annual Wesco Shareholders Meeting. Munger said: "I've read all the Einstein biographies and this is by far the best - a very interesting biography."

Master of the Game: Steve Ross and the Creation of Time Warner - Connie Bruck

Munger says of the book:

"I very much enjoyed Connie Bruck's biography - Master of the Game - about Steve Ross... she is a very insightful writer and it's a very interesting story." - 1994 Annual Berkshire Shareholders Meeting

Ice Age - John and Mary Gribbin

What Munger had to say about the book:

"Ice Age is one of the best books I have ever read. I've spent thousands of dollars buying copies for my friends. If you don't like Ice Age, then you have some limitations." - 2002 Wesco Annual Shareholders Meeting

How the Scots Invented the Modern World: The True Story of How Western Europe's Poorest Nation Created Our World and Everything In It - Arthur Herman

What Munger had to say about the book:

"I also recommend How the Scots Invented the Modern World. It's amazing how one million poor people with a lousy climate and no resources had such a large constructive influence on the world. I tried to figure it out and I couldn't. The professor did that. It's a wonderful book."

Deep Simplicity: Bringing Order to Chaos and Complexity - John Gribbin

"Not everyone will like Deep Simplicity. It's pretty hard to understand everything, but if you can't understand it, you can always give it to a more intelligent friend." - Charlie Munger, 2004 Wesco Annual Shareholders Meeting.

A Matter of Degrees: What Temperature Reveals About the Past and Future of Our Species, Planet and Universe - Gino Segre

A Matter of Degrees, by a physicist named Segre, is a perfectly marvelous book. Not a book you can go through at 90 MPH, but if you parse through it slowly, you'll get a lot out of it. You'll get a lot of hours per dollar if you use it right." - Charlie Munger, 2003 Wesco Annual Shareholders Meeting.

Getting It Done: How to Lead When You Are Not in Charge - Roger Fisher

What Munger has to say about the book:

"This book is must reading for those seeking to maximize their contribution to the constructive work of the world."

Conspiracy of Fools: A True Story – Kurt Eichenwald



Charlie Munger said of the book: "... that Enron book is really worth reading because the evil is so extreme. You see people getting sucked in by the evil around them. You just learn so much." - 2007 Wesco Annual Meeting.

Several books have been written about the Enron affair, but this is, in my opinion is the best. A great read. Thoroughly-researched and Eichenwald is a great story-teller.

The Path to Power (The Years of Lyndon Johnson, Volume 1) – Robert A. Caro

" I loved Caro’s book – I thought it was very well done. I think reading his biography on LBJ is very important for anyone who wants a view into the human condition. LBJ never told the truth when a lie would be better. This is the way he went through life. He had a high intellect and extraordinary energy and did a lot of good along with the bad. I’m not sure he didn’t do more good than bad. But I think it’s an appalling life to lie as much as LBJ. What I said at Berkshire meeting about the robber barons applies here: “When he’s talking, he’s lying, and when he’s quiet, he’s stealing.” - Charlie Munger, 2004 Wesco Annual Shareholders Meeting.

Les Schwab: Pride in Performance – Les Schwab



"If you want to read one book, read the autobiography of Les Schwab. He ran tire shops in the Midwest and made a fortune by being shrewd in a tough business by having good systems…He made hundreds of millions selling tires". - Charlie Munger, 2004 Berkshire Hathaway Annual Meeting.

The Selfish Gene - Richard Dawkins

Recommended in the second edition of Poor Charlie's Almanack.

Only the Paranoid Survive - Andy Grove

Recommended in the second edition of Poor Charlie's Almanack. A great read - a reminder to why Buffett steers clear from Hi-tech companies: the environment is changing to quickly - the 'moats' and the unless the management is continuously vigiliant and prepared to adapt, then any competitive advantage is only temporary.

Three Scientists and Their Gods: Looking for Meaning in an Age of Information - Robert Wright

Recommended in the second edition of Poor Charlie's Almanack.

Getting to Yes: Negotiating Agreement Without Giving In - Roger Fisher & Ury Fry

Recommended in the second edition of Poor Charlie's Almanack

Benjamin Franklin: An American Life - Walter Isaacson

"The Isaacson book on Franklin was terrific. He had a terrific subject – it’s hard to write a bad book on such an interesting subject." - Charlie Munger, 2004 Wesco Annual Shareholders Meeting.

Darwin's Blind Spot - Frank Ryan

Recommended by Charlie at the 2003 Annual Berkshire Shareholders Meeting.

Living Within Limits: Ecology, Economics and Population Taboos - Garret Hardin

Charlie says of this book: "It is a summary of the major things Hardin has learned in a lifetime. He is a real thinker. That is a fabulous book. " - Outstanding Investor Digest, June 30, 1993

The book argues for population and immigration control and proposes that the earth is not capable of supporting limtless population growth.

(7) OTHER 'LATTICEWORK' TEXTS TO EXPAND YOUR MENTAL MODELS:

On the Latticework (multiple mental models) concept, Charlie Munger says:

“You must know the big ideas in the big disciplines and then use them routinely – all of them, not just few. Most people are trained in one model – economics, for example – and try to solve all problems in one way. You know the old saying: ‘To the man with a hammer, the world looks like a nail.’ This is a dumb way of handling problems.”

– Charlie Munger, Poor Charlie’s Almanack, p.55

Seeking Wisdom - Peter Bevelin

Another Tony Holley recommendation. I haven't read it yet - but it's on my wishlist. I hope to pick it up in Omaha in 2008.

Latticework: The New Investing - Robert G. Hagstrom

The author writes: "Investment decisions are more likely to be correct when ideas from other disciplines lead to the same conclusion. Those who strive to understand (these) connections are well on the way to worldly wisdom. This makes us not only better investors but better leaders, better citizens, better parents, spouses and friends."

Beyond Graham and Dodd - Mitch Julis

Recently released, I look forward to reading and reviewing this. Mitch is the founder of Canyon Capital.

The Origin of Wealth - Eric D. Beinhocker

This was recommended to me by Canyon Capital's Mitch Julis. It recently arrived in the post - and I look forward to reviewing it once I have completed it.

(8) OTHER RECOMMENDATIONS:

Manias, Panics and Crashes - Charles. P Kindleberger

Warren Buffett once said that the one thing you can learn from history is that people do not learn from history. It is for this reason that it is worth reading both this book and the next one - so that we are able to remain apart from the herd during times of panics or irrational exuberance.

Devil Take the Hindmost - Edward Chancellor

See the review above.

Revolutionary Wealth - Alvin & Heidi Toffler

I recommend all the books written by the Tofflers. They are 'futurists' at heart - keen observers of the changes that are occuring in our world, and where we are heading. In their latest book, the Tofflers examine the new 'wealth system' of the 21st century - and look at everything from extreme sports, how vodka is marketed to blogging etc. If you want to get a glimpse of the future - this is the book for you. Adapt or wither.

The Rediscovered Benjamin Graham - Janet Lowe



This is a great collection of Graham's writings, speeches, interviews and lectures.

Fooled By Randomness - Nassim Nicholas Taleb

Remember the line from Baz Lurman's 'Wear Sunscreen' - the one that goes: "Whatever you do, don't congratulate yourself too much, or berate yourself either. Your choices are half-chance, so are everybody else's."? Well - that's what this book's all about. This book examines the difference between skill and luck, and looks at to what extent randomness plays in success and failure. Taleb has a brilliant mind - a deep thinker - and his writing is both humorous and rivetting. His latest book 'Black Swan' is a New York Times Best Seller.

The Black Swan - Nassim Nicholas Taleb

Do you know what a 'Black Swan' is? No - not the bird. In this new York Times Best Seller, Taleb argues that the really important events that affect us (and financial markets) cannot be predicted by past events, but instead will be rare and unpredictable - what he refers to as 'Black Swans'. Why Black Swans? Before Australia was colonialized by the British, Europeans believed that all swans were white. That is, until they arrived on the shores of Australia to discover that their assumptions were wrong - and that black swans exist.

Like his first best-seller, Taleb continued to explore risk and uncertainty. Both of his books are in my opinion the best on these subjects.

Family Village Tribe: The Story of Flight Centre Limited - Mandy Johnson

Another Tony Holley Special! This is a great read about one of Autralia's most successful franchises.

The Millionaire Next Door: The Surprising Secrets of America's Wealthy - T. Stanley & W. Danko

Also a Tony Holley Special - this book surprised me by confirming that my behavior, though significantly different to my friends, is validated. I highly recommend it if you are open and willing to look at yourself critically and change patterns of behavior.

The Power Laws: The Science of Success - Richard Koch

A birthday present from - you guessed it - Tony Holley. This is along the lines of Latticework's multiple mental models - and actually lists the different laws and how they can be applied.

Decision Traps: The Ten Barriers to Brilliant Decision-Making and How to Overcome Them - J.E Russo & P.J Schoemaker

Decision making should become a science in its own right, and a mandatory course in all MBA's. What is Wisdom but the ability to discern the best course of action, and to see through the illusions that blind us.

The Long Tail: Why the Future of Business is Selling Less of More - Chris Anderson

Understanding the Long Tail concept is essential in understanding how business has been forever changed by the knowledge sharing phenomenon that is the internet. Authored by Wired Magazines editor, he explores how niche markets and unlimited shelf space has changed nature of business. Thought-provoking. I highly recommend it.

Against the Gods - Paul Bernstein

The skill of understanding, recognizing and minimizing risks is integral to successful value investing. This is a great book to hone this skill. It draws from history and biographies to trace the development of risk management. It's up there with Taleb's books.

The Art of the Long View - Peter Schwartz

Peter Schwartz is one of the world's 'futurist pioneers'. This book is not about predicting the future, but rather about preparing for the future. It discusses how to think about possible scenarios in the future in order to make better decisions in the present.

Ishmael - Daniel Quinn

If I was to choose 5 books that had the most impact on my life, this would be one of them. There is a quote on the front cover of the book by Jim Britell from the Whole Earth Review - "From now on I will divide the books I have read into two categories - the ones I read before Ishmael and those read after." - I couldn't agree more. I read this whilst diving in Vanuatu - and I remember being troubled by the books ideas. It challenged my core outlook of the world and the paradigms I held true. Quinn is a master story teller and I could not recommend his writings enough. I have bought tens of copies for friends and loved ones.

The Story of B - Daniel Quinn

See review above.

My Ishmael - Daniel Quinn

See review above.

The Lexus and the Olive Tree - Thomas Friedman

Thomas Friedman is a multiple Pulitzer Prize winner, regular New York Times columnist - and a great writer and futurist. Although some of this book is out-dated, his ideas on globalization are mandatory reading for those who want to gain a better grasp on the world we live in today. Concepts such as 'the electronic herd' must be understood to remain in-sync with today's investing environment. Chapter 3 - "and the Walls Came Tumbling Down" - is great - and discusses 'soft power' - how the West can positively influence oppressive regimes without using military force - but rather by using global media and satellite TV. The concepts regarding the 'democratization of information' were way ahead of its time - (considering the fact that it was written in 1999) - before the blogging era.

The World Is Flat - Thomas Friedman

See above review. In his latest book, Friedman continues from where he left off in the Lexus and the Olive Tree, to share his insights of what our future is going to look like.

The Richest Man in Bablyon - George S. Clason

A short and easy read, this best-selling classic offers timeless wisdom on how to generate and maintain wealth. The beauty of the ideas contained in the book are that they are simple and common sense. Readers will say 'obviously' - and yet very few have the discipline to implement these.

Tuesdays with Morrie - Mitch Albom

Albom's book - a true story and best-seller, also places on my 'top 5 books of all time'. I read it in one sitting (on a flight from SF to NY) and have bought tens of copies for friends. This book nourishes the soul and serves as a reminder of the things that are truly important in our lives. Make sure you have a box of tissues - I guarantee you'll need it.

Man's Search for Meaning - Viktor Frankl

This is also one of the top 5 books that has had a major impact on the way I view the world. Viktor Frankl, neurologist, psychiatrist and holocaust survivor, brought to the world his theories of logotherapy. Absolutely brilliant. I have bought tens of copies for friends and loved ones.

The Tipping Point - Malcolm Gladwell



Both of Gladwell's books are must reads. In the Tipping Point, he examines why and how ideas and trends catch on and spread. The chapter on 'mavens' and 'connectors' (especially on Lois Weisberg) was superb.

Blink - Malcolm Gladwell

If you believe in 'gut instincts' or a 'sixth sense' then you will want to read this book. In this book, Gladwell examines how we are able to sub-consciously make snap-decisions - and why it is often best to go with our first instincts. This book deals with how we often 'just know' something without really being able to explain why we know it, and how this is one of the most powerful skills that we have. This book shows how we can develop these skills and how these can help us make better decisions.

Freakonomics - Stephen D. Levitt

The cover refers to the author as a 'rogue economist' - and that title could not be more appropriate. Levitt, a brilliant researcher and writer, draws from various fields and statistics to show his readers that conventional wisdom and opinion is often incorrect. This is a book that encourages you (leaves you little choice) but to think critically.

The World as I See It - Albert Einstein

At little over a 100 pages in length - this collection of Einstein's writings touches on his views on wealth, science, politics, education, religion and on the Jewish people. Insightful.

Everyday Irrationality - Robyn Dawes

Filters Against Folly - Hardin Garrett