Free Chapter From Dear Chairman Book: Dan Loeb and Hedge Fund Activism

Jeff Gramm's book, Dear Chairman: Boardroom Battles and the Rise of Shareholder Activism, has been featured on the site before and we reviewed it here.

We wanted to let everyone know that Gramm has generously made the chapter about Third Point's Dan Loeb available for free.  The chapter is entitled: Daniel Loeb and Hedge Fund Activism: The Shame Game.  This was one of our favorite parts of the book so if you haven't read it yet, check it out.

You can download a .pdf copy of the free chapter on the book's website here.

And if you haven't already, definitely be sure to pick up a copy of Dear Chairman.

So You Want To Start A Hedge Fund By Ted Seides Book Review

Ted Seides has written an instrumental book that assuredly is applicable to a large portion of our readers: So You Want To Start A Hedge Fund: Lessons For Managers and Allocators.

Seides is the former President and co-CIO of Protégé Partners, which specialized in seeding and investing in hedge funds.  Prior to that, he worked under David Swensen in the Yale University Investment Office.   

The book greets potential fund managers with an assault of reality, but also a roadmap to success.  True investors love to learn from the mistakes of others, and that's where this book excels.

Seides profiles various funds but instead of doing a deep dive on the manager, he isolates which factors contributed to either the success or failure of the fund and outlines them as lessons for both a prospective manager and prospective allocator.  This dual-viewpoint focus allows the reader to learn from the perspective of differing lenses, offering a glimpse inside the thought process of those sitting opposite them at the sales table.

At the end of each chapter, there's a brief summary of "Lessons For Managers" as well as "Lessons For Allocators" directly targeted at each audience, which are incredibly useful.  People short on time could merely skip to the end of each chapter to quickly digest the lesson.  But pay heed: the context provided in each chapter paints a picture as to *why* that lesson was learned, which is the crux of learning from successes / mistakes of others to begin with.  

While the vast majority of chapters are aimed at the manager crowd, there's also a separate chapter dedicated to investing in start-up hedge funds.  Allocators get a lucid look at how to spot potential developing red flags as well as a tidy list comprised of traits and intricacies that can lead to manager success.

The book highlights lessons learned from funds such as:  Eton Park Capital, Senator Investment Group, Tourbillon Capital, Whitebox Advisors, Scion Capital, Brenner West Partners, Sabretooth Capital, and Signpost Capital.  Many other funds are also featured under pseudonyms, but the lessons remain the same.


Examples Of Lessons Learned In The Book 

Here's a brief sample: one manager left a pedigree fund and launched his own firm.  His stock picks performed well and assets under management rose.  The manager tried to establish a positive, collaborative culture.  He allowed analysts to source and research ideas.  While he ultimately made the buy/sell decisions, the performance of analyst picks lagged the manager's considerably.

Seides' lesson for managers?  "Put your destiny in your own hands."  The manager had good intentions of building a collaborative environment, but performance suffered because of it.  He then let analysts go and added more hierarchy to the investment process.  In an industry where performance is constantly under a microscope, one mistake can cost a fund its entire existence.

One other quick example from the book: a manager started a fund and instead of getting invested in a rising market, tried to wait and time the market for better value.  His performance lagged initially, investors never really took an interest, and eventually the fund closed down.

Seides articulated the lesson as follows: "When getting started, don't let perfect be the enemy of good."  He adds, "Even if a new fund starts slowly and preserves capital better than others in a tough tape, it must demonstrate the ability to then turn and make money for its clients before prospects will get interested.  Getting one market call correct is difficult enough; getting two right consecutively requires twice as much luck." 

While we highlighted two mistakes as examples, the book also offers a myriad of success stories that outline how various funds attracted capital, built their brand, refined their strategy, and more.

While some might say that the title is perhaps slightly corny, consider this:  So You Want To Start A Hedge Fund has already been endorsed by numerous prominent hedge fund managers themselves.  Bill Ackman (Pershing Square), Scott Bessent (Key Square Group, ex-Soros Fund), Jason Karp (Tourbillon), and Jonathan Auerbach (Hound Partners) all praise the book.   

It also includes a Foreword by Steve Galbraith (ex-Maverick Capital, Herring Creek Capital).


Who should read this book?  

There are two types of people especially who will benefit from reading: those that have even the slightest desire to manage their own fund (obviously) and allocators who invest (or are looking to start investing) in hedge funds.  There are hardly any books on the topic of how to select hedge funds and what to look for, so anyone even remotely interested in that subject would benefit immensely (high net worth investors, nascent family offices, financial advisors, aspiring fund-of-funds, etc).


How long is the book?  

This is a perfect fit for those who believe that time is our most valuable asset.  It's an incredibly swift read at only 195 pages (with pages that are much smaller than normal).  You can easily finish it in 2-3 hours or one sitting.  This is a huge asset when you consider just how much practical advice is distilled.  In other words, it gets straight to the point.


What this book is not

It's not a step-by-step list of how to setup a fund.  So if you're expecting that, you'll be disappointed (there's plenty of other resources out there on that subject).  This is not a guide on legal structures, service providers, prime brokers, infrastructure, etc. 


Final Word

Simply put, So You Want To Start A Hedge Fund offers a very high insights-gleaned to time-spent ratio.  If you have any desire whatsoever to start your own fund, read this book.  If you have any desire to invest in hedge funds whatsoever, read this book.  Given the high stakes involved in the industry, it's probably not hyperbolic to say that the lessons learned could potentially help make (or save) millions.
 

Dear Chairman Book Review: Boardroom Battles and the Rise of Shareholder Activism By Jeff Gramm

Jeff Gramm runs hedge fund Bandera Partners and is an adjunct professor at Columbia Business School.  He has written an intriguing book entitled Dear Chairman: Boardroom Battles and the Rise of Shareholder Activism.



Dear Chairman Book Review

When asked why he wrote it, Gramm told us he had an idea to collect original activist letters into a book, but what really got the ball rolling is when he asked Warren Buffett for his 1964 letter to American Express (AXP).  When that arrived in the mail one day, he began chronicling what has now become the archive of activism.

(And speaking of Buffett, value investors might have already noticed that at this year's Berkshire Hathaway annual meeting, Carol Loomis asked Buffett about Dear Chairman.)

Basically, the book is a series of case studies on activist investor situations over the years.  Chapters feature the likes of Benjamin Graham, Robert Young, Warren Buffett, Carl Icahn, Ross Perot, Karla Scherer, Dan Loeb, and BKF Capital.

Many of these managers have been featured countless times on Market Folly, but this account gives a behind the scenes look at many specific situations and underscores the struggle between shareholders and management.

While the first few chapters of the book are admittedly slower and perhaps not as intriguing, it definitely pays off to keep reading as the back half of Dear Chairman is full of interesting anecdotes.  Additionally, the appendix of some never-before-published activist letters offers a rare look into the minds of some of history's great activist investors.

Our favorite was probably Chapter 7 on Dan Loeb of Third Point because he's the most modern incarnation of an activist profiled.  Not to mention, his exploits make for a great story, as the book examines his journey from 'Mr. Pink' on an online message board to the scathing letters he's penned to companies.

Another Chapter later in the book also features Carlo Cannell of Cannell Capital.  He has become more known in recent years as well for his, shall we say, 'choice' words for public company executives (he famously blasted Jim Cramer and TheStreet.com recently).

The book is around 250 pages (including all the activist letters), so not a terribly huge ask in terms of time commitment, and it's easy to stop and pick back up after each Chapter given they all detail independent situations. 

So who should read this book?  Well, aspiring activist investors certainly would benefit.  But so too would any investor looking for more insight on the 'behind the scenes' of board rooms.  If you don't like historical situations or aren't terribly interested in activism in general, then this isn't really the book for you.  But realistically, what aspiring investor doesn't like to learn from others?

The book excels at framing the activist situations with specific details and background color.  Rather than merely reading as a boring timeline of historical events, it transports you from the black and white pages into recreations of the sagas themselves.  The stories are actually quite entertaining, but lessons are embedded as well.

Jeff Gramm's Dear Chairman offers a unique entry into a previously underrepresented niche in the library of finance.

To read the book, click here to pick up a copy (physical or digital).

A Wealth of Common Sense by Ben Carlson ~ Book Review

Ben Carlson recently released an insightful new book, A Wealth of Common Sense: Why Simplicity Trumps Complexity in Any Investment Plan.  In it, he dives into checklists for investors, behavioral finance, and key concepts investors need to be aware of.

Carlson's career has covered managing institutional portfolios for endowments, foundations, and pensions.  He also writes the popular investment blog with the same name, www.awealthofcommonsense.com (which we've linked to in our "What We're Reading" posts on numerous occasions).

Right now, his book is the #1 best seller in Wealth Management on Amazon.  It's easy to see why given the very practical concepts and ideas outlined in the book.

Chapters include:

- The individual investor versus the institutional investor
- The traits required to be a successful investor
- Defining market and portfolio risk
- Market myths
- Defining your investment philosophy
- Behavior on Wall St
- Asset allocation
- A comprehensive investment plan
- Financial professionals

We found the chapter on 'Defining Market and Portfolio Risk' the most insightful (fans of Oaktree Capital's Howard Marks will probably also enjoy this section). 

Carlson writes, "Risk is context dependent and can change depending on your personal circumstances and your perception of risk.  For most investors, your biggest risk comes from not knowing what you're doing, which means you don't have an investment plan in place.  Without a plan, volatility and uncertainty will eat you alive."

He goes on to add, "Volatility can be both a risk and an opportunity, depending on how you react to market fluctuations.  Intelligent investors view volatility as an opportunity, to both profit and keep their cool under pressure by following their process."

Newer investors would find the chapter on 'Defining Your Investment Philosophy' the most useful as it's a key concept most people don't really give enough thought to before diving right in.

Both on his blog and in his book, Carlson has a way of drilling down big picture ideas into the most important nuggets, all with concise language.  This is very valuable as it a) saves you time and b) ensures you focus on the most important aspects of a topic, tuning out the noise and complexity.  While this is great for readability, it's also a reminder of an important cliche: it's easier said than done.

The main drawback of the book is the lack of concrete and/or actionable ways to execute on what he's outlined, as that's largely left up to the reader.  Given that everyone's particular investment situation is different, we get why he did this, as blanket advice won't apply to everyone.  That said, it would have been nice to see a few more signposts guiding readers toward certain paths under broad scenarios.

The back of A Wealth of Common Sense says that inside you will learn how to: "keep up with - or beat - professional money managers, exploit stock market volatility to your utmost advantage, learn where advisors and consultants fit into a smart strategy, build a portfolio that makes sense for your particular situation."

That last point is arguably the most valuable concept taken away from the book given that everyone's risk tolerance and goals in investing are different.

Who should read this book: individual investors ('retail' investors) will benefit the most from reading this.  Those who enjoy concepts of behavioral finance or are looking to learn more about it will also find it useful.  Financial advisors and money managers (or aspiring ones) could also utilize this as a means to refine their own thinking and to identify topics to discuss with clients. Professional buysiders will take less away from this book.    

Overall, reading the book was time well spent.  As we've often said before, investing is a continual education and Carlson's book furthers that.  It's a practical read that addresses key investing concepts that often get drowned out by volatility and short-term thinking.   You can read the new book A Wealth of Common Sense by clicking here.

Q&A With Guy Spier About His New Book: The Education of a Value Investor

A MarketFolly reader recently reached out to Aquamarine Capital's Guy Spier about his new book, The Education of a Value Investor: My Transformative Quest for Wealth, Wisdom, and Enlightenment.  Guy graciously agreed to answer the reader's questions and to host it on MarketFolly so everyone can learn from his experiences.

Simply put, this book is Guy's look at his life and his investing evolution.  He candidly showcases his shortcomings and highlights the great attributes of other investors he's met with and learned from, such as Warren Buffett and Mohnish Pabrai.

One of our favorite sayings is that investing is a continual education.  The Education of a Value Investor exemplifies just that.  As you ride alongside Guy on his journey, you'll learn from his experiences and undoubtedly reflect on your own path and how you can further improve yourself.

Video: Q&A With Guy Spier About His New Book

Embedded below is the video of Guy's responses (email subscribers will need to come to the site to view it):




Here are the questions Guy answered along with a brief summary of his responses.  Be sure to watch the video for his full, in-depth answers to each topic.

1. Going Out of Your Comfort Zone (at 0:12 in the video) What other activities do you participate in that would have once been out of your comfort zone? What lessons have you learned from those and how have they shaped you as a person and an investor?  Guy did an Ironman triathlon and has looked into meditation.  He says listen to your gut instinct and if it's pushing you towards something, go for it.


2. On Mentors (at 3:35) Mentorship played a key role in your success. How do you suggest young people seek out mentors? And since mentees often have little to offer in return, how do you think the mentee can show appreciation and/or give back in the relationship?  Guy says, "Don't seek the masters, but seek what they sought."  The key here is since you're probably not going to get access to the likes of Warren Buffett, instead look at who those people have learned from and seek out their mistakes/successes.  If you do have the opportunity to meet with someone influential, send them a handwritten note expressing your gratitude.


3. Avoiding Bad Influences (at 7:38)  What advice would you pass on for people looking to create healthy, encouraging environments?  Guy says it's important to make decisions that make you happy and not necessarily what's expected of you.  He says to give your children choices/control early on to pursue interests.


4. Buying When the Market is Crashing (at 12:50)  How do you decide the right time to buy and who are the worthy candidates?  Guy found this difficult at first (especially due to not having longer-term lockups at his fund).  He says, "I think that the nature of one's liabilities is inextricably linked with one's ability to buy.  And the answer is I don't know how to run my emotions very well, but I do know how to modify my environment."


5. Advice on Selling (at 15:26)  When do you decide to sell? Have you received any advice on this from your mentors?  Guy admits that he doesn't have a great answer to this, but shared wisdom he received from Li Lu, who manages money for Charlie Munger.  Li Lu said that the time to sell is when you no longer want to buy it.  There is no 'hold', it's either buy or sell.


6. His Relationship With Mohnish Pabrai (at 18:21)  Has being close friends with Mohnish Pabrai slowly made you less risk averse in investing?  Guy says there's a distinction between risk and uncertainty.   Uncertainty is where you don't know the outcome while risk is that there's potential it goes to zero.  Everyone has their own tolerance level for dealing with 'hairy' situations so you have to find out what you're comfortable with.


7. Gaining an Edge on the Competition (at 20:40)  How do you think you gain an edge in a world filled with intelligent, driven individuals all looking to generate alpha?  Guy says to get a structural advantage (permanent capital or as close to it as possible, which allows you to act while others are handcuffed).  He also says to build a network of smart individuals over time.


8. On Macro (at 24:06)  How do macroeconomic considerations factor into your investment analysis?  Guy says that he doesn't think his brain is big enough to do both top-down and bottom-up investing at the same time but different investors have different approaches.  While some investors may provide commentary on the macro environment, it might not ultimately influence their investment decisions directly.


9. Sectors & Geographies For Value Investors (at 25:55)  Are there any sectors or geographies that fundamentally do not work with value investing? Guy thinks the most important thing is having an idea where the business will be in 5, 10, or 15 years; he wants predictability.  He highlights the tech sector as one rife with change and avoids countries where he doesn't understand the rules (specifically mentioning Russia and the natural resources sector).  He also notes that he's made money in the Philippines before.


10. On Activism (at 31:07)  Why do you think more value fund managers do not become activist investors?  Guy doesn't have any intention of being an activist and says you always hear about the successes but there's also failures you don't necessarily hear of.   


11. Evaluating Management Teams (at 35:15)  How do you learn about the character of management teams without sitting down to lunch with them? Guy says the best way to evaluate a management team is to look at their actions based on publicly available information.  Look at their capital allocation, what kind of debt they've issued, etc.  Every decision reveals something about the people making those decisions.  He avoids meeting with management because it can lead to biases.


12. Executive Compensation (at 37:22)  What's your take on executive remuneration?  Are most CEOs overpaid?  Guy says there are some 'superstars' out there that should be paid what they're worth.  At the same time, some are overpaid, some are underpaid.  He says the real question is: what to do about it?         


13. Analyst vs. Portfolio Manager (at 42:10)  How does an analyst know whether they'd make a good portfolio manager? Guy says you'll never know until you go ahead and do it.  In the mean time, he says to obviously manage your PA (personal account) or start one if you haven't already.  They are really two separate skillsets.

-----------------------------------------------------------------------------------------------------------------

Our thanks to a reader for organizing this and thanks to Mr. Spier for taking the time out to further comment on his experiences.  

Be sure to check out Guy Spier's book, The Education of a Value Investor: My Transformative Quest for Wealth, Wisdom, and Enlightenment.  Everyone in the investment world takes their own path that defines who they are as an investor.  And more often than not, learning from others' journeys is an integral part of the process.  This book is a fantastic opportunity to do just that.

P.S.  As an added bonus, the book is a quick read so you can easily absorb it without taking a ton of time out of your schedule.

The Art of Value Investing: How the World's Best Investors Beat the Market (Book Review)

Today we're reviewing the new book, The Art of Value Investing: How the World's Best Investors Beat the Market by John Heins and Whitney Tilson.  These two have aggregated an entire book full of quotes and anecdotes from top hedge fund managers over the years.


The Art of Value Investing: Book Review

MarketFolly.com exists primarily to track hedge funds, examine why they're buying/selling certain stocks, and to learn from great managers.  After all, investing is a continual education.

While learning from your own mistakes is one way to improve your investment process, it can also save you a lot of aggravation and money to take the time to learn from others who are willing to share what they've learned as well, and that's exactly what this book does.

The Art of Value Investing makes you feel as if you're sitting at a giant table full of some of the best investors today.  A topic of investment process is opened for discussion and everyone chimes in with their thoughts, all while you sit there rapidly absorbing all that you can.

Chapters of the book include wisdom from managers on topics such as: circle of competence, generating ideas, portfolio construction, guarding against risk, and more.


Hedge Fund Managers Quoted in the Book

The list is quite extensive, but here's some of the bright minds that are quoted repeatedly in the book:

Seth Klarman (Baupost Group)
Howard Marks (Oaktree Capital)
David Einhorn (Greenlight Capital)
Jon Jacobson (Highfields Capital)
Lee Ainslie (Maverick Capital)
Julian Robertson (Tiger Management)
John Burbank (Passport Capital)
Mitch Julis (Canyon Capital)
Joel Greenblatt (Gotham Capital)
Jeff Ubben (ValueAct Capital)
James Crichton & Adam Weiss (Scout Capital)
Larry Robbins (Glenview Capital)
Ricky Sandler (Eminence Capital)
Bruce Berkowitz (Fairholme Capital)
Thomas Gayner (Markel Corp)
Prem Watsa (Fairfax Financial)

And that's just a few of the big names.  Tons more established and up and coming managers divulge their experiences in The Art of Value Investing.


Quote from the Book

We asked the authors for some of their favorite quotes from the book, and they sent one from David Einhorn on page 107:

"We take the traditional value investor’s process and just flip it around a little bit. If you’re looking for something that’s cheap, you’ll probably do a variety of screens—on price‐to‐sales, price‐toearnings, price‐to‐book, whatever—to identify stocks that appear to be inexpensive. Once you have that list, then you start to research if there are good reasons the stocks deserve to be cheap, or if maybe there’s an investment opportunity because they’re cheap without a good reason. We think that’s the way most value investors approach it.

We never do screens like that. We start by identifying situations in which there is a reason why something might be misunderstood, where it’s likely investors will not have correctly figured out what’s going on. Then we do the more traditional work to confirm whether, in fact, there’s an attractive investment to make. That’s as opposed to starting with something that’s just cheap and then trying to figure out why. We think our way is more efficient."


High Praise From Other Hedge Fund Managers

This is a fantastic book for any investor, whether you're a beginner or a professional.  Don't take our word for it, though.  Here's what Omega Advisors' Lee Cooperman had to say about The Art of Value Investing:

"They have provided in one publication invaluable insights from some of the most accomplished professionals in the investment business.  I would call this publication a must-read for any serious investor."

Pershing Square's Bill Ackman also praised the book:

"(The book) is a thoughtfully organized compilation of some of the best investment insights I have ever read.  Read this book with care.  It will be one of the highest-return investments you will ever make."

Highfields' Jon Jacobson called it a "must-read" and ValueAct Capital's Jeff Ubben said that, "The lessons are like scars and they are revealed here firsthand."

If you enjoy reading MarketFolly, then you'll love soaking up the wisdom from  The Art of Value Investing: How the World's Best Investors Beat the Market.  It's like having your own archive of the minds of some of the most talented managers in the game.

The Alpha Masters: Review of Maneet Ahuja's Book on Dalio, Paulson, Tepper, Loeb & More

We've just finished a must-read book on some of the top hedge fund managers in the game. The Alpha Masters: Unlocking the Genius of the World's Top Hedge Funds by Maneet Ahuja takes you behind the scenes with exclusive interviews and profiles of the managers you read about on this site each day.

Ahuja is CNBC's hedge fund specialist and co-creator of the Delivering Alpha summit. Through her roles, she's developed quite the rolodex and has put it to work by giving readers unprecedented access to prominent managers. With a foreword by PIMCO's Mohamed El-Erian and an afterword by Myron Scholes, Ahuja's book profiles the following nine managers:

Chapter 1: The Global Macro Maven - Ray Dalio, Bridgewater Associates
Chapter 2: MAN versus Machine - Pierre LaGrange & Tim Won, MAN Group/AHL
Chapter 3: The Risk Arbitrageur - John Paulson, Paulson & Co
Chapter 4: Distressed Debt's Value Seekers - Marc Lasry & Sonia Gardner, Avenue Capital
Chapter 5: The Fearless First Mover - David Tepper, Appaloosa Management
Chapter 6: The Activist Answer - Bill Ackman, Pershing Square Capital
Chapter 7: The Poison Pen - Dan Loeb, Third Point
Chapter 8: The Cynical Sleuth - Jim Chanos, Kynikos Associates
Chapter 9: The Derivatives Pioneer - Boaz Weinstein, Saba Capital Management

The book's cover photo is the perfect depiction of what many perceive the hedge fund industry to be: money and secrecy hidden behind locked doors (or in this case, a bank safe deposit box). But just as the cover suggests, Ahuja has unlocked the door to the industry's top titans and she lets you in on some of their secrets and little known facts.


How David Tepper Named His Hedge Fund

One such tidbit is found in Chapter 5 about David Tepper.  While Market Folly often details Tepper's portfolio activity, The Alpha Masters sheds light on little known facts such as why he selected the name 'Appaloosa Management' for his firm to begin with.

It's always interesting to learn what hedge funds are named after because they often tell a story or reveal information about the managers themselves. In Tepper's case, it simply highlighted his desire to make money.

Ahuja writes,

"Tepper and Walton only needed the perfect name for their new venture. Greek mythology was popular at the time and they first decided on Pegasus, the flying horse, before discovering it was already taken. So Walton went to the library and came back with a book on horses. They knew they needed a name that started with 'A' to be first to receive faxes on trades, which was how orders were processed back then. They had learned well from their stints at Goldman that two minutes could make or break you. The first name they came across was 'Achaikos' but they found it too hard to pronounce. So they skipped ahead and settled on 'Appaloosa.' And the fund was born."


Why The Alpha Masters is a Must-Read

This book is a compilation of stories and fascinating facts about nine top managers. We've been tracking these prominent hedge funds for years, but The Alpha Masters kept peeling back layers of intricate details.

At first glance, some of the historical background on the managers' lives may seem tedious and boring. But then you realize that Ahuja has included these anecdotes because it paints a picture as to who the manager was and what they've become.

These stories told in the manager's own words make you feel as if you're simply at lunch with a friend reminiscing about their past. But Ahuha has masterfully taken that friend and replaced them with a hedge fund titan removed from Wall Street's trillion dollar pedestal. And when you've finished reading, these seemingly untouchable god-like moneymaking machines have morphed into mere mortals just like you.

After all, like many entrepreneurs and small business owners today, these hedge fund icons at one point in their lives took a big risk, pursued their dreams, and started their own firms.  Ahuja chronicles the entire journey (even before the fund's inception) and the real value is seeing what each manager had to go through to get where they are now.  As these dream chasers soared to amazing altitude, they now tell their success stories as luminaries sure to inspire the ascension of the next master money managers.

But apart from the human element, this book does exactly what its title implies: it's unlocked the genius of the world's top hedge funds by giving you tons of access to people you'd probably never meet as well as stories and wisdom you'd probably never hear otherwise.

The most valuable aspect of this book is that it gives you a front row seat in a classroom full of hedge fund icons detailing their investment thought process, what mistakes they've learned from, how they've developed as investors, and what it takes to succeed.  While many perceive hedge funds to be secretive, Ahuja has acquired astute anecdotes from top managers and purveyed them for all investors to learn from.  And, unbeknownst to us, it was a pleasant surprise to find MarketFolly.com listed as a reference at the end of the book.


Definitely check out The Alpha Masters (hardcover) or Kindle e-book version here.

Excerpt From Howard Marks' Book: The Most Important Thing Illuminated

Today we have a special treat for readers as we've been granted permission to publish an excerpt from the book written by Oaktree Capital's Chairman, Howard Marks.

Marks' book, The Most Important Thing Illuminated (or Kindle e-book version here) features a section on combating negative influences, which we've excerpted below:

"People who might be perfectly happy with their lot in isolation become miserable when they see others do better.  In the world of investing, most people find it terribly hard to sit by and watch while others make more money than they do.

Howard Marks: Emotion and ego: A lot of the drive in investing is competitive.  High returns can be unsatisfying if others do better, while low returns are often enough if others do worse.  The tendency to compare results is one of the most invidious.  The emphasis on relative returns over absolute returns shows how psychology can distort the process.

I know of a nonprofit institution whose endowment earned 16 percent a year from June 1994 to June 1999, but since its peers averaged 23 percent, the people involved with the endowment were dejected.

Seth Klarman: Even the best investors judge themselves on the basis of return.  It would be hard to evaluate yourself on risk, since risk cannot be measured.  Apparently, the risk-averse managers of this endowment were disappointed with their relative returns even though their risk-adjusted performance was likely excellent, as borne out by their performance over the following three years.  This highlights just how hard it is to maintain conviction over the long run when short-term performance is considered poor.

Without growth stocks, technology stocks, buyouts and venture capital, the endowment was entirely out of step for half a decade.  But then the tech stocks collapsed, and from June 2000 to June 2003 the institution earned 3 percent a year while most endowments suffered losses.  The stakeholders were thrilled.

There's something wrong with this picture.  How can people be unhappy making 16 percent a year and happy making 3 percent?  The answer lies in the tendency to compare ourselves to others and the deleterious impact this can have on what should be a constructive, analytical process.

Joel Greenblatt: This is incredibly important.  Most institutional and individual investors benchmark their returns, and therefore most end up chasing the crowd: accent on the wrong sylLABle."

Excerpted from, The Most Important Thing Illuminated by Howard Marks.  Copyright (c) 2012 Howard Marks.  Used by arrangement with Columbia University Press.  You can also get the Kindle e-book version here.


His book is definitely a must-read so check it out.  And if you missed it, we also posted up Marks' recent commentary on contrarian signals.

Howard Marks' New Book: The Most Important Thing

Oaktree Capital's Howard Marks just released his new book, The Most Important Thing: Uncommon Sense for the Thoughtful Investor. We wanted to highlight this because Marks' market commentary has been some of the most insightful around.

Often quoted for his wisdom, Marks' new book has received some impeccable recommendations:

Baupost Group's Seth Klarman says, "Regular recipients of Howard Marks's investment memos eagerly await their arrival for the essential truths and unique insights they contain. Now the wisdom and experience of this great investor are available to all. The Most Important Thing, Marks's insightful investment philosophy and time-tested approach, is a must read for every investor."

Berkshire Hathaway's Warren Buffett also offered praise by saying, "When I see memos from Howard Marks in my mail, they're the first thing I open and read. I always learn something, and that goes double for his book."

When two of the greatest investors of all time say something is a must-read, then you quite simply have to read it. We look forward to learning from Marks' book, The Most Important Thing and recommend our readers do the same.

Zack Miller's Tradestream Your Way to Profits: Book Review

If you're looking for another book on the same old topic of stockpicking, then this isn't for you. However, if you're searching for a new-age approach to investing that incorporates the use of copious online resources (including social media), then you've found the right book. Readers of Market Folly should find this work of particular interest given its focus on mimicking top hedge fund managers, a topic we cover on a daily basis. Today we're taking a look at Zack Miller's Tradestream Your Way to Profits. Miller is Managing Director at Lighthouse Capital Ltd and received an MBA from the Kellogg School of Management at Northwestern University and a BA in economics from Harvard.

For this book, Miller tapped his expertise in combining finance and the world wide web. His experience in this regard stems from his time as an early stage hire at Seeking Alpha where he helped launch 'Finance 2.0', a mash-up of Twitter and Facebook for the financial world. Simply put, Miller's book aims at teaching you how to build a profitable portfolio utilizing resources such as streaming information, data aggregation, guru tips, blogs, and social media. He applies his prowess in asset management, equity research, and internet technologies to help you craft a portfolio based on eight investment approaches & resources. Among many topics, Tradestream Your Way to Profits encompasses:

- Insight from financial blogs & aggregators: The largest free investment research organization
- Piggybacking the pros: Following top hedge fund managers
- Stock screens: Utilizing formulas the world's best investors use
- Stockpicking communities: Finding the next Warren Buffett

While we can attest to Miller's basic approach, we're a bit biased here because a) MarketFolly.com is a financial blog, b) our daily focus is on tracking hedge funds, c) we're a part of online financial communities like StockTwits and Twitter, and d) we use copious amounts of resources online for market research on a daily basis.

That said, Miller provides ample insight as to how to best utilize these sites. The tools are there, but many people aren't taking full advantage of them. Tradestream Your Way to Profits outlines a plethora of online resources for use including hedge fund replicators like Alphaclone, something we've highlighted numerous times. He also highlights online communities like StockTwits, buyside networking and professional sites like SumZero, crowdsourcing platforms like Wikinvest, streaming data sites like SkyGrid, platforms for discovering new managers such as kaChing and Covestor, aggregators like Seeking Alpha and many more resources.

Given its focus on piggyback investing and tracking hedge funds, Chapter 2 of Tradestream Your Way to Profits was our favorite. This chapter concludes that hedge funds don't derive their performance from just one stock, but rather the collective sum of their top 20 holdings or so. Portfolio performance can be garnered simply by tracking and mimicking these expert stockpickers. Miller teaches you how to track these funds, something MarketFolly strives to do for you on a daily basis. He also hones in on Alphaclone, the ultimate hedge fund replicator we use to backtest strategies, clone hedge fund portfolios, and discover new managers.

Also of particular interest is Chapter 5 which deals with investment screening. The book simplistically outlines how to screen for stocks that fit Joel Greenblatt's magic formula, Ken Fisher's super stocks, and Peter Lynch's criterion, among other things. Miller's work also teaches you how to track a company's insider moves with ease. Collectively combined, all of these tools provide investors with the necessary information to make pertinent investment decisions. Tradestream showcases the wealth of resources available online, how to use them, and what to do with the information.

Novice investor? This book is a great place for you to start. What better way to learn the ropes than by watching and mimicking the pros. Intermediate or advanced investor? There's guaranteed to be plenty of new resources and tools for you to learn about that will highly complement your regular research regimen. There's hundreds of different books out there that train you how to pick stocks. This book does not do that. Instead, Tradestream Your Way to Profits teaches you how to incorporate new online tools, methods of research, and investment approaches in order to construct a more profitable portfolio.

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For more insightful books on markets and investing, be sure to check out our other recent reviews of Christine Richard's Confidence Game, Steven Drobny's The Invisible Hands: Hedge Funds Off the Record, and Scott Patterson's The Quants.

Confidence Game: How A Hedge Fund Manager Called Wall Street's Bluff by Christine Richard (Book Review)

We've covered hedge fund manager Bill Ackman extensively here on Market Folly so it's always intriguing when a book is released on an investor we've seemingly tracked forever. As such, we were eager to dive into Bloomberg News reporter Christine Richard's new book, Confidence Game: How A Hedge Fund Manager Called Wall Street's Bluff. For those of you unfamiliar with the backstory, it centers on Ackman's short position in bond insurer MBIA and the ensuing battle he waged against the company, regulators, and seemingly anyone who thought he was wrong.

At the time, this was one of his most successful investments as it earned his firm $1.1 billion, a figure few can scoff at. Since then, Ackman has bested his performance with his investment in General Growth Properties which he has labeled the "best investment he's ever made." Still though, we'd argue that he deserves more praise for his work on MBIA because of the endless amount of obstacles he faced in proving his thesis ultimately correct. Not to mention, he dared to question the unquestionable triple A rating. Everyone knows that short selling is a whole different ballgame when it comes to investing. There are more risks involved and you have to cover every possible angle of your assessment. Being short a company is one thing. Publicly voicing your short position is quite another, as you immediately are labeled an enemy. This book details the multitude of trials and tribulations Ackman faced on his quest to prove his thesis and in the process silence his doubters.

Richard's Confidence Game chronicles a six year long epic battle between Ackman and MBIA, the regulators, the media and more. Think about that for a second. While he was ultimately proven correct, this took six years to play out. Buying and holding a stock long is one thing, but going against the crowd week in and week out for over half a decade to prove your point has to be draining. That's the crazy thing here, Ackman didn't get discouraged. He was not only making a contrarian wager, he was going up against the 'holy grail': a company wielding the coveted AAA rating. MBIA apparently thought they were untouchable. They were wrong.

Ackman faced an uphill battle from the start as he was labeled a fraud by the media and was even investigated by Eliot Spitzer and the SEC. This only added fuel to Ackman's fire and it's almost as if he started to take things personally as he worked even harder to prove that his thesis indeed was correct. As we all know, short sellers get a bad rap as they risk ridicule and harassment immediately upon going public with their crusade against a given company. Simply put, this book shows you what it's like to be a short seller. It takes you inside the research process, inside the trials and tribulations, and most importantly, inside the short seller's head. This book sets itself apart with a behind the scenes look at the process and all the baggage that comes with the territory of betting that something will fail.

Some of the more intriguing facets of Confidence Game are the exchanges between Ackman and MBIA's management team. In fact, the book starts immediately with a confrontation between the two where executives essentially try to bully Ackman. Even more impressive though is the book's ability to tell a story of perseverance and determination. This narrative covers all the proverbial bumps in the road as you watch Ackman transform from a perceived 'villain' into a hero. Before beginning the book, we knew he had conviction in his pick. (Let's face it, he stuck with it for so many years). What the book illustrates though is a detailed account of how Ackman first started buying credit default swaps on MBIA at a cost of $16,000 (per each $10 million of MBIA debt insured) and his hedge fund was still buying when the same protection cost upwards of $580,000. He hit many roadblocks along the way and had many opportunities to exit the position entirely. Instead, he upped his conviction and upped his wager.

Richard's book also brings to light a few pertinent issues that still seem to bluff Wall Street itself. Richard does an excellent job underlining just how over-reliant the markets are on financial models. Not to mention, she draws attention to the fact that many individuals on the Street place waaay too much blind faith and trust in credit ratings as if they are the end-all be-all of financial markets. Clearly, that's a recipe for disaster. And as we all know, it was.

One thing that struck us were the vast similarities between Confidence Game and David Einhorn's book, Fooling Some of the People All of the Time. Both detail arduous battles between companies and short sellers. In both cases, the hedge fund managers ultimately emerge victorious. Generally, we prefer to hear the tale direct from the horses mouth (ala how Einhorn wrote his own story). However, that's not to take anything away from Richard at all. There's no denying she did a masterful job chronicling the events and taking you inside Ackman's head and all his past encounters. The level of detail and research in Confidence Game is impeccable.

In the end, this book typifies what a grueling road short selling can be. Christine Richard's Confidence Game shines a light on issues that Wall Street still needs to address further. While the book won't all of a sudden teach you how to be a successful short seller (we'd recommend The Art of Short Selling for that), it does walk you through various steps in the process, all while telling a tale at the exact same time. A tale, we might add, that centers around one of the hedge fund managers we've tracked extensively on the site for some time. As such, it is the perfect combination of recent history, education, and entertainment. If you want to learn more about Bill Ackman as an investor, the strenuous short selling process, and the human trait of unbridled perseverance, then Confidence Game is obviously for you.

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As mentioned above, we've covered hedge fund manager Bill Ackman extensively on the site so for those of you seeking even more information, be sure to check out our profile on his hedge fund Pershing Square Capital, Ackman's recent media appearance, as well as our coverage of Ackman's portfolio.

For more great books, be sure to head to our recommended reading lists.

The Invisible Hands: Hedge Funds Off the Record By Steven Drobny (Book Review)

Today we're reviewing The Invisible Hands: Hedge Funds Off the Record, the latest valuable book from author Steven Drobny. Many of you will already be familiar with Drobny from his popular first book, Inside the House of Money. Drobny heads Drobny Global Advisors, a macroeconomic advisory firm that has many leading global hedge funds as clients. Needless to say, if you want a great book on hedge funds, he's your guy.

Right off the bat we can tell you we wildly enjoyed reading this solely for the vast amount of information and advice divulged. The Invisible Hands is divided into three parts. The first section deals with "real" money management, a.k.a. the institutional investing of endowments, pensions, & family offices and brings up some very prudent questions regarding portfolio construction. This part of the book includes commentary from Jim Leitner of Falcon Management. Those of you who have read Inside the House of Money will recall that the Family Office chapter in that book which focused on Leitner was one of the most popular. This is an extension of their conversation updated to focus on the market crisis and we found it very insightful given the fact that many endowments did not fare well during the downturn. Additionally, the section also details views from Dr. Andres Drobny of Drobny Global Advisors.

The second section of the book is probably the most entertaining as it features interviews with various global macro hedge fund managers. The chapters are divided into various archetypes Drobny has bestowed upon each manager, including: The House, The Philosopher, The Bond Trader, The Professor, The Commodity Trader, The Commodity Investor, The Commodity Hedger, The Equity Trader, The Predator, and The Plasticine Macro Trader. Needless to say, there is something for everyone in this section of the book as all kinds of global macro hedge fund strategies are detailed. The insight divulged in part two of The Invisible Hands is priceless.

One possible pitfall to potential readers could be the fact that each hedge fund manager's identity is hidden. Before reading the book, we were slightly skeptical that this aspect would diminish credibility. For those of you who may be hesitant, we'll go ahead and allay those fears for you right now. We were quickly proven wrong upon sampling the worthwhile words of wisdom each manager had to offer. We also had the chance to ask Drobny himself about this and he highlighted a very prudent point: without anonymity, this book would have never been written. Drobny mentioned to us that, "Normally, people don't get access to sit down and have a chat with managers at this level so the anonymity allowed that to happen."

This just goes to reinforce how secretive and guarded the hedge fund world is. Each bit of information comes at a price, and this time the price you pay is identity. As such, it's a no-brainer to take insight masked by anonymity over no information at all. The book not only contains wisdom from managers who survived the crisis unscathed, but also from those who prospered. As far as personal favorites go, Chapter 13: The Plasticine Macro Trader steals the show. You'll start the book casually wondering who some of these managers are and you'll end the book really wanting to know all their identities. We have a very good guess as to who Chapter 13 is, but we'll wait for that manager to "out" themselves. But if you want a hint: we've covered this eclectic manager on the site numerous times before.

The Invisible Hands concludes with part three and an interview with The Pensioner. This final chapter turns back to "real money" managers and highlights a successful pension fund manager that did not lose money in 2008. Those of you further interested in the topics of risk management and portfolio construction will find this last section compelling.

Many books that have come out of the financial crisis focus on learning from mistakes. Drobny's book, on the other hand, pinpoints managers who fared well in 2008 as they were either able to preserve capital or grow it. The book targets global macro funds because their foundation is anchored by the tenets of risk management rather than returns. This allows readers to learn from those who found success during a time when many others failed.

All in all, we treasured The Invisible Hands: Hedge Funds Off the Record and highly recommend it to anyone looking to learn from top hedge fund managers. We found the book's particular focus on global macro strategies especially intriguing given that the majority of the coverage on our site centers on long/short equity hedge funds. Those of you looking for a peephole into the fast paced world of global macro would find this book advantageous. And if you manage money, then Drobny's new book is simply a must read.


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For more insightful books on markets and investing, be sure to check out our recent reviews of Harry Markopolos' book No One Would Listen and Scott Patterson's The Quants. Additionally, we've assembled quite the compendium of recommended reading lists worth checking out.

No One Would Listen: A True Financial Thriller By Harry Markopolos (Book Review)

If you want the 'straight from the horses mouth' exclusive story regarding Bernie Madoff's $65 billion Ponzi scheme, you'd have to go to Bernie himself. However, there is still a next best alternative that is an insider account of its own. Harry Markopolos' book No One Would Listen: A True Financial Thriller details how he and his team discovered what Madoff was up to long before Madoff's ultimate demise. The problem (obviously enough) was that nobody listened.

The crazy part about this whole scenario is that Markopolos and company had very critical evidence as early as 2000. His "Fox Hounds" team sniffed out the rat and yet the SEC seemed to completely miss the warning signs raised. Undoubtedly the best part of the book is the viewpoint from which it is told. Markopolos saw both Madoff's scam and the SEC's failure, so this chronicle is as direct as it gets.

No One Would Listen's foreword includes a segment written by David Einhorn of hedge fund Greenlight Capital (someone we cover frequently here on Market Folly). He writes that, "Harry Markopolos is a hero... The silver lining in the Madoff collapse, if there could be such a thing, is that for at least one moment in time, the SEC has been exposed. And for his role in making that happen, Harry Markopolos deserves all our thanks."

Markopolos is the definition of a whistleblower and we can only hope others like him exude comparable sleuthing skills within the regulatory bodies. His book helps expose just how vulnerable investors are when things go wrong as the regulatory bodies seemingly have done a poor job of shielding them.

While the storyline itself is telegraphed, there's something about the book that keeps pulling you in. Despite the fact that the book covers a timeline of almost a decade, it flows flawlessly and feels as if you are living it in real-time, unraveling the case alongside Markopolos. You know exactly how the story ends, yet you still want to read every detail. And No One Would Listen's timeline all starts with the intriguing chronicle of how Markopolos deciphered that Madoff's returns were unfeasible in the first place.

While this admittedly is not the best way to describe it, think of the book almost as a movie filled with flashbacks where you re-live past events through the protagonist's eyes. Roughly speaking, half of the book focuses on the recent fall of Madoff while the other half centers on Markopolos' rising conquest and the appalling ignorance on the part of the SEC.

The writing style is generally impressive, however there are a few cliché-laden segments. In the end, you'll finish No One Would Listen impressed with Markopolos' conviction & perseverance and absolutely flabbergasted with the SEC's (lack of) actions. It's definitely a thrilling tale.

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For more insightful books on markets and investing, be sure to check out our other recent book reviews including Scott Patterson's The Quants and Jon Markman's annotated edition of Reminiscences of a Stock Operator. Additionally, we've assembled quite the compendium of recommended reading lists.

The Quants By Scott Patterson: Book Review

We've finally had a chance to read Wall Street Journal reporter Scott Patterson's book. So today, we're reviewing The Quants: How a New Breed of Math Whizzes Conquered Wall Street and Nearly Destroyed It. Right off the bat, we can tell you that the majority of readers will find this book interesting. Why? Because it takes you inside the secretive world of hedge fund manager Jim Simons of Renaissance Technologies (RenTec). Not to mention, it also profiles Ken Griffin of Citadel Investment Group, Cliff Asness of AQR Capital, Peter Muller of Morgan Stanley's PDT (process driven trading) hedge fund, and Boaz Weinstein of Saba Capital (previously at Deutsche Bank).

If you're like us and crave information regarding these mysterious managers, then this is for you. Patterson's book reads like a narrative and paints a clear picture of each of the gentlemen that have been instrumental in the development of the quantitative side of Wall Street. The Quants starts by focusing on Ed Thorp, a mathematics professor known for making money via beating blackjack with his book, Beat the Dealer. It then shifts to how Thorp went on to help pioneer the quant field on Wall Street with his convertible arbitrage strategy. The book describes the history and evolution of quantitative trading, framing things nicely before shifting focus to the financial crisis.

As the tale progresses, we see how some quants nearly collapsed in 2007. Patterson highlights just how deadly leverage gone wrong can be. It seems quants began to stray from the most important tenets of risk management and, yet again, we're faced with a Wall Street story filled with greed, leverage, and hubris. And as the quant 'godfather' Thorp preached: you shouldn't bet more than you can afford to lose.

So, what's enjoyable about the book? The in-depth profiles of Simons, Griffin, Asness & more, of course. But what's also fascinating is the overall storyline regarding the near implosion of many of these managers during late 2007. Industry insiders will already be familiar with this 'crisis before the crisis,' but the book definitely showcases what a truly scary time this was. It details the stories that began to leak out back during their meltdown, including how Cliff Asness was punching computer screens and how Muller's fund unit lost $300 million in a single day. Also, the tie-ins and focus on poker in The Quants was intriguing as all these fund managers love to play and fittingly, are quite good at the game.

What the book lacks: Technical details. Given the subject matter, we expected more of an in-depth look at the methods within this ever-growing segment of Wall Street. However, we concede that when writing a book which will be read by a wider audience, concessions have to be made. Casual investors will find the book satiating while hardcore industry veterans might crave a bit more detail.

In the end, this book's story epitomizes the constant greed found on Wall Street. Equally important, it helps shine a spotlight on a mysterious and complex corner of the markets that many otherwise wouldn't normally gain access to. While Patterson often uses cliches in his writing, the in-depth focus on these quant hedge fund managers during perilous times more than compensates. The Quants is your ticket inside their seemingly secretive world.

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For other insightful books on markets and investing, be sure to check out our other book reviews, as well as our recommended reading lists.

Reminiscences of a Stock Operator: Jon Markman's Annotated Edition (Book Review)

Financial authors have been cranking out some good books as of late on topics relating to the crisis and current investment landscape. Award winning journalist and veteran hedge fund manager Jon D. Markman, however, has added a twist to an investing classic. Recently, he published an Annotated Edition of Edwin Lefevre's Reminiscences of a Stock Operator. Markman has put out a historical and insightful version of the life and times of Jesse Livermore that includes a foreword and appendix by legendary hedge fund manager Paul Tudor Jones.

The original story, Lefevre's Reminiscences of a Stock Operator, is by far one of the most well known and acclaimed books on financial markets. It was one of the first books listed in our recommended reading list because it teaches many valuable lessons about financial markets via a fictionalized account of Jesse Livermore's rollercoaster trading ride. This book is well known for its timeless advice such as, "the trend is your friend" and "let your winners run and cut your losses quickly." We could go on, but Lefevre's tale is literally laced with hundreds of insightful anecdotes. Hedge fund manager Paul Tudor Jones received a copy from his first boss and now gives a copy to every new trader at hedge fund Tudor Investment Corp, regardless of their experience level. The book is that useful.

Now, what Markman has done with his Annotated Edition of Reminiscences of a Stock Operator is added a sense of history and context. He has helped modern day readers connect with what now seem like ancient times. To today's reader, the people, places and events of the 1920's are distant and disconnected. Markman connects the dots by incorporating newspaper clippings, biographies, pictures, descriptions and more in his annotations. Almost every single page is chalk full of information and we can only imagine how long it took him to compile such historical resources.

This annotated edition is both a story and a history book. It adds a layer of vintage facts and really draws you in to what trading and financial markets were like back in the 1920's. When we first read Lefevre's Reminiscences many years ago, we'll be the first to admit that some of the people, places and events had little to no meaning or relevance for us; they were just 'part of the story.' Markman's work truly rectifies this as he bridges the gap and provides you with many "ah-ha!" moments. Needless to say, many elements of the book now have much more meaning and relevance.

While these annotations are highly useful, they definitely slow the flow of the story. You'll undoubtedly find yourself reading every single notation and it will take you almost twice as long as the original to read. That being said, it is definitely worth the time as it made us discover so many elements we missed in prior reads. Not to mention, Paul Tudor Jones' interview at the end of the book offers you a glimpse through his legendary hedge fund trading eyes. Simply put, Jon D. Markman's Annotated Edition of Reminiscences of a Stock Operator enhances an already must-read investing classic.

We'll leave you with one timeless bit of wisdom from the book: never argue with the tape.


For other insightful investing books, be sure to check out our recommended reading lists as well as our other book reviews.

The Billion Dollar Mistake By Stephen Weiss: Book Review

We're back with the next installment of our book review series and today we want to give you a look at Stephen L. Weiss' new book, The Billion Dollar Mistake: Learning the Art of Investing Through the Missteps of Legendary Investors. As the title implies, the book teaches you to learn from mistakes. And in particular, it teaches you to learn from the mistakes of some of the greatest investors out there.

Let's face it, there are many great books out there on the topic of an investor's greatest scores. One of our favorites is The Greatest Trade Ever as it details John Paulson's big bet against subprime. We mentioned in our review of that book that we could not put it down and read it all in one sitting. Well, we can now say the same about The Billion Dollar Mistake. It was that entertaining.

While success stories make for good reads, Weiss' book goes a step further by teaching you practical and valuable lessons that you can immediately implement into your own investment process. Winning investments make you money. Losing investments teach you unforgettable lessons. Flowing like a novel, The Billion Dollar Mistake is a series of narratives detailing the mistakes of legendary investors Leon Cooperman, David Bonderman, Kirk Kerkorian, Bill Ackman, Aubrey McClendon, Nick Maounis, Richard Pzena, Geoff Grant, Chris Davis, and Adolf Merckle.

Weiss' book focuses on many lessons including:

- Declining stock prices do not always equal opportunity
- Leverage is a double-edged sword
- Passion is not an investment strategy
- Always do your due diligence
- Don't be blinded by outsized returns

Given that making a mistake in financial markets can cost you hundreds, thousands, millions, or even billions of dollars, these are valuable lessons to say the least. No matter the amount of money you manage or your investment pedigree, the mistakes made by professional and everyday investors are often one and the same.

Weiss takes the massive world of investing and drills it down into easy to understand principles. Everyone is human and makes mistakes. Investors are no different. Great investors are no different. The Billion Dollar Mistake fully highlights this and allows everyday investors to relate to some of the most well-known investors out there. Weiss' book lets you live their mistakes and makes you realize that some of the smartest minds out there have made the exact same missteps you have. Great investors are often put on a pedestal and worshiped by those trying to emulate them. This book removes the pedestal and allows you to truly learn from them.

Author Stephen Weiss' career on Wall Street has spanned 23 years with stops at Oppenheimer, Salomon Brothers, hedge fund SAC Capital and more. He has truly crafted a great read and has transformed the lessons of legendary investors into an entertaining and educational narrative. Definitely check out The Billion Dollar Mistake: Learning the Art of Investing Through the Missteps of Legendary Investors as you're bound to become a better investor (or save yourself from losing lots of money) because of it.

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This joins our growing series of book reviews:

- Think Twice: Harnessing the Power of Counterintuition by Michael Mauboussin
- Riches Among The Ruins by Robert P. Smith
- The Greatest Trade Ever by Gregory Zuckerman
- The Murder of Lehman Brothers by Joseph Tibman
- Street Fighters: The Last 72 Hours of Bear Stearns by Kate Kelly
- The Ivy Portfolio: How To Invest Like the Top Endowments by Mebane Faber
- Hoodwinked by John Perkins

For more great books check out our various recommended reading lists as well.

Hoodwinked: An Economic Hit Man Reveals Why the World Financial Markets Imploded--and What We Need to Do to Remake Them by John Perkins (Book Review)

Is it just us, or are book titles getting longer and longer these days? That point aside, we're here today to review John Perkins' latest book, Hoodwinked: An Economic Hit Man Reveals Why the World Financial Markets Imploded--and What We Need to Do to Remake Them. In short, Hoodwinked details exactly what its title describes. It is really that plain and simple. Some of you may already be familiar with John Perkins because he is the author of the noteworthy book, Confessions of an Economic Hitman, a title that graced the NY Times bestseller list for a very long time. Perkins is back with his 'Economic Hitman' persona in tact, this time tackling how America has now fallen victim to an economic plague that has already swept the third world.

Let's face it, there have been many great books detailing episodes of the crisis. Some of them have focused on things on a macro level while others have detailed downfalls of specific institutions. We've even read and reviewed a few of them including Lawrence McDonald's NY Times bestselling book A Colossal Failure of Common Sense, as well as The Murder of Lehman Brothers. While many of the books centering on the crisis have done a great job of outlining what has happened and the reasons behind it, John Perkins' Hoodwinked takes things a step further and actually outlines what we can do to recover and rebuild. This is a refreshing and welcome change from other books on the great recession because it takes aim at learning from our mistakes and discussing just how we can turn things back around.

Perkins affixes much of the blame to corporations not for their poor risk management or bubble-creating tendencies, but rather for the fact that they possess all the power and control all the capital. The author uses the intriguing phrase, "predatory capitalism" to help describe all that is wrong with America. For a solution, Perkins centers his plan around responsible business actions and corporate leadership that acts in the best interests of their shareholders rather than for their personal pockets. Not to mention, he argues that the focus should be shifted in favor of what's right for society as a whole. While some may label his ideas a pipe dream and while he often writes in hopeful generalities, we applaud Perkins for passionately laying out a premise by which to change for the better. His work keeps you engaged, but we couldn't help but crave more detail and depth in regards to a concrete solution. Overall though, Hoodwinked is a very different take on what has passed and what is yet to come.

Below, we also wanted to highlight an interview with author John Perkins. Our buddy Misstrade has been cranking out some great videos with authors of noteworthy books and he recently sat down with the Hoodwinked author. (Email readers come to the blog to view the video):



Check out Hoodwinked: An Economic Hit Man Reveals Why the World Financial Markets Imploded--and What We Need to Do to Remake Them.


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This joins our ever-growing list of book reviews & here are our thoughts on other compelling reads:

- Think Twice: Harnessing the Power of Counterintuition by Michael Mauboussin
- Riches Among The Ruins by Robert P. Smith
- The Greatest Trade Ever by Gregory Zuckerman
- The Murder of Lehman Brothers by Joseph Tibman
- Street Fighters: The Last 72 Hours of Bear Stearns by Kate Kelly
- The Ivy Portfolio: How To Invest Like the Top Endowments by Mebane Faber

For more great books check out our various recommended reading lists too.

Think Twice: Harnessing the Power of Countertuition by Michael J. Mauboussin (Book Review)

Our book review series continues and today we'll be reviewing Think Twice: Harnessing the Power of Countertuition by Michael J. Mauboussin. You may be familiar with Mauboussin as he is the Chief Investment Strategist at Legg Mason Capital Management and he has also been an adjunct professor of finance at Columbia Business School. Needless to say, he's had a storied career in finance and is a credible author on the subject. However, this book is not specifically about financial markets, but rather the process of decision making. We enjoyed his work because it offers a refreshing look at a topic applicable to all of life. Don't get us wrong though, the content still definitely applies to financial markets as well.

Think Twice takes a focused look at how you can recognize and in-turn help to avoid common mental mistakes. Mauboussin outlines topics such as the misunderstanding of cause and effect linkages, how people don't consider enough alternative possibilities in making a decision, and how often people rely too much on experts. We found the over-reliance on experts bit intriguing seeing as that's what we do on an everyday basis here on the site. After all, Market Folly serves to track the 'smart money' a.k.a. hedge fund experts. Needless to say, this section definitely gave us reason to reflect. If you think about it though, it's true. People do tend to seek out experts because they perceive that expert to have more knowledge than them on a given subject and then often blindly trust their expertise. We just found that whole notion fascinating because it's true.

Mauboussin's book flows nicely and is a shorter read at just over 140 pages. Due to its brevity compared to most books, we actually cruised through it twice. Some of the main takeaways from the book are to examine as much data as possible as well as to use common sense and logic. (Insert 'well, duh!' here). Another main focus of the book is on pattern recognition. While it does not specifically cite this, we figured one can easily apply this to technical analysis and analyzing financial markets in general. People seek to identify patterns even when sometimes there are none.

In the end, Think Twice helps refine your decision making in all walks of life. However, there are definitely strong tie-ins to how investors think and make decisions regarding their investments. We read through it with the topic of finance in our head, seeking as many tie-ins as possible. After all, it only seemed natural. (One interesting focus was on that of crowdsourcing and the 'herd mentality,' two traits certainly found in financial markets). This book is a little bit different than the typical work we review and it was a welcome change. The topic of behavioral finance and decision making on a broader level is definitely one worth looking into seeing how it plays a prominent role in everyday life, and in particular, investing. While the book does flow nicely, be warned that it does use some complex language and you'll probably end up looking up one or two terms like we did. (So much for our college degree). Think Twice is ripe with examples of the decision making process and truly opens your eyes to something that occurs everyday seemingly effortlessly and subconsciously. One thing's for certain after reading: we're conscious about it now and hopefully can use countertuition for the better.

Definitely check out Think Twice: Harnessing the Power of Countertuition by Michael Mauboussin if you're intrigued with the topic of decision making as it applies to financial markets and life in general.


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Make sure to also check out some of our other recent book reviews as we're starting to build a series of them.

- Riches Among The Ruins by Robert P. Smith
- The Greatest Trade Ever by Gregory Zuckerman
- The Murder of Lehman Brothers by Joseph Tibman
- Street Fighters: The Last 72 Hours of Bear Stearns by Kate Kelly
- The Ivy Portfolio: How To Invest Like the Top Endowments by Mebane Faber

Don't forget you can find other insightful books on our recommended reading lists as well.