Investing books – what I really want.

From an investing book I want Excalibur. I want a supreme tool to lead me to victory on the investing battlefield. I am not saying this sarcastically. I, like everyone else swinging away out there is looking for Excalibur. However, in the back of my mind I know to be a successful trader, I need to use a Swiss army knife or  have many arrows in your quiver instead. Let me explain.

Imagine you could open up a stock trading book and find the secrets of wealth and prosperity all laid out for you, in a specific way, in a road map. Further, this investing compendium revealed one main simple tool. That is, one main weapon you wield in battle. And further most other guys out there, even market experts do not know about this method. That is the dream.

However, my experience has been, even if, one great day trading or long-term investing book has a system, and many do, it is very hard to replicate these traders’ (authors’) successes. I do not know why? I have tried and not done as well. Maybe I did not follow their system to the letter or times have changed. That being said many authors have made millions trading stocks. Therefore, I am not discounting them. It is just that I cannot use their system fully to put money in my pocket.

Reading investing publications are useful and I do buy books.

Three things I get from stock trading books:

  • Avenue to creativity – They open my mind to explore new ideas.
  • Pattern recognition – I look at patterns and trends. My brain experiences these in a book and 98% I will not encounter personally when I am holding a position, but for the 2% I have seen it makes it worth it.
  • Motivation and pleasure – It is easy to lose heart when you have placed bad trades, but by reading other people’s personal accounts of loses and profits makes you realize Rome was not build in a day.

So the best I can do with investing books is understood the theory and build my own system for today and your style and portfolio objectives. What are the best investing books? What investment books will give you the edge? I would like to hear what other people think more than me as I have my favorites. My top three books are:

  • Secrets of Profiting in Bull and Bear MarketsStan Weinstein – Gives in my opinion the best concrete information in a simple way. I use a lot of his ideas, but more on a macro scale. Closest think to Excalibur.
  • How Life Imitates Chess: Making the Right Moves, from the Board to the Boardroom – Gary Kasparov – Think like a winner from a quantified genius.
  • Reminiscences of a Stock Operator – Edwin Lefevre – Nice for motivation although the writing style is dated, but it is a great story to read for bedtime. I love reading investment books in bed, while my wife is reading books on Tuscany or Provence.

Why I do not read value and earnings momentum books

Today a good software program or model can do in a split second what use to take hours of calculations and screening. I remember building models in Excel and importing data with scripts. Times have changed. All the books written in the past are dated because of new technologies and the speed of calculations and back testing. This is a bold statement but hear me out.

I have read all the others that are noteworthy, from Market Wizards: Interviews with Top Traders – Jack D. Swagar to How to make money in Stocks a winning system in good times and bad – Bill O’Neil, Peter Lynch’s books like One Up on Wall Street, etc. But they all predate 2011 quantitative testing. I like to think that with quantitative investing screens out there they incorporate all the collective wisdom of these books already so you do not need to reinvent the wheel. But these books are good for historical reference.

One of the hats my brother wears is he is Chairman of CFA UK (Chartered Financial analyst society). I am very proud of him for this. However, he might smile at my popular press reading list as he is more of a conservative fixed income guy. At best (this is speculation as I do not talk investing with my brother) he might recommend things like Graham and Dodd – Securities Analysis. I think he does not read things in the popular press about investing, more research reports.

So my thesis is that most of the security analysis and valuation analysis can be found in something like ‘s research and stock screener or even MSN’s free quantitative search. These are academic think tanks that take into account these factors. The all have read Security Analysis and all the publications and look at these things scientifically. The contain the collective wisdom of those older books by Graham and Dodd and even tested claims of the new cowboys trading out there. It is their job to test and improve their portfolio models.

So there is no reason to knock yourself out learning everything from start. Leverage your time and studying either Stan’s book or general strategy books. Let the value pros do the initial screening for you. These guys are academics

Investment books are like Chess books

Think of this analogy. Few if any of the top ranked chess masters actually go back and page through these encyclopedic books on Chess and setting up the pieces. Maybe some do for pleasure, but not like the old days. They use programs that calculate probabilities lines in milliseconds. Chess masters no longer look for dazzling tactics but boring positional understanding and this take a higher level of analysis possible at the champion level on computers.

Therefore, learn from this, let computers do the work and calculations and you do the high level thinking.

A computer can do massive brute force calculations but does not have an understanding of what is going on. This is where you come into play. This is why understanding investment theory and strategy is better than a new system laid out.

So my point is read investment books, I do, but read them for fun, motivation and high level strategy rather than to find a the winning stock trading system, the secret to making money in the stock market.

My investment results – I have a winning system for me. I should one of these days publish my results, but I move money in and out of my account as I live partially from this money. So I need to set up one account just for demonstrating my results. Of course as soon as I do this I will start losing money. But seriously, in the mean time look at the published and rigorous results of the quantitative screens I start with. Look at the results of using something like the moving average on the market as a whole. I back tested this many years and you can to with any basic software. The last piece of my system is more of a judgment call. One day maybe I will write a book and publish my systems returns. But I have too many other things I am doing write now. So until then look at the results that have been publish on the pieces of my system.

By the way, I am a bookaholic. I used to work in a few bookstores for many years and read all the time,. I read on and off work, including investment books. In fact just this evening I placed another order for books but they were all kids books for my daughter. However, no investment books. I had a few queued up but could not justify the trade-off with my daughter’s books. But I think I will go back and order one investment book tonight.