Choosing what to read on the subject of investment can be as difficult a business as investing itself. Alistair Blair recommends three books you can't afford to be without.
If you compare the investment records of Messrs Soros and Buffett, it's a close run thing as to which of the pair invests better.
What is not in doubt, however, is who is the better writer. George Soros, author of two books on investment which you can buy in any decent book shop, may be a spectacular investor but the writing - well, he should leave it to others. Warren Buffett, on the other hand, with not one book to his name, makes fantastic reading. The evidence? His Letters to Shareholders, the 15 pages he has written at the front of every annual report of his company, Berkshire Hathaway. Buffett's brilliant annual effort is one of the three essential readings that anyone thinking of embarking on an investment 'adventure' should get their hands on before parting with their cash.
In the mid-70s, Buffett served on an official commission into company reporting. Arising out of this, he decided that shareholders deserved a better deal and that Berkshire Hathaway's were going to get one. Starting in 1977, he came up with a style of report which is strikingly honest, often gives some of the thinking behind his investments, and for good measure tosses in his views on the financial, investment and managerial issues of the day. Best of all, he's hugely readable and extremely droll.
When you're as successful as Buffett, it must be a lot easier to be open and self-critical about your mistakes. Clearly it would be impossible for ordinary company bosses to follow Buffett's example. But that's all the more reason why they and their shareholders should read his Letters.
Here, from the 1990 report, is Buffett's account of that mysterious force of 'overwhelming importance in business', the institutional imperative: 'As if governed by Newton's First Law of Motion, an institution will resist any change in its current direction. Just as work expands to fill available time, corporate projects or acquisitions will materialise to soak up available funds.
Any business craving of the leader, however foolish, will be quickly supported by detailed rate of return and strategic studies prepared by his troops.
The behaviour of peer companies, whether they are expanding, acquiring, setting executive compensation or whatever, will be mindlessly imitated.'
Buffett must no doubt have turned down Archeresque sums from publishers for the rights to his Letters. But they are not difficult to obtain - the current one can be found on the Internet (www. berkshirehathaway.com).
One of the few other living investors to make an appearance in Buffett's Letters is Peter Lynch, who achieved Buffett-grade returns while managing the huge Magellan Fund between 1977 and 1990. Since his was an open-ended, unit trust style fund into which anybody could buy at any time, he ended up managing more money than Buffett. Lynch's name is now on the front of three books but the first, One Up on Wall Street, is the best. In terms of investment style, Lynch is miles away from Buffett. Buffett takes huge bets and sticks with them for years. Lynch is happy to trade in and out.
For that reason alone, he will probably have more to say to the typical small dabbler in shares than does the austere Buffett.
The book made Lynch famous for his advice that investors should work while shopping and eating: 'wandering through stores and tasting things is a fundamental investment strategy'. But there's much more to it than that; indeed he covers all the subjects that investors ask about. When to buy, and when to sell; waiting for high fliers to nose-dive; a really important chapter on P/E ratios; designing a portfolio; and the 12 silliest things that investors say and appear to believe. You're sure to find an utterance of your own here.
Lynch is open about his mistakes, and the fact that he makes more of them than the eerily accurate Buffett makes it more enjoyable to hear him recounting them. John Rothchild, Lynch's ghost writer, makes a splendid job of packaging his thoughts.
This is an MBA in investment without the pain.
Also well worth a read is The Intelligent Investor by Benjamin Graham, which must be one of the few investment books to have been in print for 50 years. Graham was the Buffett of his day. Indeed, Buffett worked for him for a few years in the 1950s (and co-wrote the last edition of the book, which came out in 1977).
Buffett long ago left behind the exceptionally conservative investment style which Graham, a victim of the Wall Street Crash, sets out. But investors who fear they may lack Buffett's flair, may well do better to stick to Graham's basics. Read his Things to Consider About Per-Share Earnings alongside Lynch's Earnings, Earnings, Earnings chapter and you'll know more on the whole subject than many analysts. Chuckle over his case studies as you see the rogues and charlatans at work on investors. Then read today's Financial Times and see their successors still pulling the identical tricks.