Books for 2017

Books, Psychology, Risk / Friday, December 23rd, 2016

Whatever you decide to call yourself whether as a trader, speculator, value investor, growth investor, fundamental analyst, technical analyst, a hybrid of both and so on it doesn’t matter. You are a capital allocator. The role of a capital allocator is to allocate capital in the most efficient way that maximizes long-term return. Simple as that. You and my investment strategy can be night and day but our objective is the same – maximizing our long-term return.

Same goes for companies. A company has to decide whether to initiate share buy-back, issue dividends, reinvest for expansion, M&A etc with the limited capital they have with the objective of maximizing shareholders long-term return. How a company, or you, allocate that capital today will have barely any visible result tomorrow, next week or next month, but like everything that compounds, it will be stark in 5, 10 years.

If we take a step back and apply this in a broader context, it is the same, you are a capital allocator of your life. What is the capital of your life? Your time! How are you going to allocate your time today will have little impact on what happens tomorrow, but like every investment that compounds, your decision today will change the course of your future 5, 10, 30 years from now.

So I present you the most undervalued investment of 2017 – An investment in yourself. I can tell you a stock, a theme that has a high probability of success in 2017 and how much are you going to make? I don’t want to shortchange you, or your time. I’ll give you something that can scale and compound, and something no one can steal from you, for life. You will be a great capital allocator, if not the best. And what is there a better way to invest in yourself than reading books? Note here I mention reading books not reading forums, news etc. They might be great for knowing the latest stuff, but if you want something that really advances you, books is the way to go. Like every other investment, this investment is simple but not easy. Educating yourself is as simple as telling yourself don’t lose money in the stock market, but it is never easy. If you never have the habit of reading books, start small. Just like you won’t expect yourself to go running marathon straight away without any prior experience, start from 10 pages a day. Too many? 1 page, 1 paragraph, however small, the power is in starting.

Rather than going for the usual investment books, which you probably know most of them anyway, I would recommend some that sits outside the realm of investing but nonetheless will improve your skills as an investor. Good luck for 2017. May the force be with you. “I am one with the force, the force is with me…I am the one with the force…”

How Not to Die by Michael Greger

How not to die is a book packed with empirical evidence on what kind of food to eat and avoid if you want to live a long & healthy life. What does this have to do with investing? Plenty. Your body is a system that requires nutritious foods to keep it functioning well. Like all the assets in a company that needs capex to maintain its earning power, if you choose to cut down here and there to save up on food cost, what happens? Yes, you’ll boost earnings temporarily before it started failing gradually, and eventually, the cost catches up with you. If you want to have the golden eggs, make sure you take care of the goose. Be wealthy, not rich.

The Education of a Value Investor by Guy Spier

A personal account on how Spier went from a Wall Street trader to a value investor. Before you dismiss this as another book that promotes value investing (value investors thrive as a minority, not a majority), give me a benefit of the doubt and read it. This is more of a psychological than an investing book. One that will show you how you can shut out all the noise and still do well, even better actually. He hasn’t used his Bloomberg terminal for years.

Outsiders by William Thorndike

Well, we talked about capital allocation. This book looks at how 8 CEOs transform their businesses into the best in class through wise decisions and plenty of hard work. If you can get something out of this book, it will the character of these CEOs, how capital allocation can make or break a business, and how to think independently and never go with the flow just because everyone is doing it.

Superforecasting – The Art and Science of Prediction by Philip Tetlock

A must read for every investor. Tetlock examines some of the best minds in predicting and their thinking process. You will learn some of the great tools such as how to think probabilistically; outside view vs inside view, and be a fox, not a hedgehog.

What I Learned Losing A Million Dollars by Jim Paul

Jim Paul spend the first half of the book talking about his life story: the successes he had from a very young age until he became a governor of Chicago Mercantile Exchange but losses it all in soybean oil future. He spent the later half of the book diving into the lessons he learned from his mistakes and what investors can do to avoid them.

Economic in One Lesson by Henry Hazlitt

If you enjoy all the big economic news then you’ll like this. A simple book that will make you question everything. So next time when the government announces that they going to stimulate the economy by creating jobs, you’ll smell BS before everyone does.   

Sapiens – A Brief History of Humankind by Yuval Harari

One of the best book I’ve read this year. Covers everything from agriculture, the industrial revolution and the development of religion, language, currency etc. It will blow your mind and question everything you’ve come to believe to be the truth. How does this help? Investing is all about looking at things from a fresh perspective and through many different lenses.

Into Thin Air by Jon Krakauer

A journalist’s personal account on an Everest expedition with a group of climbers that turns into one of the worst Mt. Everest disasters in history. If you can learn one thing from this book, it is to see risk in a new light – how risk can come at you from totally unexpected ways. It doesn’t appears when you’re right at the top of the mountain, but in every decision you made right before the climb. That applies to investing too. Risk doesn’t find you after you buy a stock, it’s been there all along.

The Compound Effect by Darren Hardy

A motivational self-help book that will inspire you in whatever you do. Your success lies in the things you do when no one is watching, not when everyone recognizes your achievement.

Thinking, Fast and Slow by Daniel Kahneman

Written by a renowned psychologist and winner of Nobel Prize in Economics, Kahneman explores how our mind works and why we are the easiest person to fool. And again, a book that will help you avoid many cognitive biases and improve your decisions and judgments.

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