By GAIL JOHNSON
Special to The Globe and Mail
Tuesday, November 14, 2017
Warren Buffett once said that one factor behind his success is a lifelong habit of voracious reading. He would read 1,000 pages a day when he started his career, though the billionaire later pared that down to about 500 by age 87.
Like compound interest, he says, knowledge builds up.
There are thousands of investing books on the market, but just a few strike a chord with people. We asked some of the country's leading investing minds to share the titles that have had a lasting impact on them.
Chad Larson, senior vice-president and portfolio manager, National Bank Financial, Calgary Mr. Larson chose two books: A Random Walk Down Wall Street: The Time-Tested Strategy for Successful Investing by Burton G. Malkiel (originally published in 1973 with an 11th edition out in 2015), and Robert J.
Shiller's Irrational Exuberance (first published in 2000, with a third edition released last year).
In the original Irrational Exuberance, Mr. Shiller issued a warning about the vulnerable, overpriced stock market at the time and touched on the psychology of speculation and herd behaviour. A Random Walk Down Wall Street covers basic investor terminology and provides a life-cycle guide to investing, with strategies tailored to people of all ages.
"They're classic books," Mr. Larson says. "But what's so unique is that these books fundamentally disagree with each other. A Random Walk argues that the 'collective,' or the beehive of the market, is very efficient at pricing things ... and that there's very little point trying to second-guess it.
"Irrational Exuberance, on the other hand, shows how stock prices or asset classes sometimes get way too high or way too low, and you can be equally misguided not to notice that. Both books make powerful cases to be very passive or be very active."
Understanding both sides is important, Mr. Larson says, and, taken together, they can help investors craft a smarter plan.
Olivia Woo, director and private client investment counsellor, Mawer Investment Management Ltd., Calgary Ms. Woo selected David F. Swensen's Unconventional Success: A Fundamental Approach to Personal Investment, published in 2005. Its basic message is that investors will find success through a well-diversified, equityoriented, passively managed portfolio and the use of fee-only investment managers.
"You may ask why an active manager like myself would be interested in a book that was singing the glory of passive investing and somewhat condemning active investment management," Ms. Woo says.
"The reason why I liked this book was that it spoke the truth in that portfolio churning, high management fees and short-term benchmark hugging are eating into portfolio returns for the average investor out there," she says. "He did mention that managers who are agnostic to indexes, charge low fees, have low portfolio turnover, and invest for the long term add value for investors. These are the investment foundations at Mawer, so he unknowingly endorses my firm's approach."
She also liked the book's simplicity. "He did get technical, but you don't need a finance degree to understand what he is talking about."
He explores basic principles that can help investors avoid selling low and buying high, "which are very typical of an average investor behaviour."
Dona Eull-Schultz, portfolio manager and president, Leon Frazer and Associates, Toronto Ms. Eull-Schultz names two books that left lasting impressions: Tom Wolfe's The Bonfire of the Vanities and Michael Lewis's The Big Short: Inside the Doomsday Machine. The former, a novel from 1987, centres on the spectacular fall of a millionaire bond trader in 1980s New York. The latter, a non-fiction work from 2010, tells stories of those who made millions from the housing bubble of the 2000s and the subprime mortgage crisis. Neither falls into the category of bona fide investing book - and that's why Ms. Eull-Schultz chose them.
"I've read all the investment books; I've read Benjamin Graham," she says of the investor whom Mr. Buffett calls his mentor. "Investing is one thing, but human behaviour, human ego, the way crowd mentality works, for me, is a bigger indication of how the markets are going to behave in the short term."
In that short term, "you get a real glimpse into the 'masters of the universe' and how people with money and power all interact in Bonfire of the Vanities. And in The Big Short, all of the signs were there, and everybody missed it except for the ones who followed statistics and the others who had a nose for looking at the picture and seeing what wasn't right - and then going down and knocking on the doors, seeing who was living in the houses, talking to the strippers who owned six condos and had no money down. That's the human behaviour."
Paul Harris, partner and portfolio manager, Avenue Investment Management, Toronto Mr. Harris's top pick for an investing-related book is Berkshire Hathaway Letters to Shareholders 1965-2014.
Published in 2016, this collection of Mr. Buffett's letters to his holding company's shareholders gives insight into the way he thinks about investing and covers everything from corporate ethics to his own fallibility.
"It's not a traditional book, but this is, to me, a history of somebody who is arguably one of best investors in the world, and you get insight into his thought process over 50 years," Mr. Harris says.
"In this business, everything becomes so complicated, and he has a very simple way of dealing with things and looking at things, and it has worked."
But you also see his mistakes, Mr. Harris says. "He's very open... Berkshire Hathaway was a very, very cheap company when he bought it, but it was a lousy business. You can see how his mentality changed over a period of time.
"You won't be able to duplicate what he's done and you're not going to be as brilliant as him, but you can learn from him. I would not read any other business book."
Darren Coleman, senior vicepresident and portfolio manager, Coleman Wealth, a division of Raymond James Ltd., Toronto Mr. Coleman chose 1989's The Wealthy Barber. Author David Chilton has issued several revised editions over the years as well as a follow-up in 2011 called The Wealthy Barber Returns.
The original book's format consisted of casual, money-related conversations taking place in a barber shop, along with simple, effective, real-world lessons, such as living within your means and paying yourself first.
"When I first became an advisor back in 1992, I gave out hundreds of copies of that book to people," says Mr. Coleman, who has recently written his own personal-finance book, Recalculating: Find Financial Success and Never Feel Lost Again.
"We had all these baby boomers who were becoming adults and having kids and getting minivans, and discovering that life was complicated."
Stocks didn't matter if clients didn't know how to save or budget or deal with a mortgage, he says.
"The book was a great tool to help teach people some core ideas about saving, risk management, buying insurance, and so on, and it was told in a way that was easy to digest. It was very powerful for me to have a tool to get everybody to have the right kinds of conversations that were really meaningful."
The book chosen by Mawer's Olivia Woo, Unconventional Success, should help readers resist typical investor behaviours such as selling low and buying high, she says.
JEFF MCINTOSH/THE GLOBE AND MAIL