The Jonathan Davis column: Some light reading for the festive season

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The Independent Online
This has not been a vintage year for published insights into the art of stock market investment. There has been nothing published in the past 12 months, for example, to match the rich insights of Against The Gods, Peter Bernstein's fascinating history of risk, in the previous year.

Nor has there been such a comprehensive analysis of successful investment techniques as What Works on Wall Street, by James O'Shaughnessy, another remarkable title which appeared in 1996. However the past year has not been without its highlights and for those who like to pack their Christmas stockings with useful reading about the riches which they hope the new year may bring, it is not difficult to put together a list of reading matter.

First mention has, however, to go to an extraordinary book by the New York trader Victor Niederhoffer. Education of a Speculator (published by John Wiley) chronicles the life and thoughts of a man who went on from a career as an academic and champion squash player to become the high- profile professional trader, whose clients numbered George Soros and several other well-known investors.

Alas for poor Niederhoffer, who is no blushing violet, his hedge fund was wiped out a few weeks ago when he punted most of its money in a disastrous bet on the Thai stock market and he became the biggest single casualty of this year's rout in Asian markets.

No such fate awaits Warren Buffett. There have been so many books about Buffett's extraordinary success as a stock market investor that the market for such books is in danger of becoming overbought. Roger Lowenstein's biography Buffett (Weidenfeld & Nicolson) throws a lot of light on the character of a man who is now almost as famous for his homespun aphorisms as he is for the prowess which has made him the second wealthiest individual in the United States behind Bill Gates of Microsoft.

But there are also plenty of gems still to be found in Warren Buffett Speaks (John Wiley) an anthology of the great man's wit and wisdom. Two quick examples from many - on the value of stockbroker advice: "Never ask the barber if you need a haircut." On the merits of simple businesses as a place to put your money: "You should invest in a business that even a fool can run, because some day a fool will."

There are interesting anecdotes and some fascinating historical detail in a new history of the investment trust industry by John Newlands, Put Not Your Trust in Money, published by the Association of Investment Trusts. The book is a useful reminder that there is nothing new about the phenomenon of widening discounts which we have seen over the past couple of years.

I am not a great fan of "how to" books but two which I thought were a cut above the average this year were Bernice Cohen's Armchair Investor, the story of how a shrewd white-haired lady has taken to playing the markets from her home, and Picking The Right Unit Trust by Bruce McWilliams (FT Pitman Books), a guide to the techniques you need to find the most consistent performers in the unit trust sector.

This year has seen the 10th anniversary of the 1987 stock market crash, and with it have come a host of titles to commemorate this and the great market crash of October 1929. For insights into how market crashes occur, and why, there's still nothing to beat the account by Charles Kindleberger, Manias, Panics and Crashes, first published in 1978 and reissued as one of Wiley's Investment Classics series.

The book has an interesting section on the great crash in the Japanese stock market since 1989. The consequences of that crash itself are still being felt today, as the malaise in Asian markets underlines. It is an open question whether or not the Japanese political system can adapt sufficiently well to prevent its severe dose of debt deflation spilling over into a wide-reaching economic crisis for the rest of the world. That issue will be one of the crucial tests of how the stock markets perform in 1998.

Finally, one oddity brought to my attention by a reader of The Independent, which may appeal to number-crunchers. The Science of Winning, by Burton P Fabricand, is a detailed handbook on how to apply the techniques of betting on the horses to beating the stock market averages.

The author believes that share prices follow a random walk, but argues that it is possible to study the odds and make profits from backing companies which have reported earnings increases that are materially higher than the market has been expecting.

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