Sound investment from reading between the lines

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The Independent Online
Americans enjoy making money, so their books on investment tend to be popular. In Britain, there are very few and that was one of the reasons that I wrote The Zulu Principle.

There are two excellent British primers: The Beginners Guide to Investment, by Bernard Gray; and How to Read the Financial Pages, by Michael Brett. There are also a number of specialist British investment books that cover narrow aspects of the subject. For example, Accounting for Growth, by Terry Smith, deals with creative accounting and Interpreting Company Reports and Accounts, by Holmes and Sugden, is excellent on company accounts.

Many of the American investment books are well worth reading. If you were interested in snooker, you would want to know exactly how Stephen Hendry holds his cue and controls the cue ball so well. Investment is probably easier to learn about through reading and studying the successful techniques of well-known experts.

First, I would recommend Peter Lynch's One Up on Wall Street (Penguin) and his very recent Beating the Street (Simon and Schuster), still only in hardback. Both are full of helpful, pointed advice written by a master of the art of investment, who was one of America's most successful fund managers.

The New Money Masters and The Money Masters (Harper and Row), by John Train are also readable. Train is a prestigious investment counsellor, who writes with authority about the successful strategies of investment giants such as Soros, Lynch and Rogers.

In the same vein, Jack Schwager's Market Wizards (Simon and Schuster) and more recent The New Market Wizards (Harper Business) give details of interviews with top traders in commodities and stock markets, outlining their attitudes and approaches. In the concluding chapters, he summarises their methods and analyses common characteristics.

These kinds of book enable enthusiastic investors to learn new techniques and to cross-check their methods with those of legendary experts such as Warren Buffett. In another book, The Midas Touch (Harper and Row), John Train has written a detailed exposition of the strategies that have made Buffett into America's pre-eminent investor. Many of his ideas are simple ('what you are looking for is an unregulated water company') and are put forward in a homespun, amusing way.

All of these American books are an easy read. The more heavyweight ones are the classic The Intelligent Investor (Harper and Row) by Benjamin Graham, Security

Analysis (McGraw Hill) by Graham and Dodd and Technical Analysis of Stock Trends (John Magee) by Robert Edwards and John Magee. Warren Buffett describes The Intelligent Investor as 'the best book on investing ever written'. The main thrust is the attraction of value investing and a systematic approach. Not an easy read, but compulsive for serious investors.

Security Analysis is very hard going, outlining the techniques for measuring asset values, cash flow and earnings. Mainly of interest for investors in the American market.

Technical Analysis of Stock Trends is an authoritative book but it is a hard read, only for those who are particularly interested in charts.

A great favourite of mine is Extraordinary Popular Delusions and the Madness of Crowds (Farrar, Strauss and Giroux) by Charles Mackay. A fun-to-read classic of crowd psychology with detailed accounts of the South Sea Bubble, the Mississippi Scheme and Tulipomania.

Last but not least is Reminiscences of a Stockmarket Operator (Fraser Publishing) by Edwin Lefevre. A classic and amusing tale of the early life of the speculator Jessie Livermore. Written many years ago but the central message is still pertinent - do not fight the market, go with the force.

Serious investors might find it helpful to keep a notebook of the most appealing ideas in these books and the key points of any financial articles they read that particularly impress them. For example, Warren Buffett's concept of a business franchise and Edwin Lefevre's comment about 'a Wall Street fool who thinks he must trade all the time'. Jim Rogers also believes in patience. He waits 'until there is money lying in the corner, and all I have to do is go over there and pick it up'. In short, he wants to be certain before investing. The sum total of these ideas will give you a valuable check-list for your own investments.

To obtain copies of some of these American books can be difficult. If you are interested, I suggest that you inquire at a leading book store like WH Smith, Hatchards or Foyles. If unsuccessful, you should try a specialist in business books, such as The Business Book Shop (071-723 3902) or Books Etc. (071-628 8944).

The author is an active investor who may hold any shares he recommends in this column. Shares can go down as well as up. He has agreed not to deal in a share within six weeks before and after any mention in this column.