Reader’s Diary

William Bernstein

This extremely useful book provides clear, not-overly-mathematical, explanations of topics like risk, risk vs. reward, risk measurement, standard deviation applied to investment performance, portfolio construction, and correlation of asset classes.  I’ve long been a believer in holding a diversified portfolio of index funds, but this book has given me some tools to use to make better choices.  On the basis of Bernstein’s advice I plan on tilting my stock holdings toward small-cap and value index funds.

It was interesting to read this book – written in 2000 – in light of the recent crash.  Most of what he wrote back then is good advice, advice that would have cushioned anyone who followed it from the worst of the recent meltdown.

“The Intelligent Asset Allocator” is a good book to pick up after reading Bogle’s “Common Sense on Mutual Funds” (updated 10th anniversary edition), which is a book everyone who has any interest in investing should read before committing a penny.  Bernstein builds on Bogle but provides more actionable advice.

I did skim Bernstein’s more recent “The Investor’s Manifesto: Preparing for Prosperity, Armageddon, and Everything in Between”.  While it’s worth looking it, I don’t think it rewards a careful read like “he Intelligent Asset Allocator” does.

Philip Hoare

This is a absorbing, discursive book about “Moby Dick”, Herman Melville, history, natural history and, yes, whales.  More history than natural history, it still contains plenty of fascinating cetacean facts.  Hoare concludes with a moving account of his close encounters with whales while filming the companion BBC documentary.

“The Whale” is beautifully written.  I really enjoyed this one.

Full disclosure: I’ve read “Moby Dick” twice and have an Arthur Moniz print of  Moby Dick’s moonlit flukes with the “Pequod” in the background hanging over my desk (see “The Chase” here).

Michael Lewis

Michael Lewis, author of “Liar’s Poker“, returns to Wall Street to tell the story of the big crash.  He focuses on several people who were smart enough to short (i.e., bet against) the housing bubble. On almost every page I found myself amazed at just how crazy things were.  Even the subjects of the book found themselves wondering if they’d missed something as the bubble got bigger and bigger and they seemed to be the only ones in the casino who realized that it was already burning down around the gamblers.  If any book every proved that truth is stranger than fiction, this is it.

This is a great read full of interesting people doing arcane things while making and losing billions of dollars.  Lewis does a good job of explaining how the whole corrupt system worked.

Frank Gohlke

This is a collection of short pieces by and interviews with photographer Frank Gohlke.  Some of the chapters are more useful then others, and there is some repetition, but most of them have insightful things to say about landscape, particularly the problem of presenting nature as it exists in the man made environment (a theme that Gohlke convincingly argues was a concern of Thoreu’s).

It’s hard to find books that talk sensibly about non-technical and non-historical aspects of photography.  This is one of those rare books.  While it’s not quite as widely applicable or as tightly edited at Robert Adams’ “Beauty in Photography“, it belongs next to it on the shelf.

Nassim Nicholas Taleb

Considering that I called Taleb’s previous book “a double-barreled time-waster”, it’s odd that I read this one at all, much less that the ideas in it obsessed me for a couple of weeks.   Maybe a nine month period of unemployment which started four months after I read his last work changed my perspective.  Certainly “The Black Swan” owes much of its popularity to the good fortune of having been published only a short while before the global economic meltdown.

“The Black Swan” is about the idea that there are unpredictable events – “black swans” –  that can have huge consequences.   To a lesser extent, it’s about how to arrange things so that you are relatively unaffected by the inevitable but unpredictable catastrophes that lurk in our future.  This isn’t a financial advice book but Taleb does argue for putting 80% of one’s savings in cash and 20% in high-risk bets that have the potential of big payoffs.  However, once you’ve accepted his argument that bad things can happen, what can you really do about it?  Should we really devote our lives to avoiding risk?

Taleb is an engaging writer, and this is a thought-provoking book (and heaven knows thought-provoking books are themselves black swans).  He makes a very good case for the idea that our interconnected, automated world puts increasingly at the mercy of black swan events.

This book might change the way you look at the world, but it won’t help you sleep at night.

William Poundstone

This book is about the “Kelly formula” (explained on the author’s web site) which, despite the book’s subtitle, is not so much a betting system but a money management system for gamblers.  It also applies to stock market investing, which says something about the nature of the market vs. the casino.

The Kelly formula is based on the observation that even a gambler with inside information that gives him a substantial edge – or the investor who succeeds in identifying “inefficiencies” in the market – can go broke if he dumps all his money into a enough bets that don’t turn out as expected.  The formula gives the gambler/investor a way to determine  just how much of his stake to place on each bet/investment. By applying the formula he can maximize his profit at the cost of volatility.  The volatility can be reduced by betting at “less than Kelly”,  a precaution that also allows for errors in the bettor/investor’s estimate of the numbers that are the inputs to the formula.

Poundstone explains the Kelly concept in non-mathematical terms and tells the stories of people who developed it and used it.  In the course of the book he introduces the reader to scientists, gamblers, mobsters, and investment gurus (and charlatans).  The connective thread is the story of  Edward O. Thorp who famously “Beat the Dealer” at blackjack and less famously “Beat the Market“.

All in all, it’s an interesting book taught me a little about a lot of areas I knew little about.  I do wish Poundstone had focused more on the estimates on which the formula depends and on concrete examples of how the average investor – or gambler – might apply the formula.