Backstage Wall Street

 by Joshua M. Brown

I didn’t know who Josh Brown was before I was given a copy of this book to review, so I wasn’t familiar with what he was all about. I’d never read his popular blog (still haven’t) and didn’t know what to expect from this book. As I started reading and well towards the middle of the book, I kept telling myself this could only be a two star book. This guy’s just telling a bunch of his stories from the trenches of Wall Street while not imparting any real, valuable information. And as the half way mark, I was still waiting for whatever investor advice he was going to impart from “backstage”. But such advice never comes. Thankfully, at the halfway point we found out why when he comes out and tells us: this isn’t a book about investing.

Finally knowing that, I was able to relax and enjoy the book. I began to appreciate Brown’s insight into some of the inner workings of the business of investment and how other people make money off of my money. I began to understand a lot of esoteric concepts related to fairly common things, such as IRA’s, ETF’s, 12b-1 fees, and so forth. Brown’s experience and candor may not help you invest better, but what he has to say may still make you a better investor. That’s because his information makes you want to ask some questions – possibly of your broker, definitely of yourself – and those answers should give you better investment judgment. It was certainly eye-opening seeing the world of stocks from a salesman/broker/sweat shop point of view, and the reading was, though not engrossing, at least enjoyable.

My two complaints about this book are minor. The first is that this book sounds a lot like a blog. As a dyed in the wool blogger, Brown can be disjointed and sometimes lacks good flow from chapter to chapter. He’s at his best when he’s writing jab-like sentences to make a short, right-to-the-heart-of-the-matter point, in other words, he’s effective when he writes like a blogger. When he writes like a Wall Street insider telling a story, his prose tends to breaks down, sounding quite unconvincing and contrived at times. My other complaint is how he uses asterisks in bad words. Maybe I’m wrong, but in a book like this, there really isn’t anybody to protect by putting an asterisk between an ‘s’, an ‘h’, and a ‘t’. Swear like a stock broker, if that’s what you are! I’m okay with it, buddy.

At various other points in reading this book, I felt it was a two, three, or four dollars sign work. Just when I decided I would give it four marks, Brown trots out a gratuitous section of famous Wall Street insiders echoing his points and expressing their similar views to his. It sounded like an artificial scaffold of ideological support for an insecure author (or a blogger trying to turn writer). That bumped it down to just above average, and into the three dollar sign range. “Backstage” is still quite different from other books on Wall Street, so it will appeal to most anyone with a passing interest in investing.

George Lindsay and The Art of Technical Analysis

by Ed Carlson

No, this book is not about Goober from Mayberry RFD. (That’s “Lindsey” with an “e”.) The George Lindsay of this book was a technical analyst from the 1930’s and ‘40’s through the early 1980’s or so. He was a guest star on Louis Rukeyser’s stock program and was considered a bit of a savant, I guess. This book sets out to be a detailed study of his technical analysis methodology. But don’t let that fool you: There is precious little this book that pertains to, or could be used in, modern equities markets.

I knew I was in trouble at the first chapter of a book, which explores the biography  of Mr. Lindsay, including his sexuality. The author says that an understanding of the whole person is essential to understanding his technical analysis methods, but I have my doubts about that. Thankfully, that chapter is relatively short. The remainder of the book is all about the technical analysis methods of Mr. Lindsay. It is a straight-forward, no nonsense explanation. Most of the methods are graphically and numerically illustrated, and I think that once upon a time, these methods, mainly charting highs and lows and comparing intervals between them, probably had some validity. I think now they are painfully outdated and not of any practical use in current equities markets. For example, one of the methods involves subtracting a market high from a market low and subtracting from that by another number derived from some ratio or something (details are not important here). From there, you get some other number that dictates some interval of rising or falling prices. Fine, but back when the formula was derived, the DJIA was at 300 points or so. And in one of the cases, the example talks about a 30-point movement – 10% of the market. Well, a 30-point movement now is less than 0.25% of the market and probably happens fifty or a hundred times a day. Likewise, if we were trying to get to a 10% difference (let’s say), you’d be talking about a 1,200 point movement. Not out of the realm of possibility (especially in today’s markets), but are you really going to do that analysis and place bets on the markets, hoping for a 10% shift one way or another? Really? Good luck. What’s worse, the book’s only case study, presumably to prove the value of the methods, uses stock charts from the 1960’s. Maybe it’s just me, but it seems obvious that the equities markets of fifty years ago are a completely different breed of market compared to today’s. I don’t think you can successfully employ investing strategies from half a century ago in this day and age. (Again, if you think differently, good luck.)

Technical analysis has come a long way, even in just the last few years. Maybe a thorough analysis and extrapolation of Mr. Lindsay’s methodology could be put to practical use in today markets. Maybe. But I’d doubt it. As a history of equities analysis and an insightful exploration into one of the early pioneers of technical analysis, this book is probably of some value, but as a primer for investing in today’s markets, it’s not. I can give it three dollar marks for being well-written and informative, but that’s it.

Maverick Trading

by three guys from that company

When I first heard the title of this book, I thought what I was getting into was another “Here’s a scary and crazy way to make money in stocks that you've never heard of before” books. I mean, I hear “Maverick” and I’m thinking cowboys, whiskey, and poker games that end in gunfights. So I figured Maverick trading would be just that: some bold new take on investing in stocks where you keep the whiskey close by in case things don’t go well. (If that were the case, what you do with the gun is another story, too.) Turns out that Maverick is the name of the company (and the trading philosophy) of the three authors of this book, and Maverick Trading’s only thread to the other Maverick is, you try to make money.

The book starts with basic explanations of what moves markets: buyers and sellers. It also discusses why buyers buy and why sellers sell, and what happens when they don’t. They cover the basics of stock charts so that even a raw beginner can obtain and understand useful information on market movement. From there, the nuts and bolts of how markets move, along with the intricacies of analyzing stock positions and behind the scenes movements in prices, sectors, and industries are covered in some detail. I suppose more sophisticated traders than myself might find some of what Maverick is about to be too basic, but I have been investing in stocks for 26 years and never really considered looking at the market the way Maverick does. And of course, I also never thought it might be possible to see when large movements take place and what the real opportunity to buy or sell an equity might be based on what other people are doing. To some extent that makes this a trend book, but Maverick teaches you how to get information, how to analyze it, what to do with it, and when to act on it, regardless of trends. That makes it a complete package for successful trading. The “tools” they put in your “toolbox” are understandable, logical, rational, and eminently useable. And because they advocate infrequent trading only after the big picture is understood, I’m thinking that Maverick trading is a good risk limiting tool, too.

I like this book not only because of the information it contains, but because of its earthy, friendly, approachable tone. Some of the authors’ analogies can at times be ridiculous but the points they are trying to make get illustrated and illustrated well. It makes learning the Maverick way a breeze and reading the book is a pleasure. I didn’t have to buy this book, but it’s one that had I purchased it for myself, I still would have been very satisfied. I give it five dollar signs for that reason.

What Works on Wall Street

 by James P. O’Shaughnessy

I first read this book two editions ago. I always considered it a sober and sensible book, and I found out about it because I invested in a fund that used this book as the cornerstone of its investing strategy. WWOWS has always taken a more than practical approach to investing in stocks. Being analysis intense, it is also quite detailed and wide-ranging. That’s mainly because, although there is always some shifting, there are plenty of strategies and methods that actually work on Wall Street.

This new edition retains much of the content and structure from previous editions. Most of the chapter titles are the same, and although the order of their presentation is changed somewhat, they are still eminently readable as a linear progression or as “one offs” on specific topics. This book has a much cleaner look than some previous editions, having gotten rid of the somewhat pointless (get it?) line graphs that illustrated certain points. These are often replaced by bar charts or tables, which although they are much dryer, they are also much more useful. Physically, WWOWS’s fourth edition is double the size of the revised edition, and as far as I could tell, all pertinent figures illustrating a point are updated with more recent data samplings and examples. The starting and ending points of samples of data, however, tended to be somewhat arbitrary, possibly to demonstrate a topic or theory more clearly and dramatically. The data that is supplied is extensive and always clearly illustrates the topic at hand. It’s smooth and informative reading. In other words, this work just keeps getting better and better.

In the volatile, unpredictable world of equities investing, it goes without saying that what works today might not work tomorrow, what worked yesterday might not work today, and what worked when the second edition of this book came out might be running out of steam at this point. Still, for a general introduction to stock investing, stock analysis, investment and speculation strategies, and quant perspective, WWOWS remains the quintessential handbook. I can’t think of a reason, therefore, not to give it a full five dollar signs.

Benjamin Graham and the Power of Growth Stocks

by Frederick K. Martin

Compared with other books that I have read about Ben Graham, Benjamin Graham and the Power of Growth Stocks is definitely the clearest, most concise, and easily the most useful of all of them. What makes this book particularly interesting is how it revisits the investing philosophy of Mr. Graham with an angle toward using, maybe even zeroing in on, just growth stocks. Once it defines growth stock and clarifies why Mr. Graham’s principles apply, it can then expound on the most tangent of Mr. Graham’s principles and expand them in light of the modern investment environment. What really makes this book a winner is how it reproduces a long lost formula of Mr. Graham’s and then explains a tangible, executable method for actually using that formula to calculate the value of a growth stock and whether or not it is one that should be invested in. Too often we hear some investment advisor tell us, “This formula works, unless of course it doesn’t”. There is none of that here. You set the margin of safety (explained in the book) where you are comfortable. You set the growth rate (here called the “hurdle rate”) you need (or want) to achieve. You look up or calculate the values for the company you want to invest in. Then you apply Graham’s formula. If the numbers match, you’ve found a stock you can safely and confidently invest in. If they don’t, you have to keep looking or change your expectations. The choice is left to you. While I wouldn’t recommend this approach to a beginner, I think this methodology is ideal for a disciplined investor. By constantly referring to Graham’s teachings, the author has really reached an investment methodology that is understandable, achievable, and repeatable. The writing is crisp and friendly, and the style is homey without being corny or preachy. Above all, the author has a solid understanding of the investment principles of Ben Graham, as well as experience using them, and producing positive investment results. Without a doubt, Ben Graham’s growth stock approach is sensible, making this book probably the best investment book I’ve read this year. That’s definitely worth the full load of dollar marks.

What Would Ben Graham Do Now?

 by Jeffrey Towson

The title of this book suggests that the investment strategy of the late Benjamin Graham can be slightly tweaked and the applied to make profitable investment in the risk-laden, wild swinging investment environment of right now 2011. The author is an international investment consultant with considerable and wide-ranging international experience, so I would expect he would know how value investing should work in various political and foreign climates. Unfortunately, instead of channeling Ben Graham in a modern, international  light, all Mr. Towson really does in this book is tell us that we are investing in a politically charged, international environment (which we know already, because that’s what he tells us early in his book). This fact, says Towson, makes some investments marginal bets, and some marginal bets bad ones. What it all boils down to is, you need to invest in the same kind of value and growth companies, but also compensate for political instability, foreign policies, cultural anomalies, and the like. There are plenty of anecdotes to back up the author’s opinions, and that’s all well and good, but I didn’t see much discussion about what Mr. Graham might actually do, much less why he would. In fact, as I got to the middle of the book (where I stopped reading), the author would go on for ten or twenty pages without so much as mentioning Mr. Graham. Personally, I don’t care enough about Russian politics, Chinese cronyism, Middle-Eastern cultural mores and their slanted perceptions of the west to really apply anything in this book to investing. Of course, there really aren’t any strategies, analysis, methodologies, and or other investing advice and tips to apply anyways. So, I still don’t know what Ben Graham would do now, but I know what I’m going to do. I’m going to put this aside and read Benjamin Graham and the Power of Growth Stocks (which really does channel Ben Graham and is a much better read).

The Trading Book

by Anne-Marie Baiynd

For as complex a subject as it covers, The Trading Book delivers a lot of useful information in a clear, concise, useful manner. If you are a trader, or think you want to become one, this book covers everything from basic chart reading to highly advanced trend analysis. If you always wondered how a Fibonacci sequence applies to stock trading, or wanted to know how candlestick charts are used, or what a Bollinger band signifies, Ms. Baiynd has you covered. And when you’ve got all the hard trading knowledge covered, you can tackle the “soft” stuff, like overcoming psychological shortcomings, keeping a trade journal to analyze your performance, and when to trade (or not) based on nothing more than your base emotions. Even though the technical aspects of this book can be daunting at times, Ms. Baiynd softens the blow with plenty of detailed explanatory charts. Her earthy, at time cornball, sense of humor make the reading a lot easier and absorbing the material was at times, even almost enjoyable. For myself, I think this book gets a little too detailed at times, especially when she starts talking about five minute or fifteen minute interval trades (people do that? Really?), but it is easy enough to skim those sections, glean a few pertinent points, then move on to the sections of more use and interest. And unless you are an incredibly experienced trader or some kind of mathematician, I expect you will have to take the tougher sections much slower in order to get maximum benefit and use from the information. (I don’t think any but the most perspicacious readers could digest this book once through – it will require multiple readings and frequent referencing to insure success.) This book is jam-packed with useful information, great lessons and insight, and buoyant enthusiasm and encouragement. I think this is one of the best books on trading there is, so I give it full marks.