Category Archives: Investment

Book Notes – The Investor’s Manifesto – by William J. Bernstein

Cover Art - Amazon
Just finished reading a book by one of my favorite personal finance authors: William Bernstein. It appears that with every book he writes, he is making them easier to read and addressed to broader audience. In this book, he uses the recent financial "meltdown" as a "teachable moment".

Chapter 1 - A Brief History of Financial Time

  • Throughout history, there have always been providers and consumers of capital; today it is no different.
  • Also throughout history, that capital has taken two basic forms: loans (including bonds) and equity (partnership or stock). The latter has a lower legal standing than the former, and it is thus riskier and necessitates a higher long-term return to attract investors.
  • During times of great social, political, and military turbulence, the prices of both stocks and bonds usually decline precipitously. Most often, this sets the stage for high future returns. Less frequently, however, the losses can be permanent and even total. Financial history demonstrates vividly the fact that just because this has not happened in the U.S. stock and bond markets yet is no guarantee that it might not occur in the future.

Chapter 2 - The Nature of the Beast

(To be completed)


Derek Sivers has a great page on this book. Refer to it for more details. I recommend this book to any investor.

Book Notes – The New Coffeehouse Investor

This is the second edition of The Coffeehouse Investor. I had really liked the first edition and I dug this up to see what has changed.

This book is all about three lifelong principles:
1. Don't put all your eggs in one basket - Diversify your assets to maximize the chances of reaching your financial goals with minimum risk. (Asset Allocation)
2. There is no such thing as free lunch - Markets are efficient. If you find an investment with better returns, it comes with more risk. (Approximate market averages - indexing)
3. Save for rainy day - It's important to save more than rely on unusual investment returns.

The author stresses the importance of these principles and then advises you to ignore the Wall Street and get on with your life!


Book updates

Finished the following books:
Little Book that Beats the Market Great book on investing! Very easy to read and short too! Joel Greenblatt describes a "magic formula" to rank stocks (based on two criteria: Return on Assets and Earnings yield (reverse of P/E!), rank stocks with higher numbers for both. Add the two ranks and rerank based on sum of the two ranks). Then buy a basket of 20-30 stocks who are top ranked and hold them for 1 year. Sell them all after 1 year, re-apply the formula and buy new stocks with highest rankings. Rinse and Repeat. Based on backtesting with different ways, this portfolio has handily beaten the market averages. I wonder why backtesting was only done for past 13 years when comprehensive US market data is available for 75+ years.

The strategy seems sound and is well supported by theory. (High ROA companies means, good earnings on slim assets. High Earnings yield means they are currently cheap. Using the book's website you can very easily find the rankings and stocks that you need. The only problem I see with this strategy is implementation. Buying and selling 30 stocks every year (60 transactions) is not cheap (okay, I am an index fund person - 0.19% fund expenses). I could possibly use or, but they are not cheap. Also the author might turn the website into a paysite (so you have to use something like to screen your stocks. I will make a couple of mock portfolios to keep watching the strategy for sure.

The Tipping Point I guess I am not a Malcom Gladwell person! This book was on my to-read list for a long time and though I liked the basic premise of the book, somehow I was disappointed by the presentation. I had the exact same reaction after I finished Blink. Anyway...

Seminar: Morgan Dene Oliver – CEO OliverMcMillan

Today's speaker was Morgan Dene Oliver who is a CEO of OliverMcMillan, a real estate development and management firm. While his projector was getting fixed, he started by doing some show-of-hands about who in the audience:
1. believes "Art and Design" are essential for their future success ? (Many hands went up)
2. believes they are left brained ? (some - much less that I anticipated)
3. believes that people can use both left and right side of their brain ? (Huh ? almost all hands)

Then he offered some introduction about the left and right brain functions and recommended a book by Daniel Pink: A Whole New Mind which talks about how your right brain is going to help you achieve differentiation. Morgan also mentioned that Creativity, Tenacity as very important values for entrepreneurs. "You can always find someone who is more brilliant than you, but not someone who is more creative than you". With this theme, the presentation started. On the showcase were several of the stunningly beautiful and familiar buildings in La Jolla, UTC, Downtown area. He touched upon how they started to introduce complete community-in-a-building feeling to all their development, the importance of location for real-estate (I have yet to see any real-estate guy not utter location-location-location phrase in any talk), strategically buying properties in downturn and also some of the mistakes that they made and some of the unfortunate bad timings. Someone asked about Green Buildings (eco friendly) in San Diego downtown and his answer was that this was no longer a fad, but a requirement. Also mentioned about supporting the art tax bill from all commercial development. Had an interesting advice for real estate locations - buy properties near art galleries, gay communities!

Date: Nov/02/07

Seminar: Leo Spiegel – Mission Ventures

This was the first professional seminar. Leo Spiegel is a managing partner with Mission Ventures, a hi-tech venture capital firm. Leo has been a president of Digital Island, CEO of Sandpiper Networks. He is also a member of Dean's advisory Council of Rady School of Management, UCSD.

This was an interesting and engaging presentation about Leadership Lessons (the subtitle was funny but I cannot remember it). One interesting thing was that all the slides were a single point followed by a cartoon describing that. Presentation Zen!

The actual message in the presentation was same-old. Good values, Vision, Choose Great People. Common sense (so uncommon in practice!). The anecdotes after each point were very interesting. The following question-answer session was also great - He talked about the startups in San Diego and Orange County area, the profiles of the companies they are currently "incubating" (Entropic, Slacker - which he was very enthusiastic about), his greatest investments so far...

All in all, a great kickoff to the seminar series.

Date: Sept/21/07

Seminar: John Mutch – MV Advisors

John Mutch has been a CEO of HNC software and was appointed the CEO of Peregrine Systems by Federal Bankruptcy court. He took Peregrine Systems from bankruptcy condition to the price tag of $425 millions (HP was the buyer). Since then he started a MV Advisors, an "Activist hedge fund".

What is an Activist Hedge Fund ? The strategy is to find technology companies which are undervalued compared to peers because of corporate governance issues and organize shareholder activism to improve them and in the process create market value. They do this by establishing big stock positions (starting from 4.9 percent which keeps you under SEC radar!), bargaining for board seats and then improving matters by possibly restructuring products, reviewing executive compensation, spin-off, merge as necessary and kick away non-performing executives!

An interesting business model and a good conversation...

Date: Oct/05/2007

Books: The Automatic Millionaire

The Automatic Millionaire : A Powerful One-Step Plan to Live and Finish RichThe Automatic Millionaire (by David Bach) is a little book telling a simple and automatic formula to become a millionaire. It talks about saving money (by sacrificing costly lattes, cigarrettes etc. if needed), effects of compounding (really dumbs down the argument).

Here is a brief sumary of the book:
* Save at least a few dollars a day. ($5 saved every day and invested will become $948,611 in 40 years)
* Learn to pay yourself first.
* Make everything automatic (by setting up automatic payroll deductions, setting up 401k etc.) Plan for saving from 5-20 % of pretax income in a pretax account (401k/403b/IRA/Roth IRA). Maximize employee matching dollars.
* Set up "rainy day" fund, automate the process. Set aside the money for at least 3 months (upto 6-12 months) of all living expenses. Invest it money market/ savings bond.
* Buy a home and plan on repaying it early by methods like biweekly payments, extra principal payments each month.
* Become debt free - pay off all loans, credit cards, automobiles.
* Automatic tithing - set up regular donations to charity.