Top Books on Investing (from Value Walk)

Top 10 Investing Books Executives and Portfolio Managers Suggest

valuewalk.com/2014/08/top-10-investing-books/

VW Staff

National Book Lovers Day on Saturday inspired Covestor’s portfolio managers and members of Covestor’s senior management team to share their recommendations for their favorite investing books (readers will likely be familiar with most of these books, although they may find some new names). Via PRWeb

Here are the top 10 investing books:

Investing Books #1: The Art of Asset Allocation

The Art of Asset Allocation: Principles and Investment Strategies for Any Market by David Darst. Selected by Charles Sizemore – CFA, RIA, and manager of Strategic Growth Allocation portfolio

A global leader and preeminent expert in asset allocation, David Darst delivers his masterwork on the topic. In a fully updated and expanded second edition of The Art of Asset Allocation, Morgan Stanley’s Chief Investment Strategist covers the historic market events, instruments, asset classes, and economic forces that investors need to be aware of as they create asset-building portfolios. He then explains how to use modern asset allocation concepts and tools to augment returns and control risks in a wide range of financial market environments. This completely revised edition shows how to achieve asset balance with the author’s proven methods, decades of expertise, relevant charts, practical tools, and astute analyses.

Investing Books #2: Active Portfolio Management

Active Portfolio Management: A Quantitative Approach for Producing Superior Returns and Controlling Risk by Richard Grinold and Ronald Kahn. Selected by Jane Edmondson – MBA, RIA CEO, and manager of Mid Cap Quant portfolio

“This new edition of Active Portfolio Management continues the standard of excellence established in the first edition, with new and clear insights to help investment professionals.”

-William E. Jacques, Partner and Chief Investment Officer, Martingale Asset Management.

“Active Portfolio Management offers investors an opportunity to better understand the balance between manager skill and portfolio risk. Both fundamental and quantitative investment managers will benefit from studying this updated edition by Grinold and Kahn.”

Investing Books #3: Wall Street

Wall Street: How It Works and for Whom by Doug Henwood. Selected by Asheesh Advani – Oxford doctorate, and CEO at Covestor

A scathing dissection of the wheeling and dealing in the world’s greatest financial center. Spot rates, zero coupons, blue chips, futures, options on futures, indexes, options on indexes. The vocabulary of a financial market can seem arcane, even impenetrable. Yet despite its opacity, financial news and comment is ubiquitous. Major national newspapers devote pages of newsprint to the financial sector and television news invariably features a visit to the market for the latest prices. Does this prodigious flow of information have significance for anyone except the tiny percentage of people who have significant holdings of stocks or bonds? And if it does, can non-specialists ever hope to understand what the markets are up to? To these questions Wall Street answers an emphatic yes. Its author Doug Henwood is a notorious scourge of the stock exchange in the pages of his acerbic publication Left Business Observer. The Newsletter has received wide acclamation from J.K. Galbraith, among others, and occasional less favorable comment.

Investing Books #4: The Intelligent Investor

The Intelligent Investor: The Definitive Book on Value Investing by Benjamin Graham. Selected by Aaron Pring – commercial construction VP, and manager of Buy and Hold portfolio
The greatest investment advisor of the twentieth century, Benjamin Graham, taught and inspired people worldwide. Graham’s philosophy of “value investing” — which shields investors from substantial error and teaches them to develop long-term strategies — has made The Intelligent Investor the stock market bible ever since its original publication in 1949.

Investing Books #5: One Up On Wall Street

One Up On Wall Street: How To Use What You Already Know To Make Money In The Market by Peter Lynch. Selected by Drew Steinman – CPA, and manager of Leveraged Value portfolio
More than one million copies have been sold of this seminal book on investing in which legendary mutual-fund manager Peter Lynch explains the advantages that average investors have over professionals and how they can use these advantages to achieve financial success.

America’s most successful money manager tells how average investors can beat the pros by using what they know. According to Lynch, investment opportunities are everywhere. From the supermarket to the workplace, we encounter products and services all day long. By paying attention to the best ones, we can find companies in which to invest before the professional analysts discover them. When investors get in early, they can find the “tenbaggers,” the stocks that appreciate tenfold from the initial investment. A few tenbaggers will turn an average stock portfolio into a star performer.

Investing Books #6: When Genius Failed

When Genius Failed: The Rise and Fall of Long-Term Capital Management by Roger Lowenstein. Selected by Sanjoy Ghosh – Wharton Ph.D., and Covestor Chief Investment Officer
In this business classic—now with a new Afterword in which the author draws parallels to the recent financial crisis—Roger Lowenstein captures the gripping roller-coaster ride of Long-Term Capital Management. Drawing on confidential internal memos and interviews with dozens of key players, Lowenstein explains not just how the fund made and lost its money but also how the personalities of Long-Term’s partners, the arrogance of their mathematical certainties, and the culture of Wall Street itself contributed to both their rise and their fall.

Investing Books #7: The 100 Best Stocks to Own in America

The 100 Best Stocks to Own in America (7th Edition) by Gene Walden. Selected by Robert Freedland – MD, optical surgeon, and manager of Healthcare portfolio
Savvy investors realize that blue chip investments are companies that are better capitalized and positioned to succeed in the changing marketplace where “bricks and clicks” alike are required. Among the best of the best, companies chosen by Walden for the previous edition have led the market indicators: the average return of his top five picks was 30.4% compared to -7.2% for the Dow Jones Industrial Average over the same one-year period.
The 100 Best Stocks to Own in America goes far beyond impressive figures for one year. Since its first edition in 1989, Walden’s guide to stocks poised for superior long-term growth has not let investors down. In fact, hundreds of thousands of investors have used this information to create powerful portfolios. Many buy each edition of the book to see how the lists of companies have changed over time. What hasn’t changed are the rigorous criteria for inclusion: only the strongest companies make the grade. Companies are selected on the basis of: earnings growth, stock growth, dividend growth, dividend yield, consistency, shareholder perks.

Investing Books #8: The Big Short

The Big Short: Inside the Doomsday Machine by Michael Lewis. Selected by Bhargav Shivarthy, Covestor Director of Client Relations

The real story of the crash began in bizarre feeder markets where the sun doesn’t shine and the SEC doesn’t dare, or bother, to tread: the bond and real estate derivative markets where geeks invent impenetrable securities to profit from the misery of lower–and middle–class Americans who can’t pay their debts. The smart people who understood what was or might be happening were paralyzed by hope and fear; in any case, they weren’t talking.

Investing Books #9: I Am Right You Are Wrong

I am Right You are Wrong: From This to the New Renaissance: From Rock Logic to Water Logic by Edward de Bono. Selected by Bimal Shah, Covestor Chief Technology Officer

In this book, Dr Edward de Bono, who is well-known worldwide for his origination of lateral thinking, puts forward a direct challenge to what he calls the ‘rock logic’ of Western thought. Rock logic is based on rigid categories, absolutes, argument and adversarial point scoring. Edward de Bono believes that this thinking cannot solve our problems. Instead of rock logic, he proposes the water logic of perception. Drawing on our understanding of the brain as a self-organizing information system, Dr de Bono shows that perception is the key to more constructive thinking and creativity. Here, in this brilliantly argued assault on outmoded thought patterns, he calls for nothing less than a New Renaissance.

Investing Books #10: The Little Book of Behavioral Investing

The Little Book of Behavioral Investing: How not to be your own worst enemy by James Montier. Selected by John Spence – MarketWatch reporting alum, and Covestor Head of Content

Bias, emotion, and overconfidence are just three of the many behavioral traits that can lead investors to lose money or achieve lower returns. Behavioral finance, which recognizes that there is a psychological element to all investor decision-making, can help you overcome this obstacle.

In The Little Book of Behavioral Investing, expert James Montier takes you through some of the most important behavioral challenges faced by investors. Montier reveals the most common psychological barriers, clearly showing how emotion, overconfidence, and a multitude of other behavioral traits, can affect investment decision-making.

Morningstar Top Rated Funds (morningstar.com)

Fund Spy: Morningstar Medalist Edition

The Fantastic 48

By Russel Kinnel | 06-30-14  

This article was published in the June 2014 issue of Morningstar FundInvestor.Download a complimentary copy of FundInvestor here.

It's time once again for the Fantastic 48, a list of funds that pass some high hurdles.

I figure, with so many funds out there, why not be choosy? You want great managers, low costs, good stewardship, and managers who eat their own cooking. That’s why I insist on funds that pass all eight tests, below.

My criteria:

• Must beat the fund’s benchmark since the start date of the longest-tenured manager
• Must have expense ratios in the cheapest quintile of the category
• Must have a manager who has run the fund for at least five years.
• Must have a Morningstar Analyst Rating of Bronze or better
• Must have a positive Parent rating
• Must have at least one manager with at least $500,000 or more invested
• Must have overall Morningstar Risk that is not High
• Must not be limited to institutional investors

All told, just 48 funds passed those tests out of more than 7,000. That’s three fewer than last year. You can see all 48 in the accompanying table. Vanguard led the way with 12 funds, followed by American with 10, and T. Rowe Price with four. The data are through end of March 2014.

I only have enough room to briefly touch on these funds, so please follow the links to read the complete analysis on those funds that intrigue you.

Let's tackle the 48 in alpha order:

American FundsQuite a few of American’s domestic-stock funds have outlegged their benchmarks over a very long stretch. American employs multiple managers operating independently in its equity funds. They tend to be quite experienced, and the resulting portfolio can be rather diffuse. However, low costs and long tenure have led to excellent but not very exciting results. Six of its domestic-stock funds have beaten their benchmarks over the longest-tenured manager’s tenure:  American Funds AMCAP (AMCPX),  American Funds American Mutual (AMRMX),  American Funds Fundamental Investors (ANCFX),  American Funds Growth Fund of America (AGTHX),  American Funds Investment Company of America (AIVSX), and  American Funds Washington Mutual (AWSHX).

Two allocation funds,  American Funds American Balanced (ABALX) and  American Funds Capital Income Builder (CAIBX), have also delivered smooth rides by adding bonds to the mix.

Finally, world-stock fund  American Funds New Perspective (ANWPX) and emerging-markets fund  American Funds New World (NEWFX) complete the list.

 Berwyn Income (BERIX)
This is a nice little conservative-allocation fund that keeps on chugging along. It can’t have more than 30% in stocks, yet it has been a respectable performer in the recent rally thanks to a corporate-bond stake and some good stock selection. Management buys stocks of dividend-payers with solid balance sheets as well as corporate bonds, convertibles, and preferred stocks. Thus, it’s worth noting the fund does take on some credit risk.

Dodge & Cox
Dodge & Cox has a quartet of champs to make it through the screens:  Dodge & Cox Global Stock (DODWX),  Dodge & Cox Income (DODIX),  Dodge & Cox International Stock (DODFX), and  Dodge & Cox Stock (DODGX). Low costs, stable management, and a consistent style have worked wonderfully for Dodge. True, its stock funds got smacked in 2008, but they held up well in the earlier bear market and have regained their footing since 2008. They’re just great long-term holdings.

Fidelity
Fidelity landed three funds in the 48. Will Danoff continues to amaze me at  Fidelity Contrafund (FCNTX). He continues to deliver great returns without extreme risks. You might not have noticed  Fidelity Capital Appreciation (FDCAX), though. It’s definitely at the high-risk end, as Fergus Shiel is something of a fast-trading omnivore.

Finally, at the less-risky end of the spectrum, you’ll find  Fidelity Total Bond(FTBFX). I really like this fund for its middle ground on bond bets. Unlike  PIMCO Total Return (PTTRX) and many popular bond funds, this fund doesn’t make duration bets. Rather, Ford O’Neil focuses on the credit side. He branches out from high-quality bonds to dabble in junk bonds or emerging-markets bonds when they look attractive. It’s worked nicely without a ton of drama in O’Neil’s 10 years at the helm.

 FPA Capital (FPPTX)
Keep an eye out for the day this Silver-rated fund reopens. Managers Dennis Bryan and Arik Ahitov want strong companies trading at modest valuations. It’s not easy to find many companies like that, and that’s why the fund has a big cash stake and is closed to new investors. The fund offers a nice way to get exposure to stocks while still playing defense.

 Franklin Income (FKINX)
Franklin Income is a little like Berwyn Income, only on a much grander scale. This allocation fund also courts a fair amount of credit risk, only it does so with a massive $93 billion asset base. The fund’s sizable yield and strong performance in the rally have made it extremely popular. Remember, though, that yield requires credit risk, and there’s a price to be paid in years like 2008.

Harbor
 Harbor Capital Appreciation (HACAX) and  Harbor International (HAINX) are cheapest when you buy them directly from Harbor with a minimum of $50,000, but you can also buy slightly pricier share classes for $2,500 from fund supermarkets.

In both cases, you have experienced managers plying a disciplined strategy.

Harbor Capital Appreciation is a U.S. large-growth fund run by Sig Segalas and his associates at Jennison. Harbor International is a foreign large-blend fund run by Northern Cross. Both are standouts.

LKCM
 LKCM Equity (LKEQX) and  LKCM Small Cap Equity (LKSCX) are good below-the-radar funds run out of Fort Worth, Texas.

Luther King has been using the same strategy since he founded the firm in 1979. He’s a value investor in search of companies with strong cash flows and high returns on equity but trading at a modest valuation. King is joined in management by a trio of experienced hands who have helped guide the funds to steady results.

Mairs & Power
 Mairs & Power Balanced (MAPOX) and  Mairs & Power Growth (MPGFX) have made an art of buying high-quality stocks that they can hold for a long time. Manager Bill Frels is set to retire at year-end, but the fund still passes the tests; his comanagers started in 2006, and each has more than $1 million invested.

 MFS Massachusetts Investors Trust (MITTX)
A drop to a 0.70% expense ratio has nudged this fund onto the list for the first time. Managers Kevin Beatty and Ted Maloney look for a slew of good growth and quality characteristics like strong cash flow, great management, and above-average earnings growth. Beatty is the longer-tenured one, and since his 2004 start date, the fund has beaten the S&P 500 by nearly 100 basis points annualized.

 Mutual Quest (MQIFX)
Likewise, Mutual Quest’s falling expenses have elevated it to our list. Unfortunately, the closed Z shares are the only ones to qualify. This fund is run the deep-value Mutual Series-way by the skilled Shawn Tumulty and Keith Luh.

Primecap
All six Primecap funds make the list. Three are from Vanguard, and the other three are under its Odyssey label. Two of those six remain open to new investors:  PRIMECAP Odyssey Growth (POGRX) and  PRIMECAP Odyssey Stock (POSKX). Their outstanding analysts and managers simply outresearch the rest of the growth world. I suggest starting your growth search with these two funds and seeing if you can find one to top them.

 Selected American (SLADX)
Yes, despite recent struggles and the departure of Ken Feinberg, this fund is still running more than 100 basis points a year ahead of the S&P 500 under Chris Davis’ watch. We took it down to Bronze when Feinberg left, but we still think Davis’ Buffett-inspired strategy should win in the end.

T. Rowe Price
Manager departures have pared the ranks of T. Rowe Price funds on this list. In addition, T. Rowe has switched to CITs in its 401(k)s, and that has led to lower manager investment levels in mutual funds. However, there are still four excellent funds here, including two that are still open to new investors.

 T. Rowe Price Blue Chip Growth (TRBCX) has been a winner with Larry Puglia at the helm. He has produced consistent outperformance over a 20-year career running this fund.

 T. Rowe Price International Stock (PRITX) reflects T. Rowe’s success in getting its overseas efforts to a level near that of their domestic-stock counterparts. Bob Smith has managed to beat his index through some trying times.

Vanguard
Enjoy yourself. Here are nine cheap, excellent funds that are still open and have whipped their indexes. There are also the aforementioned closed Primecap-run funds.

 Vanguard Dividend Growth (VDIGX) may be my favorite for its great manager and a strategy that leads to high-quality companies with modest levels of debt.

I also like the Wellington-managed allocation funds  Vanguard Wellesley Income (VWINX) and  Vanguard Wellington (VWELX). These Gold-rated funds are well-run and do a nice job of tamping down volatility.

There are also three more-adventurous value funds in the form of  Vanguard Selected Value (VASVX),  Vanguard Windsor (VWNDX), and  Vanguard Windsor II (VWNFX).

Finally, there are two strong sector funds:  Vanguard Health Care (VGHCX) and  Vanguard Energy (VGENX), which are not only well-run but also cheaper than most index funds in their categories.

Note
I made one change in the 48 from the table published in FundInvestor. I discovered that American Funds New Perspective only failed because we don’t have a record of its benchmark going all the way back to 1992 when Gregg Ireland became manager. However, the fund did beat the world-stock indexes in our database that go back that far, so I’ve included it here.

I also cut  T. Rowe Price Equity Income (PRFDX) because manager Brian Rogers will step down next year and the fund will cease to qualify.