Let me start with the summary of general negative feedback for “The Battle for Investment Survival” by Gerald M. Loeb on Amazon.
- This book is not very well organised [True. Author has basically compiled various articles he has done over a period]
- There is often repetition and even contradiction at some places. [Again reason is same, compilation of articles over period]
- There are many things to which many value investors will not agree [including myself and its easy to figure out what to ignore].But I do not think any of the above negatives reduces the value of the book in any way.
This is one of the first book where I found that the author gives his advice right from spending habit, use of leisure time, building career in investment industry, risk of inflation, short-term trading, investment in-house vs rental etc. ” The Battle for investment survival” makes it repeatedly clear that it’s very difficult to make money in stock market and great majority will fail in market. So if you do not have requisite skill and time better to rely on experts and opt for mutual funds.
Loeb book was really an eye opener for me. I realized that you should never restrict your reading to your beliefs, else you will never learn through ‘Other people experiences’ He insists that in short-term investing (6 months to 18 months), errors are revealed much faster compared to in ultra-long term. I think its true. Generally most people start with short-term but become long-term investors when price decline below their cost price, rather than booking losses.
For people who do not believe in the fundamental analysis and buy and hold approach, the alternative suggested in this book is the far less risky than the current prevalent practice of buying hot stocks on tips, without doing any background checks. Some of the chapters are really useful to retail investors like “Speculative attitude essential”, “How to invest for capital appreciation”, “What to look for in corporate reports”, “Investment and spending” and “Diversification of investments”. As this is a very old book, author has used the word speculation for investment in equity shares and restrict the term investment to only those which offers assured rental or interest.
Let me highlight some of the points which are really found very useful….
Don’t buy House on loan until your reach your financial goals
“It is utmost folly for a young man to divert capital into buying a home while he still needs a fund for investment and before he has reached his financial goals unless he has abandoned them as unattainable as far as his mentality is concerned. Let the landlord get his rental out of his house capital if he can but you get the use and profit out of your money. Buying a home is an adventure and will yield your family great emotional satisfaction. Also it assures you a roof over your head. Viewed strictly as an investment however, home buying is ordinarily relatively inefficient. The initial purchase price represents only one part of the total cost. You must follow up by spending for repairs, mortgage interest taxes and maintenance. And trying to get your money out again can be difficult and often disappointing especially if you are in a hurry. “
How to learn research:
“Read every worthwhile book on investing and read leading financial journals. Anything can be best learn by practice. So set up a small amount and do trading. The only condition is at any time you can buy into only one situation and you have to close that situation to buy into another situation. Experience teaches you how little you know even under the best circumstances. “
“In every line of modern endeavor the value of specialization is apparent. So better to master one field than trying in commodities, FX, foreign bonds etc.”
Write down the reasons before you buy or sell
“Write down your cogent reasons for making an investment – what you expect to make, what you expect to risk, the reasons why, should save you many a dollar.”
“Writing things down before you do them can keep you out of trouble. It can bring you peace of mind after you have made your decision. It also gives you tangible material for reference to evaluate the whys and wherefores of your profit or losses.”
“One of the greatest causes of loss in security transactions is to open a commitment for a particular reason, and then fail to close it when the reason proves to be invalid.”
Favorite fifty is not against you
“Investors regards familiarity with contempt. Investors incorrectly thinks that to succeed they must buy something new, something “special” or something “exclusive” with him. Size or successes are not a hindrance to continued success as many inexperienced investors are inclined to think. It is far easier for the strong to grow stronger than for the weak to grow stronger.”
Long-term vs short-term
“Does not matter, we are investing for appreciation. To begin with short term is better than long term, as experience is gained much more rapidly that way. You should never sell without a reason. One simply cannot continue to buy and sell successfully without being good. Without a succession of varying trades one cannot be sure of one’s ability and consequent safety. Short term requires one to trade for a reason and if later situation changes one can buy again either at profit or may be at loss, which is in effect cost paid for insurance. Long term has its uses and often the taxes. However opening trade must be done on short term principles. Some of the really vital last chance selling points first look like minor temporary tops.”
Short term trading required different skill set and temperament. I do not think I have the temperament or competence to do the short term trading. Short term trading reveals mistakes much faster compared to long term investment. That was the reason I started investment in special situations. I started with Open offers and Delisting. Short term trading in special situation taught me importance of 1) Base rate of probability 2) Importance of thinking in terms of expected returns factoring worse case scenario. 3) Importance of studying what has really worked well and what has turned out to be a disaster – and to learn from both
I have done a four part series on delisting. You can read Part I “Failure has patterns here and Part II Don’t be Fooled by Randomness here, Part III “Seek Uncertainty on Favourable terms” here and Part IV – “Using Checklist & Mindmaps” here
Concentrate for better returns……
“One can know a great deal about a very few issues, but it is impossible to have a thorough knowledge of all the ones which go into diversified list. The chance for errors in judgment is thus increased by diversification and certainly keeping posted on a broad list after it is purchased is much more difficult than keeping posted on a very few select shares. Diversification as to issues and type of securities is a type of hedging,a method of averaging errors or covering up for lack of judgment. Diversification is necessary in issues of different situations or industries which are in different cycles. Geographical diversification is must to protect against wars and natural calamities.”
Concentration not for beginners……
“Diversification is a necessity for the beginners. The greater your experience, the greater your capability for running risks, and the greater your ability to chart your course yourself, the less you need to diversify.”
In simple words one should think Diversification beyond % allocation.
Theory of reflexivity [though he did not use that term]
“Price of a stock at a given moment is a potent influence in fixing its subsequent market value. Thus a low figure might frighten holders into selling, deter prospective purchasers or attract bargainseekers. A high figure has equally varying effects on subsequent quotations.”
How to learn investment……
“One must first learn by experience the basic principles of successful dealing in securities through trading in ACTIVE LISTED LEADERS, and particularly one must acquire ability to control PERSONAL EMOTIONS OR FEAR OF LOSS OR GREED FOR larger profits etc, which affect most people’s decisions and are very COSTLY. Later one can desert the filed I prescribe [if one must – most will stay in it exclusively] and specialize in some other branch.” [Emphasis mine]
“Those who are successful in the LISTED LEADERS thereby will learn the general principles of successful investment.”
“Above all avoid, the penny shares, the new stock with a glamour or romance title and certainly gratuitous ministrations of the “boiler room” operator and “sucker list” mailings.”
Benefit of Specialization….
“In every line of modern endeavor the value of specialization is apparent. This holds just as true in the handling of capital. Those who will select and master one medium are far better off than those who must dabble in reality, foreign exchange, commodities, obscure unlisted stocks, foreign bonds etc.”
Inside information not always profitable…
“Actually, as I look back upon it, most insiders never knew enough really to profit from their advance news unless it was something completely outstanding. It always was and always will be the power to understand and the ability to act that turns information into profits.”
What NOT to buy
“The products or services sold should not be great public necessities, as the latter become targets for political interference.”
Willingness to remain uninvested….
“Willingness and ability to hold funds uninvested while awaiting real opportunities is a key to success in the battle for investment survival. Market valuation of most securities change in a single period of a very few months by an amount equivalent to many years of dividends or interest coupons.”
“Storing present purchasing power for use in the future is investing, no matter in what form its put away.”
“Nothing is safe, nothing is sure in any field of life.”
“Frequently one fails to distinguish between results obtained by chance and those secured through knowledge.”
There is much more in the book…Must read for beginners to understand “IT IS NOT EASY TO MAKE MONEY IN STOCK MARKET”.