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Today I am interviewing Peter Gaynor a long-time Wall Street veteran. Peter has been a Senior Portfolio Manager at Wilmington Trust and has worked as an Investment Officer at Evergreen Investments. Prior to that he has had stints at Merrill Lynch Investment Managers and PNC Bank, both as money managers. He started his career as an analyst at the Value Line Investment Survey in the early '90s.
So, what's in your library Peter?
Investing: The Last Liberal Art by Robert Hagstrom The book ties together the scientific models of different disciplines as they might relate to an investment framework. Hagstrom looks at the governing models of other disciplines such as physics, biology, philosophy and literature and spotlights their potential use in investing. The book highlights the importance of cyclicality and life cycle and how investors can improve their returns by moving away from financial concepts only and including strategies and methods from other fields of study.
Advances In Behavioral Finance by Richard Thaler Thaler explores the emotional biases of investors and how those biases affect decision making. A classic example of this is people's reluctance to sell stocks that have lost money due to a fear of admitting mistakes or recognizing a loss. This bias also runs in the opposite direction as many people will also sell winners too early in order to realize the pleasure of winning. Finally, the efficient market theory can never explain thoroughly high over or under valuation for any individual stocks.
What Works On Wall Street by Jim O'Shaughnessy A good review of the long-term historical predictive value of financial ratios. Over very long time horizons he shows which ratios hold the greatest chance for making money. This is a good source for background information for building quantitative models. He goes over price to book, price too earnings, price to sales, price to cash flow etc., providing a valuable historical perspective for decision making.
Financial Shenanigans by Howard Schilit This book helps investors identify balance sheet tricks that companies can use to inflate earnings. It's useful for identifying high-flying companies that have unsustainable trends. This book really puts the spotlight on accounting gimmicks and is filled with case studies. I love case studies!
Extraordinary Popular Delusions & The Madness of Crowds by Charles MacKay The book reaches back into history to vividly describe cultural manias and preoccupations, including tales of 18th century investment fads in Tulip bulbs, South Seas trading and Louisiana land development. MacKay examines the basis for the hyperbolic expectations and colorfully shares the ultimate folly of even the most respected intellectuals of the day. This is definitely a buyer beware type of book! Its enduring message: weigh carefully the wisdom of popular belief.
As always you can buy any of the books Peter mentioned at the The Sniper Book Bin. If you'd like to see another great read, sign up for The Sure Shot Letter, my monthly newsletter that is packed full with great investment ideas.