Today I am speaking with Tom Fogarty, a sixteen-year Wall Street veteran, who is a Senior Securities Analyst at Dreman Value Management. Prior to Dreman Tom worked for Silverstone Capital, a market-neutral hedge fund that focused on autos and auto related industries. He also worked at UBS, as an Associate Director of Equity Strategy where he helped to pick stocks for the Select 20 portfolio. Tom got his start in the business as a credit analyst at Moody's Investors Service.

So Tom, What's in your Library?  

Thinking Fast And Slow by Daniel Kahneman - An accessible compedium of behavioral economics by a pioneer in the field, who is also a Nobel Laureate. If you've ever had trouble accepting that economic agents aren't entirely this! It also covers why people are bad intuitive statisticians and some methods for doing better. In the section on mean regression, Kahneman presents his equations for success:
  • Success = Talent + luck!
  • Great Success = A little more talent + a lot of luck!
I am always amazed at how many greatly successful people seem to forget the second term!

The Psychology Of Intelligence Analysis by Richard Heuer - Although written by a CIA officer for intelligence analysts, the book is still completely relevant for security analysis. It addresses common cognitive biases and strategies to mitigate them. It was written in the 1990's and is a practical guide to making better inferences from the available facts.

Contrarian Investment Strategy: The Next Generation by David Dreman - David Dreman's second most recent edition presents numerous quantitative studies that show markets are not efficient in the strict sense and thus present opportunities of excess return. He also shows that there are behavioral biases that contribute to the persistence of these sources of excess return.  

How We Got Here: A Slightly Irreverent History of Technology & Markets by Andy Kessler -  Kessler made it big running a tech fund, which he shutdown at nearly the peak of the bubble. He then started writing his experiences in a series of worthwhile reads. This book picks up where Running Money leaves off; Telling an offbeat history of innovation and economic progress from the Industrial Revolution through the Nasdaq bust.

The Flaw Of Averages by Sam Savage - The basic premise of this book is that "plans based on average assumptions are wrong on average." Instead, when faced with decisions that involve risk (where mean and variance are known) and uncertainty (where the statistical properties are unknown) we should think in terms of distributions, not averages. This book is full of interesting applications and examples. To get a flavor of the main premise, I'd highly recommend Steven J. Gould's three-page essay "The Median Isn't The Message

The Dhandho Investor by Monish Pabrai - This is the book I usually recommend to people with a new-found interest in the stock market. it's a practical guide to real-world value investing, stressing asymmetric return profiles and smart risk taking. It also explains why so many roadside hotel owners are named Patel. If people make it through Pabrai's book, I usually follow up with Howard Mark's "The Most Important Thing". It is more sophisticated, and gives a better sense of the competition for returns. It clearly expresses that there is no silver bullet...That investment success takes hard work and is a process of balancing a  web of factors that are often polar opposites. I also love his respect for uncertainty. 

Thanks Tom.

As always you can buy any of the books Tom mentioned at the The Sniper Book Bin. If you'd like to see another great read, sign up for The Sure Shot Lettermy monthly newsletter that is packed full with great investment ideas. Hit the button at the top of the page for a free sample, and/or subscribe here.

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