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January 1, 2004

The Business Classics

By Reviewed by Gregory Bresiger

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  • The Business Classics
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Some Intelligent Books for the New Year

This year make some time. Otherwise you will be cheating yourself. It's important for the informed trader to read some of the history of the securities business.

Since this is a small column, I do not purport to present a comprehensive list of must reading. But all the books here business and investment classics - share one characteristic: An intensive study of them can save a financial professional from disaster.

One should realize that this business has gone through cycles that keep repeating. Financial professionals and investors inevitably get carried away by their exuberance and make the same mistakes over and over. One can find evidence of this myopic thinking in a 1999 book, "The Market's Measure," a book about the history of the Dow Jones Industrial Average by the Dow Jones Company. The book whooped up the Dow as though it had outlawed bear markets just as the market started a three-year dive.

The Intelligent Investor

by Benjamin Graham

A few years ago value investing - buying securities on the cheap and when they're out of favor - was dismissed as old hat. Today, almost everyone claims to be a value investor. Wouldn't you avoid a lot of trouble if you learned these hard lessons before the next disaster?

Those who have read this classic little 1949 tome - written in a clear style - never had to change hats. Graham goes through the steps of how one separates the junky companies from the pretty good companies and then finds the superior ones. A few extraordinary ones are all that Graham wants, which is why Graham, as well as his most famous student, Warren Buffett, became two of the most successful investors ever.

A Random Walk Down

Wall Street

by Burton Malkiel

The fancy theories of active management come and go, but the market - in its cumulative wisdom - is smarter. Here is one of the bulwarks in the case for passive management and for index funds. Malkiel, in this fascinating book that was updated in a 1995 edition, shows how relying on past performance for selecting the correct investment is usually a bad decision. Better to stay fully invested across several different lines than to try to pick the next hot manager, stock or category of investing. Finally, Malkiel reminds the reader of something that should be remembered, not just in trading, investing and football picks, but also in almost other every aspect of life: The experts are often wrong.

"It was the steady investors who kept their heads when the stock market tanked in October 1987, and then saw the value of their holdings eventually recover and continue to produce attractive returns," the author writes. "And many of the pros lost their shirts during the mid-1990s using derivative strategies they failed to understand."

As one wag says of the football picking experts - in an assessment that could also apply to the experts of the investing world: "Listen to who they are picking, then go the other way."

Common Sense On

Mutual Funds

New Imperatives For the Intelligent Investor

by John Bogle