Given this reality, the following books should be required reading in high schools and colleges: Basic Economics: A Common Sense Guide to the Economy by Thomas Sowell and A World of Wealth: How Capitalism Turns Profits into Progress by Thomas Donlan. Another excellent book is The Invisible Heart: An Economic Romance by Russell Roberts. No, I did not go soft on you here; in fact, I have to admit, the romance part of this novel did not appeal to my sentimental side, but the discussion about capitalism and free markets is worthy of Nobel Prize–winning economist Milton Friedman.
Atlas Shrugged by Ayn Rand is a novel, not an economic tome, but it accomplishes a lot more than most economics books ever do. It vividly illustrates what happens to the economy when the invisible hand of capitalism is replaced by the “fair” and “compassionate” hand of socialism: The economy collapses.
Rand immigrated to the U.S. from Russia in 1926 at the age of 21 after her father’s business was seized by the Russian government, ostensibly for the greater good. I left Russia 66 years later, a decade after Rand died, and my family suffered a lot less than hers. However, we (as well as millions of other thinking Russians) also witnessed the ugly consequences of socialism.
In Atlas Shrugged, Rand defines her individualist philosophy. Individualism is not a politically correct term in our society, and one doesn’t make a lot of friends by advertising selfishness and greed. So call it anticollectivism, in which independence, self-reliance and individual pursuit of happiness are superior goals, as opposed to collectivism, in which the pursuit of communal and national goals is often undertaken at the expense of individual liberty.
According to Jennifer Burns, who wrote the biography Goddess of the Market: Ayn Rand and the American Right, the author’s popularity surges during every political cycle, when the merits of our political system are being debated. To paraphrase Winston Churchill, “Capitalism is the worst of all possible economic systems, with the exception of all the others.” I hope we see the alternative system to capitalism — a compassionate socialism that is often offered to us as an alternative to our dispassionate system — only in the pages of Atlas Shrugged.
Rand had an enormous impact on the intellectual development of Alan Greenspan long before he became chairman of the Federal Reserve. As Greenspan writes in The Age of Turbulence: Adventures in a New World :
Ayn Rand became a stabilizing force in my life. It hadn’t taken long for us to have a meeting of the minds — mostly my mind meeting hers — and in the fifties and early sixties I became a regular at the weekly gatherings at her apartment. She was a wholly original thinker, sharply analytical, strong-willed, highly principled, and very insistent on rationality as the highest value. In that regard, our values were congruent — we agreed on the importance of mathematics and intellectual rigor.
You may think Greenspan had a hand in today’s crisis. I know I do. He took interest rates down to incredibly low levels and kept them there for too long, causing the real estate bubble. He also did not think Wall Street needed regulation. But that doesn’t make The Age of Turbulence any less of an excellent read. It is not written in Fedspeak. It seems that Sir Alan, after he left the Fed, learned how to use English in a very clear and engaging way. This is not just another memoir, either. The book goes far beyond that. It covers the workings of the Fed, offers lessons on macroeconomics and history and relays Greenspan’s unique perspective on American politics as an insider who served under four presidents during his 19 years as Fed chairman.
In secular bull markets, on average, sell decisions are not as rewarding as hold decisions, as market valuations are expanding and even the second-rate dogs of the equity markets start looking like pedigreed cocker spaniels. Every investor is now a “long term” investor, and sell becomes a four-letter word. But being a long-term investor is not about the longevity of your hold decisions; it’s an attitude. Holding a stock because you bought it is a fallacy; you should hold a stock only if its future risk-adjusted return warrants it.
Emotions assault us from different directions when we face a sell decision, points out Donald Cassidy in It’s When You Sell That Counts : If it is a losing investment, we want to wait to break even. This is the wrong attitude. Our purchase price and our sell decision should not be related. When it comes to selling a winner, on the other hand, we want to sell only at the top. Again, this is the wrong attitude: The top is only apparent in hindsight, when it is usually too late.
We should sell the stock when it reaches our price or valuation target, determined at the time of purchase. We are our biggest enemy when it comes to investing and, especially, selling. Cassidy, founder of the Retirement Investing Institute, has written It’s When You Sell That Counts to fix this. This wonderful book’s objective is to recalibrate your mind and free you from the imprisonment of your past decisions, to break you free from the buy-and-hold state of mind and turn you into a buy-and-sell investor.
Proper sell discipline makes the difference between great and mediocre returns for even the best-crafted buy decisions. Pros may want to skip a few chapters of It’s When You Sell That Counts, but it is an important read for everyone, especially in today’s environment.
What would you do and what would you share with others if you only had months to live? This is the theme of the following two books for the soul: Tuesdays with Morrie by Mitch Albom and The Last Lecture by Randy Pausch with Jeffrey Zaslow. In both books, terminally ill teachers share their life lessons with readers. Pausch, a computer science professor who, sadly, passed away a few years ago from pancreatic cancer at the age of 47, also gave this great lecture on time management . Here is his Last Lecture .
Another title I’ll add to the category of books for the soul is The Snowball: Warren Buffett and the Business of Life by Alice Schroeder. This is an authorized biography of the Berkshire Hathaway chairman and CEO. I am not sure this is the best book to read if you want to learn to invest like Buffett, but it gives a fascinating view of his life. There are many great lessons we can learn from Buffett that go far beyond investing — for example, about honesty and treasuring one’s reputation. But I thought this book was important for a very different reason: It shows that Buffett is not a perfect human being and that we can also learn from the maestro by not repeating his mistakes. He achieved his unparalleled success in his business life at the expense of his personal life.
I find myself wanting to work 24/7. I bring my laptop home, or I start reading he Wall Street Journal on my iPad at the dinner table — my work life starts pushing out my personal life. This book made me realize that no professional success is worth a regret 20 years down the road that you didn’t spend enough time with your kids. Unfortunately, Buffett has that regret
About the author:
Vitaliy N. Katsenelson, CFA, is Chief Investment Officer at Investment Management Associates in Denver, Colo. He is the author of The Little Book of Sideways Markets (Wiley, December 2010). To receive Vitaliy’s future articles by email or read his articles click here.
Investment Management Associates Inc. is a value investing firm based in Denver, Colorado. Its main focus is on growing and preserving wealth for private investors and institutions while adhering to a disciplined value investment process, as detailed in Vitaliy’s book Active Value Investing (Wiley, 2007).