James Montier's Favorite Investment Books

These books aren’t related to the current crisis but all provide deep insights into the nature of investing.


Top of the list is Howard Marks’ ‘Memo to Oaktree Clients’. Regular readers of my notes will have come across references to Howard Marks and his letters before. To my mind they are in the same class as Seth KlarmanÂ’s comments indispensable reading for those engaged in investing. Indeed Marks wrote one of the introductory essays in the 6th Edition of Security Analysis which Klarman edited.


This book isn’t the easiest to track down (or indeed the cheapest at $200, available from Wave Publishing). However, the publishers did an excellent job of sending me a copy and an invoice which I was able to pay in sterling (at a time of sterling strength which brought the cost of the book down significantly). The book collects together some of the best of MarksÂ’ writings from 1990 to 2005. The letters focus on OaktreeÂ’s investment philosophy and its application to the current investment juncture. Given that Oaktree is a fixed income outfit, the letters show how useful a value perspective can be in that market. The topics covered come close to my own heart such as the folly of forecasting, bubbles, the nature of risk and investment vs speculation. This is a collection that will have you returning on a regular basis to refresh your memory of MarksÂ’ words of wisdom.


My next choice is ‘Distressed Investing’ by Marty Whitman and Fernando Diz. As I have regularly observed in the last six months, generally a backdrop of poor profits and massive leverage is the perfect breeding ground for distressed investing (both equity and debt). Who better to provide a guide through such a world than Marty Whitman (of Third Avenue fame). The authors walk the reader through the tricky pathways of reorganisation and bankruptcy. En route they chart the perils and pitfalls that can easily consume the unwary. They also elucidate on the nature of valuation and risk as it applies to distress investing. The book is written for US investors, so much of the focus is on ‘going concern valuationÂ’ (Chapter 7 style), rather than liquidation. Despite the US focus, I think the book contains enough perspective to be worthy of an international audience.


My third choice in the investment section is ‘Snowball’ by Alice Schroeder. This is without a doubt the longest book on this year’s list, weighing in with an impressive (and slightly daunting) 966 pages! Of course, technically Snowball isn’t an investment book. It is a biography of Warren Buffett, but to me the two are intimately linked. Schroeder does an admirable job of portraying Buffett ‘warts and allÂ’. She documents the way in which Buffett built upon Ben Graham’s ideas and extended (often in ways that Graham himself would probably have disapproved). But she goes further and provides us with a psychological profile which yields intriguing insights. For instance, Schroeder writes he tended to extrapolate mathematical probabilities over time to the inevitable (and often correct) conclusion that if something can go wrong it eventually will.”


Schroeder often leaves me wondering if I would actually like Buffett as a person (I can’t help but admire him as an investor, of course). My wife often tells me that I am enormously change resistant (I prefer to follow the if it ain’t broke, don’t fix itÂ’ school of thinking). However, Buffett seems even to me to be stuck in his ways, particularly with respect to his dietary habits. The tale of Buffett’s dinner with the chairman of Sony left me shaking my head. Regardless of such issues, Snowball is a delight to read, and somewhat surprisingly for such a magnum opus, flies past.


A stop press addition to this list is Justin Fox’s ‘The Myth of the Rational Market’. This book arrived at the weekend, and I decided to start reading it. Having read around one-third of the book I have decided that is deserves a place on this year’s list. It charts the history (or rise and fall) of the efficient markets hypothesis (EMH). My favourite quotation in the book is from


Robert Shiller (during his angry young man phase in the early 1980s) when he describes the EMH as one of the most remarkable errors in the history of economic thought. It is


remarkable in the immediacy of its logical error and in the sweep and implications for its


conclusion.”Amen to that!