A few book updates:
1. Even if you've read past editions of Security Analysis, the most recent edition with chapter introductions by "modern" value investors adds another dimension. I should add that I've found the fixed income section to be as fresh as if it were written yesterday and with plenty of practical insight even for those that don't play in the distressed space. Graham also talks about the real estate securitization bubble in the 20s that preceded the depression of the 30s, much like our current depression.
2. "Fooled by Randomness" by Taleb, recommended by Howard Marks in The Most Important Thing. I'm currently reading this. Despite being primarily a philosophical rather than analytical book, it addresses the practical issues of dealing with what Dalio calls the "probability of knowing." Probably the best book apart from Marks' and Graham's on risk management. When you have have people like Buffett, Ackman, or Burry going around taking these huge concentrated positions, it creates a very bad example for others. It seems that Buffett often got away with it, but the others were not so fortunate. One conclusion I've reached is that humans suck at evaluating probabilities, which eliminates the theoretical basis for position sizing. For this reason, IMO a "full position" should always be the same size regardless of one's degree of certainty, because the reality is that most of your positions will end up being a coin toss anyway, similarly to professional poker. If you have skill above the market, a few winners will probably account for the bulk of your above-market return. |
