The Book of Investing Wisdom: Classic Writings by Great Stock-Pickers and Legends of Wall Streetby Peter Krass
The Book of Investing Wisdom is an anthology of forty-six essays and speeches from the most successful, well-known investors and financiers of our time. In their own words, these legends of Wall Street share their best investment ideas and advice. You'll hear from Bernard Baruch on stock market slumps, Peter Bernstein on long-term investing, Joseph E. Granville on… See more details below
The Book of Investing Wisdom is an anthology of forty-six essays and speeches from the most successful, well-known investors and financiers of our time. In their own words, these legends of Wall Street share their best investment ideas and advice. You'll hear from Bernard Baruch on stock market slumps, Peter Bernstein on long-term investing, Joseph E. Granville on market movements, John Moody on investment vs. speculation, Otto Kahn on the New York Stock Exchange, William Peter Hamilton on the Dow theory, and Leo Melamed on the art of futures trading, to name a few.
"Those who invest well have an innate ability to distill abundant, raw information into the scarce commodity of wisdom. Here's how some of the best have done it down through the years." -David H. Komansky, Chairman and CEO, Merrill Lynch & Co., Inc.
"I personally knew moderately all the characters except Charles Dow. Any opportunity to learn more from such people is an opportunity that should not be missed." -Roy R. Neuberger, [his job title TK], Neuberger Berman Inc., and author of So Far, So Good: The First 94 years
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The BOOK OF INVESTING WISDOM Classic Writings by Great Stock-Pickers and Legends of Wall Street Edited by Peter Krass 0471-29454-3 Wall Street. The phrase alone conjures up a spectrum of words and images, from wise investing to reckless gambling, from power deals to pots of gold, from venerable legends like Warren Buffett to infamous traders like Michael Milken. But legendsand allure aside, most of us, in some way, are connected to Wall Street and the phrenetic world of investing. Whether we be professional money managers, do-it-yourself investors, or simply are vested in a 401(k) plan, a chunk of our personal money is in securities. That's why even amateurs must be not only Wall Street literate, but savvy as to what they have invested in and why. The need to be a superb student extends to the pros, too -- just ask Warren Buffett, who studied religiously under Benjamin Graham. But why do we need such an edge? Because, ever since the day the French aristocracy first started trading forward contracts for commodities in the twelfth century, every broker, trader, and investor has looked for that advantage to buy cheap and sell dear -- and sometimes that means blindsiding the sucker. As the notorious stock manipulator Daniel Drew allegedly said, "To speckilate as an outsider is like trying to drive black pigs in the dark." Not that insiders are guaranteed success, according to Peter Lynch, who wrote in One Up on Wall Street that "professional investing" is an oxymoron on a par with "military intelligence." So where does that leave the pro as well as the amateur? In need of recruiting a panel of the greatest stock-pickers and market gurus, past and present, to instruct on the art of investing. Where can we find such a panel? Here in The Book of Investing Wisdom. Wall Street. From its historical beginnings, it has been an epicenter for epic battles, financial and otherwise. One large step backward in time is necessary to give full meaning to Wall Street. Its roots lay in 1624, when the Dutch founded and settled New Amsterdam on the southern tip of Manhattan, reportedly buying it from the native Americans for about $24 worth of trinkets (a deal Donald Trump, who concludes this collection, must certainly admire). Unfortunately for the Dutch, the British also had their eyes on this upscale piece of property, and the residents of New Amsterdam were forced to build a 12-foot-high wooden stockade to protect themselves from repeated attacks. Not to be stymied, in 1664 the British simply sailed their cannon-laden warships into the harbor, and the Dutch surrendered. In 1685, the British built a road along the line of the stockade, which had been torn down, and named it Wall Street. Little did they know that on this same spot the financing would be raised to pay for the war that would expel them from the United States. While the French had been trading paper since the twelfth century and the English had established securities markets by 1720, the United States did not witness any securities trading until the Revolutionary War, when a smattering of bonds were issued to raise fighting money. However, the first major issue of U.S. securities did not come until 1790, when the Federal Government issued $80 million in bonds to refinance all war debt. And so, the national debt was birthed. At that time New York City was the nation's capital, so it immediately took center stage in American finance, and public securities auctions were held there twice daily in 1791 and 1792. The first step toward a more formal stock exchange came in 1792, when 24 prominent brokers gathered under a buttonwood tree on Wall Street and signed the "Buttonwood Agreement," which established a bond of trust between them and -- more important -- set minimum commission rates. The New York Stock Exchange traces its roots to that historic day. Of course, as the market flourished, it wasn't long before those once-trusting brokers entered into skirmishes against each other; their fights, however, were a bit more civilized than those that took place there between the Dutch and the British. The ensuing battles along Wall Street involved more slick financial skills than weapons, although Jim Fisk, stock manipulator extraordinaire and major player in the infamous gold corner of 1869, was shot to death by a jealous rival -- both men were courting the same woman. The financial skulduggery of Fisk and his cronies, like Daniel Drew (see Part VI, "Lessons from Notorious Characters"), were important to Wall Street, as they actually served as catalysts for stock exchange reform. They were operating in the mid-1800s, when railroads ruled the country, both powering economic development and controlling the flow of goods. The first railroad stock was listed in 1830, when there were only 73 miles of track. Ten years later there would be 3,328 miles of track and 13 railroad stocks listed, providing ample opportunity for manipulating prices and stock watering. One result: In 1866, the New York Stock Exchange began requiring companies to provide financial reports to help prevent deceptive practices. Other major reforms also followed scandal or financial disasters. As a result of the 1907 panic (see Frank Vanderlip), the Federal Reserve System was established in 1913; after the 1929 crash (see Edwin Lefèvre), the Securities Exchange Commission was established in 1934; after the 1987 crash (see George Soros), the SEC instituted measures to control the extreme price movements that resulted from the growth of computer-generated trades. Since the mid-1800s, technical innovations have helped modernize the various exchanges. In 1844 the telegraph was invented, paving the way for brokers to operate effectively in every American city -- they could receive timely news for making decisions and were able to execute trades immediately. In 1867 the first practical ticker was introduced, which also aided the dissemination of information in real time. These technological innovations made the stock exchanges more accessible to the population. By the early 1900s, the stock market was a pop phenomenon, with songs such as "Bulls and Bears March and Two Step" hitting the street circa 1901, and with Stock Market Cigars being manufactured by an Ohio company circa 1903. American culture and the stock market became intertwined forever, a subject tackled by Robert Prechter, whose essay, "Elvis, Frankenstein and Andy Warhol," appears in Part IV. One of the results of the rising popularity of the stock market in the early 1900s was rampant speculation by the small investor. Meanwhile, a new school of thought was formulating in the mind of one Benjamin Graham, who began his Wall Street career in 1914 and quickly recognized the need to cut through all this speculative nonsense that had taken hold of America. In his memoirs, Graham recalled that a burgeoning financial services industry, which included pioneers John Moody and Roger W. Babson, was providing huge quantities of information ripe for analysis. "But in 1914," Graham wrote, "this mass of financial information was largely going to waste in the area of common stock analysis. The figures were not ignored, but they were studied superficially and with little interest. . . . To a large degree, therefore, I found Wall Street virgin territory for examination by a genuine, penetrating analysis of security values." The ultimate result was his seminal 1934 book, Security Analysis, coauthored by David Dodd, which is now regarded as the investor's bible. Graham sought to discover the true value of a company and return expectations through diligent analysis, not through inside information, rumors, tips, and flights of fancy. The importance of securities analysis cannot be ignored or treated lightly, which is why The Book of Investing Wisdom begins with "The Nuts and Bolts of Analysis," and who better to lead off the section than Warren Buffett, who worked and studied under Graham. As with the prior two collections in this series, The Book of Business Wisdom and The Book of Leadership Wisdom, this anthology is organized into eight thematic parts to address different aspects of investing and to provide insight into the various nuances of the exchanges. Each section is introduced with a few lines to summarize its purpose and to pull out some of the dominant themes. For example, Part II focuses on the attitude the investor needs to bring to the table, and one of the themes is skepticism -- John Bogle, founder of The Vanguard Group, warns the investor about "past performance syndrome," which is a money manager's propensity to promote past successes when you should be focusing on the present. In another example, Part V provides the opportunity to look at investing from the professional's perspective. In this section, hedge-fund manager Michael Steinhardt writes that "short selling is psychologically unnerving and takes a greater degree of discipline than that needed in buying stocks." He goes on to admit that he is not sure the trading volume and portfolio turnover they generate is justified. Not all of the authors are great stock-pickers; for example, B. C. Forbes was William Randolph Hearst's top finance columnist before founding Forbes magazine, and Edwin Lefèvre was a prolific financial journalist who wrote the investment classic, Reminiscences of a Stock Operator. Regardless, these astute observers of Wall Street have a wealth of information to share. Regrettably, for a variety of reasons a few prominent names are missing from the collection. The primary reason: The right stuff for this kind of collection wasn't available. Some prudent investment gurus are not going to share their secrets, except for the occasional sound bite. In other cases, a particular essay might be too constrained to the time when it was written or might even be too technical and dry. The ultimate purpose of The Book of Investing Wisdom is to help you make money. Whether you are an amateur or a professional investor, you'll find practical advice, strategic wisdom, and intriguing history in The Book of Investing Wisdom. Investing doesn't have to be like a throw of the dice at the craps table or a wild roller coaster ride at the amusement park. Taking the gambling out of investing requires diligent study. Who better to learn from and be inspired by than the panel of investor laureates assembled here?
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