Recent Reading

I've been asked for links to the best financial markets reading I've had in the last few months. I've read a lot of good stuff (and some bullshiitake), some of it subscription only, some of it free (and the paid stuff generally differs little in quality from the smarter free stuff). I especially focus on commentary + analysis style pieces - it's usually more useful and helps fade out the noise of the short-termism 'news'.

Anyway, from what I can remember of the good stuff, below is my list of four non-subscription must-reads. Even the Howard Marks note which is a quarter old, and the Xie article which is a few weeks old, are not yet dated reading (rather the contrary is true):

1. A GMO White Paper authored by James Montier: The Seven Immutable Laws of Investing. Montier is a member of GMO's Asset Allocation team, has authored a number of books on value investing and behavioural finance, and used to be the Co-Head of Global Strategy at Societe Generale. No link for this one as it's behind a free registration wall, so it's below:
   GMO - Montier March 2011
   
   
   
2. PIMCO Co-Founder & Co-CIO Bill Gross's March Investment Outlook note to investors;
   
   
3. A client note from the end of last year by Howard Marks, Chairman of Oaktree Capital Management;
   
   
4. And finally Andy Xie's late February article in the English Caixing Online: Hot Money, Fast Riots. Xie is on the Board of Rosetta Stone advisors. But better known as the former star Asia-Pac Chief Economist for Morgan Stanley. All of his stuff is very good, not just the one article linked to above. 

Weekend Links

• Bill Gross (yes, of PIMCO) has released his NOV newsletter. He talks more about the new normal for which he is well known, and why most assets are currently overvalued. The paragraph below forms the basis from which he explains what is likely to come next:
  

Let me start out by summarizing a long-standing PIMCO thesis: The U.S. and most other G-7 economies have been significantly and artificially influenced by asset price appreciation for decades. Stock and home prices went up – then consumers liquefied and spent the capital gains either by borrowing against them or selling outright. Growth, in other words, was influenced on the upside by leverage, securitization, and the belief that wealth creation was a function of asset appreciation as opposed to the production of goods and services. American and other similarly addicted global citizens long ago learned to focus on markets as opposed to the economic foundation behind them.

• A couple of weeks ago Charlie Rose interviewed Stephen Roach on his show. Roach for years headed economic research at Morgan Stanley. For the last three years he has been Chairman of Morgan Stanley Asia. The interview is a must read for anyone who follows China - how can anyone afford not to? Well worth a read. Transcript here;

• I came across an interesting article by James Montier published in The Hedge Fund Journal in 2006. Montier lays out an argument for the superiority of models over human judgement. Montier's views will excite black box traders and econometricians alike. As Montier lays it out, models take the wisdom of behavioural finance one step further and manifests it in a tool that can be used. But most of the article argues for the quant in a range of settings - not just finance. Montier writes:

What could baseball, wine pricing, medical diagnosis, university admissions, criminal recidivism and I have in common? They are examples of simple quant models consistently outperforming so-called experts. Why should financial markets be any different? So why aren't there more quant funds? Hubristic self belief, self-serving bias and inertia combine to maintain the status quo.

• For those of you interested in Value Investing - Value Stock Plus has a page on Seth Klarman, the legendary fund manager and author of Margin of Safety - Risk Averse Investing Strategies for the Thoughtful Investor. This book has been out of print for a long time now and is much sought after - copies that do reach the market have recently traded at up to USD3k per copy via Amazon re-sellers and Ebay. This page has a Rapidshare link to a PDF version - very useful.