The credit crisis is just over a year old and already there are dozens of books on the market to explain its causes or cure its ills
Most are not worth the time it takes to read them, according to a handful of money managers and market strategists who agreed to take part in an informal survey. The books either contain too few insights, they go over old ground, or they just get it wrong.
— “Too many of the books about the crisis are fluffy,” said Yale professor and economist Robert Shiller, who was among the most vocal sages predicting the real estate bust. Of all the books he read last year, only a few were sufficiently serious. One was “This Time is Different,” a history of 800 years of financial schemes-gone-wrong written by University of Maryland economics professor Carmen Reinhart and Harvard professor Kenneth Rogoff.
— Jack Ablin, the chief investment officer of Harris Bank, said he learned valuable lessons from one of the quickly issued, behind-the-scenes books of 2009: “House of Cards” by journalist William Cohan. Harris, who penned his own book last year offering investing strategies for the post-credit crunch markets, praised the story of the rise and fall of Bear Stearns. He appreciated the book’s depictions of the personalities of Bear Stearns executives and the firm’s tumultuous relations with competitors. “Both ingredients, it turned out, led to the firm’s demise,” he said.
— The credit crisis sent Eugene Stone, PNC’s chief investment strategist, scurrying to his bookshelves to find his copy of the 30-year-old classic “Manias, Panics and Crashes: A History of Financial Crises.”
The book, by the late MIT professor Charles Kindleberger, is a study of common elements that helped inflate financial bubbles from the 18th century South Sea Company scandal to more recent meltdowns like the emerging market debt defaults of the 1990s. Stone said he remains worried that the low federal funds rate could spark yet another bubble, despite recent experiences with overvalued real estate and technology stocks. “A refresher course offered by this book might be a useful New Year’s resolution,” Stone said.
— Noted short-seller Douglas Kass, who profited from the collapse of the financial sector in 2007 and 2008, recommended an overlooked tome by a fellow hedge fund manager. Jeff Matthews’ study of Warren Buffett, “Pilgrimage to Omaha,” got much less attention than Alice Schroeder’s biography “The Snowball.” But Kass says Matthews’ book “radically changed” his view of Buffett by examining some of Buffett’s contradictions and personal blemishes and humanizing the Oracle of Omaha.
— Unlike his peers, Dylan Grice, global strategist at Societe Generale in London, found so many of the books he read useful he could hardly recommend just one. He endorsed Kindleberger’s classic and “This Time is Different” and also suggested investors read “When China Rules the World” by Martin Jacques, though he thinks the nearly 600-page book needs a more enticing title. “It really is a richly nuanced work,” Grice said.
— Investing is not just a study of history and investors could also benefit from reviewing a very different sort of work, Paul Kedrosky, an investor and senior fellow at the Kauffman Foundation, said. He recommended Yale professor Edward Tufte’s “Visual Display of Quantitative Information,” first published in 1983.
Despite having more data than ever before, Kedrosky complains that investors continue to oversimplify or ignore critical information. Tufte’s book highlights pitfalls in the ways information is commonly presented. “Anyone who does anything with data — which is to say all of us — have no business convincing anyone of anything if you haven’t read Tufte,” Kedrosky said.
— Legg Mason strategist Michael Mauboussin, who works closely with money manager Bill Miller, said investors need to be wary of accepting conventional wisdom too readily. He recommended Columbia University professor Bruce Greenwald’s attack on the conventional view that the world is becoming one vast, interlinked market. Greenwald’s book is “Globalization,” co-written with Judd Kahn.
— Tadas Viskanta, author of the Abnormal Returns blog, spends his days trawling the Internet for articles relevant to investing. One of the most useful books he read last year was Mauboussin’s “Think Twice.” Rebutting authors who favor instinctual decision-making, Mauboussin writes that investors should be careful to avoid decisions based on common psychological mistakes. “I know 2009 was the year of the crisis book, but many escaped my attention,” Viskanta said. “We are all prone to the behavioral traps Mauboussin mentions.”
– Aaron Pressman