NAAIM Sentiment National Association Active Investment Managers

NAAIM Sentiment Charts - National Association of Active Investment Managers 

Here is a chart for another sentiment index from the "National Association of Active Investment Managers" or NAAIM.

click for full size image

2010 YTD my "Explore Portfolio" is up 20.7% YTD
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Recent NAAIM Data

Date	NAAIM Number Mean/Average
12/22/2010	81.83
12/15/2010	74.74
12/8/2010	63.11
12/1/2010	62.47
11/24/2010	66.67
11/17/2010	66.59
11/10/2010	71.46
11/3/2010	69.47

According to the NAAIM website, NAAIM member firms who are active money managers are asked each week to provide a number which represents their overall equity exposure at the market close on a specific day of the week, currently Wednesdays. Responses can vary widely as indicated below. Responses are tallied and averaged to provide the average long (or short) position or all NAAIM managers, as a group.

Range of Responses

• 200% Leveraged Short
• 100% Fully Short
• 0% 100% Cash or Hedged to Market Neutral
• 100% Fully Invested
• 200% Leveraged Long.

About NAAIM

The National Association of Active Investment Managers or NAAIM was formed in 1989 as a non-profit association of registered investment advisors who provide active money management services to their clients, in order to produce favorable risk-adjusted returns as an alternative to more passive, buy and hold strategies. Originally called SAAFTI and comprised of a small group of successful, passionate firms, NAAIM has grown to include roughly 200 member firms nationwide, managing an estimated $14 billion. NAAIM's purpose is to promote the common interests of those investment advisors who provide active investment management services to clients.

NAAIM defines "active investment management services" as taking an active role in the ongoing process of investment selection and risk management with the objective of improving a portfolio's risk/reward relationship. The active management strategies used by our members are diverse, and utilize a broad range of securities including mutual funds, variable annuities, equity baskets, index-linked, exchange-traded securities, futures and other innovative products.

 Since 12/31/98 "Kirk's Newsletter Explore Portfolio" is UP 213%  vs. the S&P500 UP only 25% vs. NASDAQ  UP a only 22%   (All through 12/27/10) 
In 2009, "Kirk's Newsletter Explore Portfolio" gained 33.5% vs. the DJIA up 18.8%

2010 YTD my "Explore Portfolio" is up 20.7% YTD
(the explore portfolio has 70% in equities and 30% in fixed income so the stocks are doing very, very well)

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Best Investment & Retirement Portfolios for the Long-term

Charles Munger, Warren Buffett, Berkshire Hathaway and Kirk Lindstrom's Explore portfolio

What do Charles T. Munger and Warren E. Buffett`s Berkshire Hathaway (BRKA) have in common with Kirk Lindstrom's Explore Portfolio?

Commonalities:

• All invest for the long-term where first priority is getting good value for the investment dollar in companies we like for above average long-term growth.
• Both Berkshire Hathaway and "Kirk Lindstrom's Explore Portfolio" take profits when investments are successful so we can maintain a cash reserve of roughly 20% to 40% for future opportunities.
• Both have performed far better than buy and hold the S&P500 the past decade. 
• Both believe we can beat the market by buying good stocks for the long term when they are priced correctly.

Differences:

• Berkshire Hathaway has a significant premium in the price for its aging managers. 
• Charley Munger was born January 1, 1924 (in Omaha, Nebraska) and Warren Buffet was bone on August 30, 1930. Both men are older than my now deceased parents.   I was born April 5, 1957.
• Through my understanding of technology from working as a research and development (R&D) engineer AND scientist at Hewlett Packard from 1978 to 1998, I've been able to invest in quality technology stocks so my portfolio has more than doubled the annual return for BRKA since I started my newsletter.

The stupid sees difficulty in every opportunity; the intelligent sees opportunity in every difficulty. --Nahsti 

From Interview with Charlie Munger :

Q: What do you think of the efficient market theory, which holds that at any one time all knowledge by everyone about a stock is reflected in the price?

A: “I think it is roughly right that the market is efficient, which makes it very hard to beat merely by being an intelligent investor. But I don't think it's totally efficient at all. And the difference between being totally efficient and somewhat efficient leaves an enormous opportunity for people like us to get these unusual records. It's efficient enough, so it's hard to have a great investment record. But it's by no means impossible. Nor is it something that only a very few people can do. The top three or four percent of the investment management world will do fine.”
From Poor Charlie's Almanack: The Wit and Wisdom of Charles T. Munger

Returns for last 12 years

Click for Full Size Table

I recommend a "core" portfolio for about 80 to 95% of your funds and an "explore" portfolio made of stocks from my newsletter "explore portfolio" for the remainder. My newsletter stocks are volatile by design to add to overall returns, but you need a good core portfolio to sleep well at night. I offer several different core portfolios for both aggressive & conservative (retired) investors.

Since starting this newsletter in 1998, I have grown my "Explore Portfolio" 388% from $100,000 to $487,644. Over the same period (September 30, 1998 through December 21, 2010) the S&P 500 (with dividends reinvested) is only up 50.5%).

For 2010 through December 21, my “explore portfolio” is up 20.0% YTD vs. S&P500 up 14.6% & DJIA up 10.6% YTD. The explore portfolio was roughly 70% equities for the year so the stocks in the portfolio had a banner year!

In 2009, my "Explore Portfolio" gained 33.5% while the S&P500 and DJIA gained 26.5% and 18.8%, respectively.

More from Charlie Munger:

Q: What about people who want to pick stocks?

A: You're back to basic Ben Graham, with a few modifications. You really have to know a lot about business. You have to know a lot about competitive advantage. You have to know a lot about the maintainability of competitive advantage. You have to have a mind that quantifies things in terms of value. And you have to be able to compare those values with other values available in the stock market. So, you're talking about a pretty complex body of knowledge.
Charlie Munger, From Poor Charlie's Almanack: The Wit and Wisdom of Charles T. Munger

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Your 1 year, 12 issue subscription will start with next month's issue.

ECRI's WLI & WLI Growth Rate Highest Since May

ECRI's WLI & WLI Growth Rate Continue Higher

The Economic Cycle Research Institute, ECRI - a New York-based independent forecasting group, released their latest readings for their proprietary Weekly Leading Index (WLI) this morning. (More about ECRI) 

For the week ending December 3, 2010

• WLI  is 126.4 up from the prior week's revised lower reading of 125.3.  (Last week we reported WLI was 125.4)   This is the best reading for WLI since the week of May 14 when it stood at 127.0.
• The lowest reading for WLI this year was 120.4 for the week ending July 16.
• Since apparently bottoming at -10.3 for the week of August 27,  WLI growth moved higher or was flat for the 14th consecutive week to minus 1.5% from minus 2.4% a week ago.  
• This is the best reading for WLI growth since the week ending May 28, 2010 when it stood at positive 0.1%.

On November 30 we reported in "ECRI Calls for Revival of US Economic Growth" that ECRI said "with a lot of conviction, that there is a revival in growth right ahead of us." 

Commenting on today's release, ECRI's Chief Operations Officer, Lakshman Achuthan said: "With both the WLI and its growth rate rising to their best readings since May, a “double dip” back into recession remains off the table, notwithstanding self-serving recession warnings that feed fear itself."

Chart of WLI and WLI growth vs GDP Growth   

 

click to view full size charts

Since ECRI releases their WLI numbers for the prior week and the stock market is known in real time, you can sometimes get a clue for next week's WLI from the weekly change in the stock market. Notably, in the lead-up to the last two recessions, the WLI turned down months before the stock market did.

Chart of S&P500 vs ECRI's WLI

I want to point out that a correction in the stock market now would not necessarily change ECRI's call for an economic growth rate revival.  It takes a "pervasive" (for the majority) change of direction of their indicators in a "pronounced and persistent" way for ECRI to call for a turn in the economic cycle. These indicators and the trigger levels are proprietary.  I have found no one who has duplicated them or ECRI's success in calling business cycle turns based on their reading of their indicators.

Note that the chart above of the S&P500 vs. WLI shows a breakout above the dashed green line that represents the neckline for a "Head and Shoulders Bottom" pattern.  This is a very bullish development.  A correction to test the pattern from above with a bounce to a higher high would be even more bullish, but not necessary for a continued market advance.

Chart of WLI from 1973 to 2010

 Chart courtesy of ECRI

Notes: 

1. The WLI for the week ending 12/10/10 will be released on 12/17/10
2. Occasionally the WLI level and growth rate can move in different directions, because the latter is derived from a four-week moving average.
3. ECRI uses the WLI level and WLI growth rate to HELP predict turns in the business cycle and growth rate cycle respectively. Those target cycles are not the same as GDP level or growth, but rather a set of coincident indicators (including production, employment income and sales) that make up the coincident index. Based on two additional decades of data not available to the general public, there are a couple of occasions (in 1951 and 1966) when WLI growth fell well below negative ten, but no recessions resulted (although there were clear growth slowdowns).  
4. For a better understanding of ECRI's indicators, read their book, Beating the Business Cycle.

My take on ECRI's indicators, WLI and FIG plus how they relate to investments is included in "Kirk Lindstrom's Investment Letter."  FREE SAMPLE

Since 12/31/98 "Kirk's Newsletter Explore Portfolio" is UP 205%  vs. the S&P500 UP only 22% vs. NASDAQ  UP a only 19%   (All through 12/9/10)
( More Info - Return Data )

In 2009, "Kirk's Newsletter Explore Portfolio" gained 33.5% vs. the DJIA up 18.8%

2010 YTD my "Explore Portfolio" is up 17.8% YTD
(My explore portfolio has 70% in equities and 30% in fixed income so the stocks are doing very, very well!!)

Subscribe NOW  
and get the This Month's Issue for FREE! !
Your 1 year, 12 issue subscription will start with next month's issue.

Disclosure:  I am long the exchange traded fund for the S&P500, SPY( charts and quote,) in my personal account and in the "Explore Portfolio" in  "Kirk Lindstrom's Investment Letter."

KEY ECRI Articles:

• Nov 30, 2010 "ECRI Calls for Revival of US Economic Growth"
• Oct 28, 2010 "The much-feared double-dip recession is not going to happen"
• Oct. 28, 2010 ECRI Warns of High Inflation Nightmare From QE2
• Sept. 24, 2010 ECRI - Premature to Predict New Recession
• July 01, 2010 ECRI Weekly Leading Indicators Widely Misunderstood
• Dec. 04, 2009: ECRI Warns of Lasting High Unemployment Despite Economic Recovery
• July 31, 2009: ECRI Predicts End of Home Price Downturn
• July 21, 2009:  ECRI Predicts The End of the Recession is Imminent
• April 3, 2009: ECRI Says US Business Cycle Recovery Ahead
• March 28, 2008: ECRI Calls it "A Recession of Choice"

2010 Semiconductor Vendor Sales Ranking

Top Ten Worldwide Semiconductor Vendors

Preliminary Ranking by Estimated Revenue

Rank 2009	Rank 2010	Company	2009 Revenue US$M	2010 Revenue US$M	2009-2010 Growth (%)	2010 Market Share (%)
1	1	Intel	33,253	41,430	24.6	13.8
2	2	Samsung Electronics	17,686	28,256	59.8	9.4
3	3	Toshiba	9,604	12,376	28.9	4.1
4	4	Texas Instruments	9,142	12,356	35.2	4.1
11	5	Renesas Electronics*	4,542	10,368	128.3	3.5
7	6	Hynix Semiconductor	6,035	10,350	71.5	3.4
5	7	STMicroelectronics	8,510	10,290	20.9	3.4
13	8	Micron Technology **	4,170	8,884	113.0	3.0
6	9	Qualcomm	6,409	7,167	11.8	2.4
10	10	Infineon	4,682	6,680	42.7	2.2
		Others	124,338	152,156	22.4	50.7
		Total	228,371	300,313	31.5	100.0

* NEC Electronics was renamed Renesas Electronics in 2Q10. This name change has been applied retrospectively to 2009 to maintain continuity. Renesas Electronics acquired Renesas Technology in 2Q10. According to Gartner's merger and acquisition policy (restated in December 2009), Renesas Technology's revenue has been attributed to Renesas Electronics for 2Q10 through 4Q10. NEC Electronics' 1Q10 revenue has been attributed to Renesas Electronics for 2010, while Renesas Technology's 1Q10 revenue ($1,731 million) has been accounted for separately.
** Micron's revenue includes partial revenue from Numonyx, which it acquired in early 2010.

Source: Gartner Says Worldwide Semiconductor Revenue Increased 31.5 Percent in 2010 to Exceed $300 Billion

CalPERS Aristocracy - Public Pension Reform Parody

This wonderful video explains a big part of why California is going bankrupt with an estimated $25B budget deficit for the current fiscal year with revenue of roughly $83B.

2010-11 $20B Budget Shortfall

• $6.6 billion: Current budget year shortfall due to slow revenues and nearly $5 billion worth of federal and state court decisions that mandated spending on programs cut in the 09-10 budget.
• $12.3 billion: Projected shortfall for 2010-11 due to unfunded mandates and a still slow economy.
• $1 billion: Modest reserve.

I read this $20B shortfall relies on moving anther $5 to $6B into 2011-2012 so the actual amount we Californians are in the hole is over $25B.

What is amazing is here in CA we have:

• 9.75% sales tax in some counties like Los Angeles
• 10% income tax on top earners
  Tax Rates by State
• very high property costs.  The property tax on the average home in Santa Clara County is close to $10,000 a year.  
• We have extra taxes on gasoline that is supposed to help build and maintain our roads. I paid $3.49 per gallon for 91 Octane (1994 Corvette) just the other day.

and yet the California government can't balance its budget!

ECRI's WLI Down but Growth Rate Higher

ECRI's WLI Ticks Lower But WLI Growth Rate Continues Higher

The Economic Cycle Research Institute, ECRI - a New York-based independent forecasting group, released their latest readings for their proprietary Weekly Leading Index (WLI) this morning. (More about ECRI) 

For the week ending November 26, 2010

• WLI  is 125.4 down from the prior week's revised lower reading of 126.0.  (Last week we reported WLI was 126.4)  
• The lowest reading for WLI this year was 120.4 for the week ending July 16.
• Since apparently bottoming at -10.3 for the week of August 27,  WLI growth moved higher or was flat for the 13th consecutive week to minus 2.4% from minus 3.3% a week ago.  
• The last positive reading for WLI growth was for the week ending May 28, 2010 when it stood at positive 0.1%.

Last week on November 30 we reported in "ECRI Calls for Revival of US Economic Growth" that ECRI said "with a lot of conviction, that there is a revival in growth right ahead of us."  If you have read their book, Beating the Business Cycle, you know the WLI indicators must be persistent, pronounced and pervasive before ECRI will call for a turn in the US economy.   

You can clearly see the persistent and pronounced turn in WLI and its growth rate in this chart below.  Now that ECRI made its call for a turn in the business cycle, we know that the improving economic data is PERVASIVE too.  

Today's jobs report is disappointing because the 39,000 new jobs created in November is fewer than needed absorb new workers so the unemployment rate went higher.  The good news is it was a positive number.  If you add the upward revisions of 38,000 more jobs to the September and October numbers, then 72,000 more jobs were created than reported last month.  

Chart of WLI and WLI growth vs GDP Growth   

  click to view full size charts

Since ECRI releases their WLI numbers for the prior week and the stock market is known in real time, you can sometimes get a clue for next week's WLI from the weekly change in the stock market. Notably, in the lead-up to the last two recessions, the WLI turned down months before the stock market did.

Chart of S&P500 vs ECRI's WLI

 

I want to point out that a correction in the stock market now would not necessarily change ECRI's call for an economic growth rate revival.  It takes a "pervasive" (for the majority) change of direction of their indicators in a "pronounced and persistent" way for ECRI to call for a turn in the economic cycle. These indicators and the trigger levels are proprietary.  I have found no one who has duplicated them or ECRI's success in calling business cycle turns based on their reading of their indicators.

Note that the chart above of the S&P500 vs. WLI shows a breakout above the dashed green line that represents the neckline for a "Head and Shoulders Bottom" pattern.  This is a very bullish development.  A correction to test the pattern from above with a bounce to a higher high would be even more bullish, but not necessary for a continued market advance.

Chart of WLI from 1973 to 2010

 Chart courtesy of ECRI

Notes: 

1. The WLI for the week ending 12/3/10 will be released on 12/10/10
2. Occasionally the WLI level and growth rate can move in different directions, because the latter is derived from a four-week moving average.
3. ECRI uses the WLI level and WLI growth rate to HELP predict turns in the business cycle and growth rate cycle respectively. Those target cycles are not the same as GDP level or growth, but rather a set of coincident indicators (including production, employment income and sales) that make up the coincident index. Based on two additional decades of data not available to the general public, there are a couple of occasions (in 1951 and 1966) when WLI growth fell well below negative ten, but no recessions resulted (although there were clear growth slowdowns). 

My take on ECRI's indicators, WLI and FIG plus how they relate to investments is included in "Kirk Lindstrom's Investment Letter."  FREE SAMPLE

Since 12/31/98 "Kirk's Newsletter Explore Portfolio" is UP 196% vs. the S&P500 UP only 21% vs. NASDAQ  UP a only 18%   (All through 12/3/10) 

In 2009, "Kirk's Newsletter Explore Portfolio" gained 33.5% vs. the DJIA up 18.8%

2010 YTD the "Explore Portfolio" is up 14.3% YTD
(My explore portfolio has 70% in equities and 30% in fixed income so the stocks are doing very, very well!!)

Subscribe NOW  
and get the This Month's Issue for FREE! !
Your 1 year, 12 issue subscription will start with next month's issue.

Disclosure:  I am long the exchange traded fund for the S&P500, SPY( charts and quote,) in my personal account and in the "Explore Portfolio" in  "Kirk Lindstrom's Investment Letter."

KEY ECRI Articles:

• Nov 30, 2010 "ECRI Calls for Revival of US Economic Growth"
• Oct 28, 2010 "The much-feared double-dip recession is not going to happen"
• Oct. 28, 2010 ECRI Warns of High Inflation Nightmare From QE2
• Sept. 24, 2010 ECRI - Premature to Predict New Recession
• July 01, 2010 ECRI Weekly Leading Indicators Widely Misunderstood
• Dec. 04, 2009: ECRI Warns of Lasting High Unemployment Despite Economic Recovery
• July 31, 2009: ECRI Predicts End of Home Price Downturn
• July 21, 2009:  ECRI Predicts The End of the Recession is Imminent
• April 3, 2009: ECRI Says US Business Cycle Recovery Ahead
• March 28, 2008: ECRI Calls it "A Recession of Choice"

 

Fund Flows: Equity, Bond & Money Market Yearly Totals

Equity, Bond & Money Market Fund Flows - Yearly Totals & 2010 YTD

Weekly Data for 12/1/2010 

• Equity Fund outflows $1.2 Bil
• Taxable Bond Fund outflows $0.525 Bil
  xETFs:
• Equity Fund outflows $1.1 Bil
• Taxable Bond Fund outflows $0.109 Bil
• See bottom for a table of current US Treasury rates. 

This table shows a summation of the weekly fund flow data.  Money Market funds yield next to nothing so people have taken money out to buy bonds as well as live on during the recession and long recovery period with US unemployment still near 10%. 

I think many will be surprised at how quickly equities go up in value once interest rates start to climb and people dump bond funds that start to lose money.  The money will flow into what is hot, which will be equities and that will probably drive the next bubble.  My explore portfolio gained 33.5% last year with a tiny $6.0B net inflow into equities.  This year the portfolio is up another 13.6% with another tiny net inflow of $7.3B so far.   The returns could spin your head if we see significant fund flows back into equities like we saw between 2003 and 2007.

Fund Flow Totals for 2010 through 12/1/10 

Table 1	AMG Fund Flows for Full Year - $B
Fund Flows for	Equity	Tax Bond	MM Fund
2003	40.8	40.7	NC
2004	95.0	11.3	(64.3)
2005	71.9	9.3	89.0
2006	52.5	29.9	308.3
2007	111.3	68.8	569.5
2008	3.5	(3.3)	608.0
2009	6.0	172.0	(280.2)
2010	7.3	146.0	(394.0)

• NC = Data Not Compiled
•  += Some data points for Money Market Fund flows between March 2010 and July 14, 2010 are missing but the overall trend is clear. 
• Raw data from AMG Weekly Fund Flows Data:

"  ExETFs—For the week ended 12/01/2010 all Equity funds report net outflows totaling $1.128 billion, with Domestic Equity funds reporting net outflows of $1.218 billion and Non-Domestic Equity funds reporting net inflows of $0.090 billion... ExETFs—Emerging Markets Equity funds report net inflows of $0.394 billion, the group’s twenty-sixth consecutive week of positive flows...  Net outflows are reported for All Taxable Bond funds (-$0.525 billion), bringing the rate of inflows of the $2.725-trillion sector to $4.236 billion/week...  International & Global Debt funds (+$0.129 billion) continued to draw assets as they reported inflows for the twenty-seventh consecutive week...  Net outflows of $0.723 billion were reported for Corp-High Yield funds... Flexible funds reported net inflows of $0.295 billion…  Money Market funds report net inflows of $7.943 billion...  ExETFs—Municipal Bond funds report net outflows of $0.525 billion, their third consecutive week of outflows...   "

More Info:

• Current Treasury Rates at a Glance
• US Treasury Rate Quotes

Since 12/31/98 "Kirk's Newsletter Explore Portfolio" is UP 195% (a double plus another 95%!!) vs. the S&P500 UP only 21% vs. NASDAQ  UP a only 18%   (All through 12/2/10) 

In 2009, "Kirk's Newsletter Explore Portfolio" gained 33.5% vs. the DJIA up 18.8%
2010 YTD the "Explore Portfolio" is up 13.6% YTD

Subscribe NOW and get the December 2010 Issue for FREE! !   
Your 1 year, 12 issue subscription will start with next month's issue.

U.S. Treasury Rates as of Dec. 2, 2010

TERM	COUPON	PRICE / YIELD%
3-Month	0.000	0-04 / 0.15
6-Month	0.000	0-05 / 0.19
12-Month	0.000	0-08 / 0.27
2-Year	0.500	99-29½ / 0.54
3-Year	0.500	99-00+ / 0.84
5-Year	1.375	98-19 / 1.67
7-Year	2.250	99-08+ / 2.36
10-Year	2.625	96-28+ / 2.99
30-Year	4.250	99-29½ / 4.25

Current:

Treasury Rates at a Glance

 

ECRI Calls for Revival of US Economic Growth

The Economic Cycle Research Institute, ECRI - a New York-based independent forecasting group, upgraded their projection for future economic growth. (More about ECRI)  ECRI's managing director and cofounder, Lakshman Achuthan, was on CNBC yesterday to discuss their upgrade of their Oct 28, 2010 prediction "The much-feared double-dip recession is not going to happen"  to "There will be a revival of US Economic growth in the near future."   

In this interview, Achuthan says the the recovery is persistent. If you have read their book, Beating the Business Cycle, you know the WLI indicators must be persistent, pronounced and pervasive before ECRI will call for a turn in the US economy.  The best news is once they declare an upturn, it means there is some margin for economic shocks.  The US economic recovery is not as "fragile" now as it was a few months ago when the WLI was flat.

Some key paraphrased points from the interview:

• "We are able to say with a lot of conviction, that there is a revival in growth right ahead of us."
• Our economic longest leading indicators are "locked on" a "soft landing track."
  
• "When you are at this stage of the cycle, a shock won't derail us and put us into a new recession."

Click to see full size Image

• "When you are at this stage of the cycle, a shock won't derail us and put us into a new recession."
• Almost impossible to jump to a recession track.
• This is telling us we will see a revival in US economic growth despite numerous headwinds including the current trouble in Europe.
• In October they said "no second recession."  Now they are saying economic growth COULD grow to 3 or 4% rather than drop to 1 to 2% from the current 2.5% GDP Growth rate.
• Unemployment: We lost 8.5 million jobs and have made back one million so we're about 7.5 million in the hole.  Even if things go great and we gain another million jobs we'd still be down 6.5 million so we "won't feel great."

Video: Positive news for investors, with Lakshman Acuthan, Economic Cycle Research Institute.

Airtime: Tues. Nov. 30 2010 | 3:16 AM ET

KEY ECRI Articles:

• Oct 28, 2010 "The much-feared double-dip recession is not going to happen"
• Oct. 28, 2010 ECRI Warns of High Inflation Nightmare From QE2
• Sept. 24, 2010 ECRI - Premature to Predict New Recession
• July 01, 2010 ECRI Weekly Leading Indicators Widely Misunderstood
• Dec. 04, 2009: ECRI Warns of Lasting High Unemployment Despite Economic Recovery
• July 31, 2009: ECRI Predicts End of Home Price Downturn
• July 21, 2009:  ECRI Predicts The End of the Recession is Imminent
• April 3, 2009: ECRI Says US Business Cycle Recovery Ahead
• March 28, 2008: ECRI Calls it "A Recession of Choice"

My 13 Favorite Investment Books - Holiday Gift Ideas

I first published my list of favorite investment books in the mid 1990 shortly after I built my first personal web site on the free pages that came with my "netcom" account.   I started with "Kirk's Investment Links" which listed my favorite investment sites.  Shortly after I built "Kirk's Reading List."   Over time, Netcom became Mindspring which became Earthlink but my web pages are still there at the original netcom.com URLs. Over time I added some books on my list but most of the classics remain.

Note:  I get a commission from Amazon.com if you buy these books using my links on the day you click the links.  Please use my links to support this blog.  Thanks.

Below is a photo and list of the 11 books I have on an improvised bookshelf for quick access  from my desk:

#1Technical Analysis of Stock Trends
By Robert D. Edwards,  John Magee and W. H. C. Bassetti

I keep "Edwards and Magee" on the top of my books because it is the one I use regularly. It is my Technical Analysis Bible. Originally written in the 1940s this 9th edition is updated and revised by Bassetti for today's markets. I have the expanded and revised glossary bookmarked to "Head and Shoulders" which I used to help me write the Head & Shoulders Bottom page for ForBestAdvice.com.

Chapter 3 "Dow Theory" is a must read for anyone wishing to understand technical analysis and its history. Chapters 29 and 30, "Trendlines in Action" and "Use of Support and Resistance," will help you understand how I trade around long positions in my "explore portfolio" to lower my cost basis and eventually get on "house money" for my positions.

#2 Beating the Business Cycle

By Lakshman Achuthan and Anirvan Banerji

I consider this a "must easy read" for anyone considering adding the "explore" component to their "core and explore" strategy.

“Would it help you decide when to leave a job, buy a house or step up your investing, if you had a good feel for when business was about to turn up (or down)? It sure will help me. This easy-to-read book tells you how the respected ECRI calls turning points, and how you can, too.”

—Jane Bryant Quinn, Newsweek columnist

#3 Little Book of Common Sense Investing: The Only Way to Guarantee Your Fair Share of Stock Market Returns (Little Books. Big Profits)

By John Bogle

This short, little book is a MUST READ book that explains why I used Index funds from Vanguard for the "core portfolios" I recommend for 80 to 95% of your assets with my "core and explore" approach to investing.

"It's an easy read that will, I suspect, quickly join Burton Malkiel's A Random Walk Down Wall Street and Charles Ellis's Winning the Loser's Game as one of the indexing crowd's favorite books."—Jonathan Clements (Wall Street Journal)

#4 Common Sense on Mutual Funds: New Imperatives for the Intelligent Investor

by John C. Bogle, Founder of Vanguard Low Cost Mutual Fund Family

A terrific book that makes its points over and over. Low cost funds, passive investment strategies, etc. His statistics, and we know they can always lie, are irrefutable that high cost, front-end load funds can never, as a group, match funds that use his proven strategies. There are always exceptions, but you think you are smart enough to pick those funds in advance?? Index funds give you a shot of at least matching the market, which as they say, ain't bad over time.  Add in my use or rebalancing to take profits in the winners and buy what lags and you get reduced volatility and usually even better returns as my own "core and explore" results show.

#5 Contrarian Investment Strategies: The Next Generation: Beat the Market by Going Against the Crowd
by David N. Dreman

This is one of my favorite investment books!  It helped me articulate my strategy of buying what is out of favor for my history of index crushing returns for over 30 years of success.

All stock-market investors embrace the motto "Buy low, sell high." Few act accordingly. This book teaches you how. Your job is to execute!  Some great historical charts of returns inside.

#6 Extraordinary Popular Delusions & the Madness of Crowds
By Charles Mackay and Andrew Tobias (Foreword)

This book helped me gain confidence in my contrarian strategy of going against the crowds.    Amazon.com's review says it well: "We may think that the Great Crash of 1929, junk bonds of the '80s, and over-valued high-tech stocks of the '90s are peculiarly 20th century aberrations, but Mackay's classic--first published in 1841--shows that the madness and confusion of crowds knows no limits, and has no temporal bounds. These are extraordinarily illuminating,and, unfortunately, entertaining tales of chicanery, greed and naivete. Essential reading for any student of human nature or the transmission of ideas.  

"This is the most important book ever written about crowd psychology and, by extension, about financial markets..." -- Ron Insana, CNBC


#7 The Intelligent Investor
by Benjamin Graham;
Forward by John C. Bogle, Founder of The Vanguard Group

Graham's Intelligent Investor sets about educating the average person as to what makes an investment, what makes a speculation and how this knowledge can be applied to build wealth in the most risk-averse way possible.  A VALUE Investor's MUST HAVE book!

#8 Investors and Markets
By William F Sharpe, 1990 Nobel Prize in economics recipient for "Capital Asset Pricing Model" along with Markowitz and Miller.

This is a personally autographed book with a personal note sent to my by Professor Sharpe.  This is the most advanced book on my list.

"In this book, Sharpe changes that by setting out his state-of-the-art approach to asset pricing in a nonmathematical form that will be comprehensible to a broad range of investment professionals, including investment advisors, money managers, and financial analysts. Bridging the gap between the best financial theory and investment practice, Investors and Markets will help investment professionals make better portfolio choices by being smarter about asset prices."

#9 The Lazy Person's Guide to Investing 

by Paul Farrell.

Paul offers many great core portfolios that all should consider before they consider anyone’s newsletter.

In Ch 25 Paul talks about having "two brains" where you put 90% in what I call "core" and 10% into a "Mad Money" portfolio or what I prefer to call "explore."
For more, read about my "core and explore" approach to investing.

#10  The Millionaire Next Door The Millionaire Next Door: Surprising Secrets of America's Wealthy

By Thomas Stanley and William Danko
By focusing on those with a net worth of at least $1 million, the authors show surprising results that reveal fundamental qualities of this group that are "diametrically opposed to today's earn-and-consume culture, including living below their means, allocating funds efficiently in ways that build wealth, ignoring conspicuous consumption, being proficient in targeting marketing opportunities, and choosing the "right" occupation"

After reading this book, you may never laugh at your friends who use coupons or shop Black Friday Sales again!


 #11 The Oil Factor: Protect Yourself and Profit from the Coming Energy Crisis
 By Stephen and Donna Leeb

This book has some great research that shows the stock markets usually have terrible performance after the price of oil surges.  It is worth buying just for the table on page 17 that shows the stock market was between 17% lower and 4% higher after any time the price of oil changed by 100% in any 18 month period between 1973 and 2003.

This helped me know it was prudent to take profits and cut back on my asset allocation when the price of oil skyrocketed just before the last 2008 to 2009 bear market that saw the market crash by 57%.

My Investment Library

I recommend these other two books to complete your investment library

 #12 The Complete Idiot's Guide to Social Security and Medicare, 3rd Edition
By Lita Epstein (Nov 2, 2010)

Lita used to write for my "Investing and Personal Finance" group that I led at Suite101 before it was sold, they changed direction and I left to build my own web sites.  Her "Complete Idiot's Guides" are well written and easy to understand.  This is my one of my favorites and one I find myself recommending the most to others.

#13 The Bond Book, Third Edition: Everything Investors Need to Know About Treasuries, Municipals, GNMAs, Corporates, Zeros, Bond Funds, Money Market Funds, and More - Hardcover (Oct. 27, 2010)
By Annette Thau

This is a great book that includes:

• Buying individual bonds or bond funds
• The ins and outs of open-end funds, closed-end funds, and exchange traded funds (ETFs)
• The new landscape for municipal bonds: the changed rating scales, the near demise of bond insurance, and Build America Bonds (BABs)
• The safest bond funds
• Junk bonds (and emerging market bonds)
• Buying Treasuries without paying a commission

Note:  I get a commission from Amazon.com if you buy these books using my links on the day you click the links.  Please use my links to support this blog.  Thanks.