Review of Stock Market Stratagem: Loss Control and Portfolio Management Enhancement (Hardcover)

I agree with other reviewers that this book deserves 6 stars. Over the last 30 years, I've accumulated a lot of investment books but this is the first I've seen that has a chance of withstanding the test of the many varied business cycles over time. I note that this book has been selected as a text for several "practical" college investment courses.

Here are the specific reasons I like this book:

First, this is a book about lifetime investment principles for the DIY individual investor. Glett's idea is to devise easy-to-use techniques to take advantage of high growth stock market opportunities while minimizing possible losses with "risk control" strategies. Central to both concepts is the notion of diversification, where a portfolio of stocks are developed that maximizes the opportunity of finding a few big winners (doubles and triples), while limiting the number of losers to a tolerable few.

Extensive knowledge of economics or financial analysis is NOT required. Rather Glett advocates letting the market make the key buy/sell decisions. To provide insight, the techniques are explained using paper-and-pencil with public data from the web, but suggestions for simplifying the process using professional computer software are introduced as well.

An actively managed portfolio is advocated, where market conditions dictate what and when to buy and to sell. It is a "contrarian" strategy with a twist. It advocates the selection of low profile stocks in emerging market sectors rather than just the big names. It is also a "momentum based" strategy with a twist. Glett's "Reverse Scale" strategy advocates allowing winners to run, while losers are cut immediately. The twist in each case, however, is that its diversification and loss-control strategies are constructed to reinforce each other to minimize risk as defined by the investor. One of the key outputs of this strategy is the discipline to execute a stop-loss order within minutes after buying the stock to guard against subsequent "unreasonable exuberance."

Glett advocates the use of technical (charting) techniques to determine a stock's trend in order to quickly narrow a list of potentials to a select few. Charting is also useful in determining loss-limits. Financial and fundamental data are then used to gage the trend's sustainability.

And finally, techniques are developed for recognizing the onset of a bear market at which point the portfolio goes into limbo where winners continue to run, but losers are not replaced. A technique for knowing when to safely get back into the market is also presented.




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Review of The Essential Buffett: Timeless Principles for the New Economy (Hardcover)

The definitive book on Warren Buffett has yet to be written.Perhaps only Mr. Buffett can do so, and he has no incentive in this direction.Interestingly, the more Mr. Buffett's performance weakens versus the market, the more books come out focusing on his methods.Mr. Buffett writes about his thinking in his annual reports of Berkshire Hathaway, speaks about it at his annual meetings, and occasionally shares ideas with reporters.Conclusions about his methods then are a distillation of these sources, much like the CIA used to interpret what the Soviet's thought by reviewing Pravda.The results are probably about as accurate.My main complaint about this book is that Mr. Buffett does not and probably will not invest in the new economy.And for good reasons.It doesn't fit his investing standards.So a book that takes the principles and applies them in that direction is misleading at best, and I suggest you decide what you want to call it at worst.

If you want to read a good book about Mr. Buffett, I suggest that you read How to Think Like Benjamin Grapham and Invest Like Warren Buffett.That volume covers much of the same ground as here, but does so better.It also is more accurate in characterizing Mr. Buffett's philosophy, as I understand it.You can read my review of that book.

If you have read Mr. Hagstrom's book, The Warren Buffett Way, you probably don't need to read this one as well.Let me summarize some of the key points so you can decide.Here are the principles in the book, as I have paraphrased them:

(1)Think about a stock investment like you are buying the whole business.

(2)Give yourself a large margin of safety when you buy, picking a time when a stock is depressed well below its economic value.

(3)Hold few stocks and think about their current and future fundamentals constantly to see if your assumptions are holding.

(4)Avoid speculation at all costs.

The tenets of The Warren Buffett Way are repeated here:

Business Tenets

(a)"Is the business simple and understandable?"

(b)"Does the business have a consistent operating history?"

(c)"Does the business have favorable long-term prospects?"

Management Tenets

(a)"Is the management rational?"

(b)"Is management candid with shareholders?"

(c)"Does management resist the institutional imperative?"

Financial Tenets

(a)"Focus on return on equity, not earnings per share."

(b)"Calculate owner earnings."This is essentially free cash flow.

(c)"Look for companies with high profit margins."

The reported reason Mr. Buffett does not buy technology stocks is because he feels the long-term prospects are too murky.He is probably right in most circumstances.Technology companies are usually about as successful as their new products.How can you know how good they will be versus the competition 10 years from now?

The fundamental premise of a book like this is also questionable in another way.If you want to get Warren Buffett's results, you can simply own Berkshire Hathaway stock while Mr. Buffett is alive.

For most people, indexed mutual funds are a better choice.I suggest that you read John Bogle's Common Sense on Mutual Funds to learn the argument for that approach.If 90 percent of the pros cannot beat the market, can you expect to do better?

After you read this book, also think about where modeling of a famous person's behavior might not capture what you want to learn.For example, can an actor distill her or his approach into a few principles and tenets?Yes, but that distillation wouldn't allow you to duplicate the results.

Take your money seriously, and keep focusing on how to keep it safe as your first investment priority.Avoiding losses is a key Buffett principle that has served him and his investors well.

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