How are old investing classics still useful today?
I was under the impression that most alpha in the HF world is down to thinking creatively differently. Whilst some things are replicable (i.e. risk mitigation - diversification, hedging etc), individual strategies will only work for so long.
This must be warped, because investor classics are constantly recommended despite being written in not only a completely different time period, but also detailing ‘obvious’ strategies now days.
I.e. ‘One up on Wall Street’ gives Peter’s view of a good investment.
1) How can it still be useful for an edge when everyone had read it
2) How is it not dated when it is giving advice from 30 years ago (when information wasn’t as free as it is today)
Bump
Bump
Knowing the history of one of the greats in the craft you want to pursue is table stakes. So, yea everyone reads it. Everyone reads everything. That doesn't mean it's not useful. I think you answered that part of the question yourself; everyone thinks differently and interprets information and lessons differently. And yes, its dated, but historically cycles in the market often repeat themselves over and over. History rhymes. In my opinion, it doesn't hurt to know what he did in certain situations - then you can reconcile that with whatever you see in the future and use it how you please. I think there is a place for everything, both old and new lessons. Probably what separates the good from the great is how they choose to use those lessons.
Not useful for style, but useful for frameworks. My gripe with a lot of classics (Intelligent investor, margin of safety, etc.) use a lot of words to describe a simple construct. It’s not sufficient to buy a stock when you have a +ve expected return. You want to strike when the stock is also trading at value. That’s not the value factor! “One up on Wall St” and others are also useful to understand how investors approach stocks. Not a lot has changed theoretically, but the tools, workflow, and steps are quite different.
That’s a fair gripe, but I might argue that these foundational books are more wordy / over-detailed because the concepts that summarize them didn’t exist - it’s where the concepts came from that we’d use today to summarize
That’s a fair point — especially re: the older books. But more modern ones (post-80s) are still pretty bad. I’m shocked that there’s still not a straight forward book on how to approach equity valuation from a public investors perspective.
Can you elaborate a little? Thanks
The value of a security is equal to the sum of future cash flows discounted to present value. That’s still true and has not changed much over the years. What has changed is how investors have adopted multiples as a short-form to a DCF where the multiple is an expression of “r-g”, visibility on the fundamental bet, and time varying risk premias.
Analyzing a company also requires understanding what’s embedded in expectations about those future cash flows. This is primarily done by scrubbing sell side research.
Most textbooks focus on analyzing the quantitative financial data (eps, margins, etc.) and then wiz through the qualitative side like it’s magic. This is why jr analysts generally do poorly and HFs use a “sink or swim” approach to filtering talent.
From my perspective, it is mostly context setting + helps you to build the basic frameworks that are "table stakes." Will you apply it like a recipe book? Obviously not, but I think you're forgetting that before you read some of these books, you barely understand what the "game" is. A lot of it helped me to understand what the first level thinking is like by all other market participants today. Really depends on what your style and strategy is, but cumulatively I've found it helpful to see a bunch of different processes and styles historically, and it all builds on itself.
Some really really basic stuff like why ROIC matters, or "quality" or "growth" - baby steps to understanding valuation and outcomes of businesses (and how stocks trade or opportunities can arise). Kind of like taking middle school for granted when talking about what you studied in high school.
I would rather read a book on charting than any crap book like intelligent investing
Why should an aspiring fiction author read great classic novels? After all - they’re outdated and to succeed he can’t just write the same story
Of course - because they’re are foundational, they add tools to your toolbox, maybe you’ll use the tools in a different way - but like most arts & sciences they are each step forward is an growth/modification of what came before. Being factor neutral or running more complex risk restraints doesn’t make Intelligent Investor, margin of safety, common stocks & uncommon profits in any way less relevant today
Sure there are some sections that will be outdated, one commonly cited example being less reliance on tangible assets - a software depend more on intangible assets & reinvestment through the income statement vs balance sheet. But you’ll note the best investors today may highlight that evolution but still relate it back to the concepts from value investing & translate it - the concepts introduced around fundamental value are still relevant - the method of applying them may be different.
If what you really mean is - why read investing books when much capital today is trading short term: well there are old trading books like Madness of Crowds & Reminiscences of a Stock Operator which address foundational trading & market psychology concepts which again - are as true as ever and important to understand
Just because more capital today levers up and applies a more quantitative risk overlay - fundamental investing still is about 3 statements and valuation - even short term it’s all anchored in these concepts. Factor models are heuristics / descriptors of the market which is made up of companies in the LT, and psychology + flows in the short term.
If you get what you’re supposed to out of classic investing books, it will be clear why they’re still relevant
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