The secrets of the market are there for all to read

Bob Yerbury, chief investment officer at Invesco Perpetual, chose Anatomy of the Bear: Lessons from Wall Street’s Four Great Bottoms PIC by Russell Napier (CLSA Books; December 2005) as the best investment-related read of the year.

This book analyses the history of Wall Street in an attempt to draw together any common characteristics of previous significant turning points in the market. It is based on a close study of the four occasions when US equities were particularly cheap - 1921, 1932, 1949 and 1982 and looks at how you can spot the bottom of a bear market.

Yerbury says: “This is a good read for any portfolio manager to remind us what happens at certain turning points in the financial markets. Every market has a different turning point but each one also has some common features.”

Napier intricately researched over a hundred years of financial history to understand the anatomy of bear markets. His book is based on studies of tens of thousands of articles that were published in the Wall Street Journal towards the end of different bear markets and the beginning of different bull markets to assess characteristics common to each occasion.

“It is not a study by any particular individual or a single portfolio analysis but a broader look at several different turning points in the market,” says Yerbury.

He does not think the current markets are on the verge of another turning point any time soon but says: “We are in a trend period and I do not expect a turning point just yet but things will always change at some point. It is worth being reminded that history does repeat itself.”

Yerbury also suggests John Kenneth Galbraith’s The Great Crash 1929 as a not so recent must-read for anyone with an interest in financial markets. First published in 1955, this book was reprinted in 1997 with a new introduction that looks at parallels between the great bull markets in the 1920s and the late 1990s.

Martin Dickson, deputy editor of the FT, says the investment book he most enjoyed reading this year was actually written 35 years ago.

He chose Do You Sincerely Want To Be Rich? Bernard Cornfeld and IOS: an international swindle by Charles Raw, Bruce Page and Godfrey Hodgson (Andre Deutsche; 1971).

Dickson says that unlike most financial tomes this book has not become irrelevant over the years. “It remains a classic cautionary tale of how investors can get fleeced in a speculative bubble and how financial excess is repeated in each generation, as soon as the follies of the past are forgotten. As such, it has resonant lessons for our own time,” he says.

Do You Sincerely Want To Be Rich? is the story of the rise and fall of Investors Overseas Services, for a time THE success story in international finance in the 1960s. IOS was the creation of Bernie Cornfeld, who created a market in mutual funds domiciled offshore – far from the taxman and the eye of regulators.

Cornfeld was lauded by a gullible press and taken up by the financial establishment as he built up an empire that included investment funds, banks, insurance businesses and property investment on the back of the 1960s stock market boom.

But when the market turned down, IOS collapsed and was revealed to have made a series of reckless speculations, misrepresented the performance of its flagship fund, charged investors double fees and frequently invested customers money in unmarketable shares.

Dickson says what makes the book so good – and still relevant 35 years on – is the clear and immensely stylish writing by its three authors, who at the time were all journalists on the Sunday Times. For example: “A point can be reached at the height of speculative booms when transactions become so complicated that they baffle the very minds which devised them, so that men, and companies, end up swindling themselves.”

Wonderful stuff, says Dickson.

Freud in the City PIC by David Freud (Bene Factum Publishing; May 2006) rated as the top choice of Jeremy Tighe, manager of the Foreign & Colonial investment trust. The book is a biographical account by former FT journalist, David Freud, of his work in the City throughout the mid to late 1980s and 1990s.

“For anyone who works in the financial stock markets this is a very interesting insight into how investment banks work,” says Tighe.

Freud, who is the great grandson of Sigmund, was poached from the FT by Rowe & Pitman, the stockbroker in 1983. He then spent twenty years with Warburg and later UBS Warburg working on some of the biggest flotations of the time, including Eurotunnel, Eurodisney and Railtrack.

Tighe says he remembers a number of the deals that feature in the book and found it fascinating to read what went on on the other side.

“At the time I was looking at the companies as possible investment opportunities and Freud details how the bankers working on the deals sold them to us,” he says.

Also, the book offers Freud’s inside view on the deterioration of Warburg before it was taken over by UBS.

“I remember it happening and found it interesting to read what went wrong,” says Tighe.

Next on Tighe’s list is Hedge Hogging by Barton Biggs (John Wiley & Sons; January 2006). In this book Biggs, the former chairman of Morgan Stanley who left in 2003 to form Traxis Partners, the hedge fund, shares his experiences in the world of hedge funds and investments.

Robin Geffen, managing director and chief investment officer of Neptune Investment Management, is not an enthusiast of investment books.

“There are virtually no good books written on investment in the UK. Many are just repeating things that people learn in business school and are quite boring,” he says.

Geffen reads broader business books to get insights into running and understanding companies, rather than books that aim to give investment advice.

He recommends Our Iceberg is Melting: Changing and Succeeding Under Any Conditions PiC by John Kotter and Holger Rathgeber (Pan; September 2006). This short story uses allegory to illustrate how to cope with change and show change as an opportunity not a threat.

The book describes a penguin colony in Antarctica. One penguin discovers a potentially devastating threat to the habitat but none of the others will listen to him. It illustrates the impact of resisting change and effective ways of dealing with it.

Geffen says: “It promotes the idea of in-depth thinking and shows that in business it is important to listen to different strands of thought.”

He says he uses the knowledge he has gleaned from this book to help him assess suitable investment opportunities.

“I look at companies to see whether they have good communication and whether there are any warning signs that they can’t deal with change,” he says.

Geffen has also learnt a lot from Ben Jonson’s 17th century play The Alchemist. He says this play about fraud perpetuated by Elizabethan conmen is amazingly contemporary.

“The tricks in the Alchemist prefigure the financial frauds still going on today,” he says.

The play, which was recently staged at the National Theatre, encompasses conmen either persuading investors out of money by tieing them into situations they cannot admit to or convincing people to pay fees for advice.

“The fraud used in huge scandals like Enron are all there in the Alchemist,” says Geffen.

Ian Rushbrook, manager of the Personal Assets investment trust, decided to re-read Milton Friedman’s Free to Choose following the death of the author - one of the most influential economist of the 20th century - last month. The book, which Friedman wrote with his wife, Rose, was originally published in 1980 to accompany a television series.

Friedman, a strong advocate of a free market, won a Nobel Prize in economics in 1976.

Rushbrook says: “This book tackles the idea that politics, economics and investment are irretrievably linked. It is quite masterly and to be highly recommended.”

Meanwhile, Anthony Bolton, Fidelity Investments’ star fund manager, recommends “anything written by Peter Lynch or Warren Buffet”.

“Peter Lynch’s books are very good background reading for anyone interested in investment,” he says.

In his latest book, One Up on Wall Street (Simon & Schuster; revised edition August 2000), Peter Lynch, who has spent 40 years working at and advising Fidelity, gives a thorough explanation of his own investment technique.