Successful investing requires hard work and mental acuity. Investing: The Last Liberal Art allows you to approach the task with a full set of power tools instead of a simple screwdriver. Robert Hagstrom masterfully makes the case for a multi-disciplinary approach and then equips you with a dazzling array of ideas from essential fields of study. I wish I could have read this book 25 years ago. (Michael Mauboussin, Author of More Than You Know: Finding Financial Wisdom in Unconventional Places and The Success Equation: Untangling Skill and Luck in Business, Sports, and Investing)
Investing is a brisk and engaging read, and it is a pleasure to be in the presence of Hagstrom's agile mind. But while Hagstrom's model of the market as a complex, irrational and ultimately human emanation is provocative, the book is most successful as an educational manifesto. (Praise for the first edition, New York Times)
Recommended reading for anyone who invests, as well as students of finance and business, for its fresh perspective on the dynamics of the market. (Library Journal (starred review))
Highly recommended as a supplementary resource especially for anyone considering a career in finance, or direct personal management of their own investments. (Midwest Book Review)
opens the reader's mind to ideas that may well lead to valuabl;e insights about the financial markets. (Martin S. Fridson Financial Analysts Journal)
About the Author
Robert G. Hagstrom is chief investment strategist at Legg Mason Investment Counsel and the author of the New York Times best-selling The Warren Buffet Way. He is also the author of The Warren Buffett Portfolio: Mastering the Power of the Focus Investment Strategy; The Essential Warren Buffett: Timeless Principles for the New Economy; NASCAR Way: The Business That Drives the Sport, and The Detective and the Investor: Uncovering Investment Techniques from the Legendary Sleuths.
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Investing: The Last Liberal Art contains no direction on how to read a balance sheet, or on how to project earnings into the future and discount them back to today’s value, nor are there arcane financial terms to send readers scrambling for dictionaries. Still, Investing is an essential book for professional and amateur stock pickers who want to excel, portfolio managers preparing to interview prospective analysts, and investors trying to choose amongst the many advisors ready to serve their needs.
Hagstrom takes his central premise that a broad education will pay dividends in investment performance from Warren Buffett’s quieter partner, Charlie Munger. Munger, through several speeches and in his book Poor Charlie's Almanack: The Wit and Wisdom of Charles T. Munger, Expanded Third Edition (Hardcover), contends that to be successful in stock picking “you’ve got to have models in your head ... and you’ve got to array your experiences - both vicarious and direct - on this latticework of models.”
Hagstrom takes Munger’s latticework idea and provides both the ‘why’ and the ‘how to’ in a concise, straightforward and entertaining format - a bit like Bill Bryson’s A Short History of Nearly Everything through an investment lens. He covers physics, biology, sociology, psychology, philosophy, literature, and mathematics, and concludes with a chapter on decision making. Hagstrom helpfully appends the reading list for the Maryland’s St. John’s College, where “the entire curriculum is devoted to discussing the great books of Western civilization; [where] there are no separate disciplines or departments, no electives,” and his bibliography is even broader - another excellent source for those wishing to take up his challenge.
There is, of course, information directly relevant to investors. In his chapter on Psychology, Hagstrom ponders the question ‘How often should investors review their holdings to be “indifferent to the historical distribution of returns on stocks and bonds?” From pioneering work of behavioural economists Richard Thaler and Shlomo Benartzi, the answer is once per year. When smartphones come pre-loaded with apps allowing us second by second stock valuations, and when larger market swings generate headlines in all media, our instinctual “myopic loss aversion” kicks in and we are driven to suboptimal investment decisions. Without knowing our own psychological predispositions - we feel losses about twice as intensely as gains - it is impossible to correct for them and to achieve superior returns. We should be strategic rather than tactical with our investment portfolios.
In his chapter on Philosophy, Hagstrom shifts from individual traits to those of the broader market. “One reason we have such difficulty understanding markets is that we have been locked into an equilibrium description of how they should behave.” “We must remain open minded to accepting new descriptions of systems that appear complex.” Hagstrom’s first point harkens to his chapter on physics, while the second relates to his chapter on biology. Markets are complex systems with many feedback loops, and “the only way to do better than someone else, or more importantly, to outperform the stock market, is to have a different way of interpreting the data that is different from other people’s interpretations. To that I would add the need to have sources of information and experiences that are different.” A broader reading list rather than more Google alerts.
For investors trying to sort through investment advisors’ credentials and experience, Hagstrom offers some considerations in his final chapter on decision making. “Having been schooled in modern portfolio theory and the efficient market hypothesis, will [they] quickly and automatically default to [the] physics-based model of how markets operate, or will [they] slow down [their] thinking and also consider the possibility that the market’s biological function could be altering the outcome? Even if the market looks hopelessly efficient, will [they] also consider that the wisdom of the crowds is only temporary?” The latticework that advisors use is just as important as their technical education.
“Reading this book requires both an intellectual curiosity and a significant measure of patience,” cautions Hagstrom, perhaps underestimating his audience, but readers will be well rewarded and very likely more successful with their investing. Despite its broad relevance, unfortunately, Investing will likely find audience only with those already inclined towards the Gatsby ideal - “that most limited of all specialists, the ‘well-rounded man’.” (With apologies for Fitzgerald’s gender bias).
"If you understand an idea. You can express it so that others can understand it." -Warren Buffett.
The idea behind this book is to study much more than investing. If you study other subjects and can overlap them to investing, it will help you to make sense of the investing world. IE. Investing can be compared to shopping, and Warren Buffett often metaphorically compares waiting to invest to baseball. Swinging at pitches in the strike zone is similar to only investing into what you know. This will increase your batting average... but unlike baseball the market will keep pitching and you don't strike out after three, so it is best to wait for that perfect pitch.
That is the concept of this book.. which is great, valid, and awesome.
Mr. Hagstrom is an analytical left-brainer, and instead of giving you right brained metaphors to help you digest information of the stock market, he gives you history, biology, and philosophy lessons. This he hopes you can apply to investing. My opinion (which doesn't always count for much) is that it will better serve you if you stick with what you know.
First you have to understand value investing, and how it works. And once you know that, you will able to compare it to something you know. A contractor could compare it to building a house. A pilot can use a checklist to ensure his plane can take off, and a checklist to ensure his investment will take off. A doctor can do a medical exam, and a you can do a medical exam on the business. I teach my child the stock market by using Pokemon. He chooses the best cards to build his Pokemon deck, like I choose the best businesses to build my portfolio. They even have health points and blasting power, just like a company has a health check with debt to asset ratio, current ratios which shows how healthy they are to pay their debts, and blasting power with positive earnings, and return on investment ratios. Investing is child play if the right metaphor is used.
I owe a lot to Mr. Hagstrom because he used his magnificent left brain to analyze Mr. Buffett's investing strategies in 'The Buffett Way', but I think in this book he is making a simple message complex.
This is an excellent book to get you thinking about how investing fits in the broader world. There isn't any directions for actual investing (like evaluating stocks, etc.) but lots to ponder and think about with the larger picture. A very insightful and entertaining read. Not too deep but deep enough.
2.0 out of 5 starsQuick, shallow, wide survey of ideas and thinkers
May 1, 2013 - Published on Amazon.com
Format: Hardcover|Verified Purchase
This might be somewhat useful to a complete novice in finance and investing ideas and history, to get a thumbnail sketch as a bare start. It is a mile wide and an inch deep, which I suppose fits the title. It is like a menu that barely explains the items on it, and not terribly well at that, before moving on. The whole book is peppered with a sort of grade school boosterism repeated ad nauseum -- yes, I get it: we should always be learning, combine thoughts from different sources, always think nimbly, retest our ideas, etc. etc. I felt this book in tone talks down to me. The author editorializes about the concepts in ways not always warranted or supportable or particularly bright; this is not a deep or scholarly or terribly careful work. It would be easy for a novice to misinterpret these simplistic sketches as the meat or substance of the underlying ideas. Fortunately the references in the book do point to important and deeper works. The usual sidling up to Warren Buffett (here, by proxy, to his pal Charlie Munger) is here too: today's marketing ploy for most any book. Again, one small sliver of views from Munger is repeated at unnecessary length.