My Book Reviews

Originally published in 1980, The Money Masters by John Train describes the winning strategies of nine excellent investors - Warren Buffett, T. Rowe Price, John Templeton, Paul Cabot, Philip Fisher, Benjamin Graham, Stanley Kroll, Larry Tisch, and Robert Wilson. The book gives a biography of each investor and then talks to them about their investment criteria and philosophies. The book is based on interviews, but it is not done in Q&A style.

Even though there is a good amount of analytical information, there is really nothing special here. This is because the book is 30 years old and most of the observations are well-known by now and many of the techniques are classic value investor techniques that are obsolete now - like buying a company for less than its working capital. Although the biographies are very thorough, they are full of idiosyncratic observations that add little insight into the investment process. The tone of the book is also uninspiring. Although the book is easy to read, there is a certain coldness to the interviews. Instead of getting direct answers from the interviewees, the answers are processed by the author. Because of this distance between the reader and the interviewees, we get only watered-down insight from the investing masters - as well as the sense that Train wrote the book more to hear himself talk than to give readers direct access to these investing masters.

The author, who believes in fundamentals and buy-and-hold, makes several annoying attacks on technical analysis and short-term trading. His views toward commodities, which he "included in this book to help the reader understand what an impossible casino commodities are", are a result of being ignorant about the strict risk management skills needed when dealing with leverage. Then, when talking about supposedly "real investment products", he says that "the economic function of real investment is to provide the capital needed for industry." Unfortunately, he doesn't seem to realize that buying-and-holding a stock forever means that you still are only participating in secondary markets where companies don't receive any money. He goes on to say, "Personally, I do not think the SEC should allow any registered investment advisor to put out advice on stocks based on technical analysis." Well, if you are going to make a systematic judgment about the validity of a particular analysis technique, then advice based on fundamental analysis should be similarly banned since there is no evidence that fundamental analysis can beat the market either. His stated bias against technical analysis was embarrassingly discriminatory. It is also noteworthy that the credibility of these flimsy criticisms is completely destroyed by Train's sequel to this book, in which he interviews short-term traders, technical traders, and commodity investors like Soros and Steinhardt.

The only parts of the book I found interesting or educational were Robert Wilson's nightmare short trade in Resorts International and then the philosophical talk about being an investor and a loner. Here are some interesting quotes from the book:

• A company whose competitive advantage is based on R&D can be bad because eventually they may lose their advantage if they run into financial trouble. But a company whose competitive advantage which is based on branding, instead of capital spending, can lose its advantage when consumer tastes change.
• Philip Fisher: "I don't want a lot of good investments; I want a few outstanding ones."
• Philip Fisher: "A company must consciously and continuously try to become a better place to work."
• Philip Fisher: "If a vice-president reported to the president the way the president reported to the owners, the vice president would last exactly ten minutes. The officers of the company often seem to feel that they should treat annual reports as a form of advertising. It's completely wrong."
• Larry Tisch: "You can usually correct business problems. The human problems are the ones that are harder to correct."
• Robert Wilson: "One of the dumbest things you can do with money is spend it."
• "The enormous advantage the independent investor has, Buffett says, is that he can stand at the plate and wait forever for the perfect pitch."
• Buffett, about long-term investing: "You only have to do a very few things right in your life, he says, so long as you don't do too many things wrong."