Have you made any financial New Years resolutions? Ok, neither have I...
That said, kick off 2008 on a good foot by checking out these two great books:
Active Value Investing: Making Money in Range-Bound Markets
by Vitaliy N. Katsenelson
Vitaliy's book is split up into two parts: "what the future holds" and "active value investing." The first section gives a picture of the current market environment and what investors should be expecting over the next couple decades. As can easily be inferred from the title, he sees us heading into a range-bound market where we'll bounce up and down a lot but not really go anywhere. He points out that, as a contrast to the more traditional black and white of bull or bear markets, a range-bound market would be most profitable for those who are willing to be a bit more active with their stocks rather than following the traditional value-investing manifesto of buy and hold.
As much as I enjoyed the first part of the book, I got even more out of the second part. The second part of the book, "active value investing," presents Vitaliy's tools for evaluating stocks in range-bound markets. But let me be clear, when you see the word "active" be careful not to assume we're talking day trading or chart watching. The tools that Vitaliy delves into are true investing tools and are not at all about speculation. The content in the second part of the book is solid enough that seasoned investors should have plenty of take-aways, and his writing style and easy-to-follow explanations make it so that new investors will be able to learn and apply what he's talking about.
Overall, the book is a pretty easy read and chock full of good investing knowledge -- which shouldn't be all that surprising as I like a lot of what Vitaliy has to say. What was particularly notable about the book is that even if you disagree with Vitaliy's suggestion that we're heading into a range-bound market you can still benefit from reading the second part of the book.
Your Money and Your Brain: How the New Science of Neuroeconomics Can Help Make You Rich
by Jason Zweig
Ok, let me just start off by saying that you shouldn't be thrown off by the title of the book. I can only imagine that the hokey title was the idea of marketers who thought that a word like "neuroeconomics" had to be offset with "make you rich."
For those not familiar with Jason Zweig, he was a long time writer for Forbes and is now a senior writer at Money magazine. He also was the editor of a revised edition of Ben Graham's classic "Intelligent Investor" (a book you must go and buy and read now if you haven't already). In other words, this guy knows what he's talking about and is not writing some "get rich quick" book.
The focus of the book is (obviously) neuroeconomics, which is also known as behavioral finance or behavioral economics. The field is one that has really just recently come into its own as pioneering work by Daniel Kahneman and Amos Tversky in the late 70's really brought it to the forefront. Zweig's is really the first book that I've seen that presents a good cross section of the subject matter in one place and makes it very accessible.
My suggestion is to just go ahead and read the book, but you can get a high level overview of the field here from Wikipedia. If you're more ambitious, you can also check out some of the papers on the subject from the Social Science Research Network (the most comprehensive is probably this one from Richard Thaler).
I'll just wrap this up by saying that I don't get paid for talking about these books so even though I linked to Amazon, go ahead and buy them from wherever you want -- just buy them. Both are quality reads that should be on investors' lists for 2008.
-AvgJoe
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