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December 7, 2007

'Three books it will pay you to avoid'

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Above, the headline over James Altucher's August 7, 2007 Financial Times column.

Altucher has become my favorite FT columnist in recent months as he's expanded his purview from a narrow focus on what stocks to buy to more personal reflections.

Note that the three books to avoid have one thing in common: they're all by him.

He and I would so get along.

The piece follows.

    Three books it will pay you to avoid

    I don't like to write negative book reviews because I never want to do anything to harm someone else's career. Good or bad, people work hard on their books and it's too easy for a reviewer, with only a few destructive words, to slash and burn several years' worth of someone's career. I hate that.

    The last time I wrote a negative book review was in 1994 for In Pittsburgh, a free paper in Pittsburgh. It was review of a novel by Tama Janowitz. I regret it because it was a stupid review and furthermore, I ended up liking the book when I reread it a few years later (during a comprehensive overview I was doing of Janowitz's oeuvre).

    But let's not get distracted from what I intend to do right here.

    Not one, but three, negative book reviews. The books? "Trade Like a Hedge Fund", "Trade Like Warren Buffett" and "SuperCash". All books written by me and I plan to thoroughly skewer them. I'm out of town, in a hotel room, my books spread out in front of me and the contents of the mini-bar of the hotel room littered all over the floor (meaning: I've gone through two canisters of Pringles and a packet of Oreos).

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    I'm going to work my way backwards. First off, I'm embarrassed and distraught over "SuperCash". My tome published in 2006 about alternative strategies for hedge fund managers who wanted to break out of the traditional equity long/short hedge fund model. What was my recommendation? Well, the first chapter, which was a plagiarised rewriting of an article I wrote for the Financial Times in 2004, was a recommendation that people should look at the idea of "hedge funds as the new banks". In other words, hedge funds were the only ones out there willing to lend into the sub-subprime areas of hard money lending, trade factoring, complicated collateralised debt obligations and collateralised loan obligations, etc. Brilliant. Tell that to Harvard, Bear Stearns and the other institutions and individuals who have now lost billions in the asset-backed lending arena. Two years ago every fund of funds manager was dying to learn more about asset-backed lending. Now it's a smoked-out, war-torn ruin, filled with broken dreams. (Yes, overly dramatic. That's why I'm trashing my books.)

    Then I looked at closed-end fund arbitrage. It's a strategy I still believe in. Unfortunately it no longer really exists. Many closed-end funds were trading at up to 15 per cent discounts when I wrote "SuperCash". Those discounts have narrowed to 2-3 per cent or even turned into premiums. That strategy lasted for about a nanosecond. What else? How about the hedge fundI profiled that invested in works of art? Well, that fund shut down. Nice!

    Not everything was bad. The chapters on "Activism" and "Trade Like a Billionaire" evolved into Stockpickr.com: a site I set up with thestreet.com that just hit 100,000 portfolios entered. But the bottom line is this: equities outperform every other asset class over the long run and any attempt to take a short cut (ie the "SuperCash" approach) with an esoteric hedge fund strategy is likely doomed to failure. And, by the way, Wiley, you overpriced the book.

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    Next is "Trade Like Warren Buffett". The only book ever written about Warren Buffett that didn't become a business best- seller. I tried to prove Buffett was a more active trader than people realise, that he's not really a buy-and-hold-forever investor and not even a value investor. I discuss the various techniques he uses to get his margin of safety above and beyond what the typical equity investor uses. This was actually my favourite book of those I've written but as one reviewer on Amazon put it: "Most unfortunately I bought it from a book shop that has no refund policy" and that really says it all.

    I used a favourite author technique of taking up many pages with charts to get over the magic 200-page point. Alas, the entire book is riddled with grammatical errors, befuddling my attempts at coherence. My favourite chapter is my interview with Buffett-style hedge fund manager, Mohnish Pabrai, whose recent claim to fame from last month is that he is spending $650,100 to have lunch with Warren Buffett.

    Finally, my first book, "Trade Like a Hedge Fund", out in 2004, raked me over the coals. The main hedge fund I was trading for (and I was up over 100 per cent for them in the prior 12 months to the book coming out) immediately cut me off because they were worriedI "gave away all my techniques" and then proceeded to brutalise me on various message boards, causing me much personal grief. My favourite chapter "Buying bankruptcies" is still a home-run.

    Pamela, at Wiley, I love you. Don't forget even negative publicity is good publicity. Meanwhile, I'm pleased to say I'm working on book number four and I hope it's my best!

December 7, 2007 at 04:01 PM | Permalink


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