My 4 days of Christmas reading:

Over the next several days I will be giving the gift of 4 great investing article. there will be two morality tales, there is a short technical, but readable, NY Times story from 2008 and there is a blog post that just may pull all 3 together.

Gift 1 is a morality tale by Michael Lewis. This portrait of  broker Blaine Lourd’s coming of age is brilliant and should be read by anyone who has his money with a big Wall St firm. A couple excerpts:

It wasn’t exactly the career he’d hoped for. Once, he confessed to his boss his misgivings about the performance of his customers’ portfolios. His boss told him point-blank, “Blaine, you’re confused about your job.” A fellow broker added, “Your job is to turn your clients’ net worth into your own.” Blaine wrote that down in his journal.


There, he found himself seated beside a broker in his sixties, who struck up what Blaine says was “a cynical conversation about the state of our industry.” The conference’s speakers gave the usual patter about finding opportunities in the stock market, and the older fellow must have noticed Blaine straining to take it all in. “He’s looking at me like, You’re smart enough to know better than this. But I’m not smart enough to know better than this. And he says to me, ‘You need to read Charles Ellis’ book The Loser’s Game.’ “

Blaine bought the book—it’s actually called Winning the Loser’s Game—and took it with him to Aspen on his Christmas vacation. There, on the first page, he read “Investment management, as traditionally practiced, is based on a single basic belief: Professional investment managers can beat the market. That premise appears to be false.”

Ellis, who had spent 30 years advising Wall Street firms, went on with charts, graphs, and more evidence than he needed to convince Blaine of the truth of that statement. The problem wasn’t Blaine; the problem wasn’t even the firms he worked for. The problem was the entire edifice of modern Wall Street, in which some people—brokers, analysts, mutual fund managers, hedge fund managers—presented themselves as experts and were paid fantastic sums of money for their expertise. But essentially, Ellis argued, there was no such thing as financial expertise. “I read this book,” Blaine says, “and I thought, My whole life is a lie, and everyone around me is facilitating this lie.” 

Do yourself a favor and read the whole article:

Michael Lewis’s portrait of Blaine Lourd