Light, Taming the Beast

Larry Light’s Taming the Beast: Wall Street’s Imperfect Answers to Making Money (Wiley, 2011) is perfect summer reading fare. The author, a financial reporter and editor, is a skilled storyteller. In this book he explores a range of investment strategies and instruments, traces their development, and in the process profiles some of the best-known investors and academics.

He covers value investing (Benjamin Graham and Warren Buffett), stocks (Jeremy Siegel), indexes (John Bogle), bonds (Bill Gross), growth investing (Thomas Rowe Price), international investing (John Templeton), real estate (Donald Trump), alternatives, asset allocation, short selling (James Chanos), hedge funds (Alfred Winslow Jones and Steve Cohen), and behaviorism (Daniel Kahneman and his followers).

Light’s thesis is that “investing success does not come in one flavor” and that “the trick is to be sufficiently flexible to dip into any or all of [the approaches he describes], but by the same token, to know their limitations.” (p. 254) He does a good job of spelling out these limitations. Even for more experienced investors who are well aware of many of these limitations, Little’s prose is so quick-paced that the book should be read, not skimmed.

Take, for instance, the case of a $50 short gone bad. “Maybe XYZ’s rivals trip over themselves and the company’s management gets its act together. Amid joyous shouts on Wall Street, XYZ vaults to where the air is rare, hitting $100. Your broker will want you to put up more margin, often an extra 30 percent of the value. Worse, you have an unlimited liability. The damn XYZ stock could keep on levitating. The higher it flies, the more you are out of pocket to buy it back. For you, this is a real nightmare on Wall Street, with the broker playing the role of Freddy Krueger.” (p. 203)

Or take real estate, “a realm of cruel ironies.” Think back to the building frenzy in Dubai with the 2,717-foot-tall Burj Khalifa (its post-bailout name) viewed as the “crown jewel” of Dubai. Although this skyscraper was 90 percent sold, “other Dubai commercial structures stood forlorn. … That left the Burj as a massive mockery of the promise that real estate was a gift that kept giving forever.” (p. 140)

And, on a stroll down memory lane, think back to when Hillary Clinton “parlayed a $1,000 grubstake in cattle futures into $100,000 over 10 months. … When her trading success came to light in 1994, with the Clintons in the White House, there were dark mutterings that she must have cheated somehow. The editor of the Journal of Futures Markets was quoted as saying: ‘This is like buying ice skates one day, and entering the Olympics one day later.’ But no malfeasance was ever proved. Most likely, Hillary Clinton was preternaturally lucky.” (p. 169)

The cast of characters in this book is vividly described. “Known for his brightly colored bow tie and unorthodox enthusiasms” could refer only to Jim Rogers. And you may recall that Bill Gross “reacts to mistakes seriously. After a bad call on junk bonds, he took a sabbatical of several months to clear his head. His wife told the New York Times that he once recommended a Pimco fund to the owner of his local doughnut shop and, when it lagged for a while, ‘he could hardly go in the shop for his favorite coconut cake doughnut.’ “ (p. 97) I was surprised to read that he actually eats doughnuts.

All in all, Taming the Beast is a delight to read, especially in comparison to so many of its very dull competitors in the investing space.