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Date of review: November 2021
Book author: Philip L. Carret
Вook published: 1930

The Art of Speculation by Philip L. Carret (1930)

I heard about Phil Carret during one of Berkshire's annual meetings when Buffett introduced him as one of his guests. While Carret is a true legend in financial markets, this particular book provides little new insights, especially if you have already read Graham, Fisher and Lynch.
As is often the case, I feel quite awkward commenting on books in this category. I have not written a single book and have not yet launched my own business, most authors have achieved more, not least by daring to go public with their thoughts and putting them in one place. In the case of this particular book, Philip Carret is a legend in investing, albeit less known than some others. So, by all means, the book category is not my view of the author or his investment style.

In short, the book provides little new for someone who has already read Ben Graham, Philip Fisher and Peter Lynch. And on top of that, it was written in a relatively old-fashioned way which is harder to follow (at least for me). For someone looking to improve his skills after he has already read the basics, there are more useful books such as 'Valuation: Measuring and Managing the Value of Companies' by Tim Koller & McKinsey Company.

It may be even surprising why I decided to read this book in the first place. Well, I heard about Phil Carret during one of Berkshire's annual meetings when Buffett introduced him among the guests.

Some interesting ideas (although not completely new)

1. The central message of the book is that uncertainty is much more widespread than we realise, so even an investor who buys a high-quality stock can be speculating.

2. PE is almost irrelevant for making investment decisions. Dividend yield is even less important.

3. 12 rules that investors should follow (importance of holding at least 10 stocks, no more than 25% in each stock, avoid mechanical formulas, be quick to take losses / reluctant to take profits).

4. A weak economy does not mean a weak stock performance, although increasing bond exposure after a long period of economic growth and rising bond yields is advisable.

5. Management has much more power in making decisions despite shareholders formally owning a company (and voting on management). This is why a company with great management is much better than an average one (as a shareholder, you have much less power to change management or impact their decisions).

6. One other interesting concept is that within a broad market trend (e.g. a bull market), there could be many other sub-segments, some of which can be in a crisis (prosperity and depression may co-exist side by side).

The book has a good review of accounting for investors and key financial ratios, but anyone who has read 'Security Analysis' by B.Graham or more modern books on this subject, will not find anything new there.

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