Intelligent InvestorPO Box 1158 Bondi Junction NSW 2022T 02 8305 6000 F 02 9387 8674info@intelligentinvestor.com.au www.intelligentinvestor.com.au

publIshed june 2011

Intelligent Investor

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A letter from the editor

Dear Intelligent Investor,

Perhaps one of the greatest mistakes an investor can make is to never challenge their own

beliefs; about the stocks they own; their investing psychology; and the over-arching view about

how they go about investing in the first place.

Life should teach us that nothing is certain. There are many ways to get from one place

to another. So it is with investing. Although the professional investors you’ll meet over the following

pages are broadly classified as ‘value investors’, each has their own way of looking at the world.

That’s something that’s immediately apparent when you examine the stocks they’re excited

by and alarmed about. Even their book recommendations have a deeply personal air.

So welcome to a broader church; a place where differences of opinion are respected and

encouraged, and the reader—you—is left to draw their own conclusions.

This report features six professional investors. Each were asked the following four questions:

1. Name two stocks from the top 100 that you can’t imagine ever owning?

2. Talk about a key investing skill and how you acquired it?

3. Tell us about a stock that you’re looking to buy now or have done so recently?

4. Name your favourite book of the past 12 months?

Their answers were frank and forthright and, I hope, illuminating.

So you can see where their views may differ from those of Intelligent Investor, we’ve included

our own recommendations alongside the stocks they mention. And for good measure, we’ve

also included four book recommendations for each of the four Intelligent Investor senior analysts

on page 10.I hope you enjoy what they have to say and that you take advantage of their pointers to

stocks they love and loathe.

Yours sincerely,

John AddisManaging Editor, Intelligent Investor

COnTenTs

Page

Wayne Jones 3Steve Johnson 4Michael Haddad 5Tony Scenna 7Karl Siegling 8geoff Wilson 9 Important information 9Best books of the past 12 months 10

Special report | Stocks professional investors love & loathe

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1. name two stocks from the top 100 that you can’t imagine ever owning

You can pretty much pick any resource company that’s not making a profit but if you need a name to put to it I’ll say Lynas. I’ve got no idea what rare earths are, although from what I understand they’re not particularly rare. It’s strange how you can go through these moments where a particular commodity is in vogue and suddenly everyone’s buying it, without many of them knowing too much about supply and demand.

Another one I’ve always disliked is Paladin. I’m sure plenty of people have made lots of money out of that over the years. I’m not one of them and I don’t imagine I’ll ever be one of them. It’s so far outside my circle of competence that I’m just not going to go there.

Also, the gold exploration companies at the moment remind me of the dot com boom. It’s all about reserves in the ground and future production The last thing you want is for these companies to be making any money because then you’ve got a price-to-earnings ratio to work with.

2. A key investing skill and how you acquired it

I’d say my accounting degree because I just look at things as a business, in the same way as if I was an accountant looking to buy the local newsagents. That’s how I look at companies on the stock exchange, asking myself, why do they make money, will they continue to make money and how much should I pay for it if I do want to buy it?

You don’t need to have a three-year degree to understand accounting but you should be able to read a profit and loss statement, work out the operating margin in a business and understand the balance sheet, which gets ignored way too much by investors and analysts. Eventually, everything that happens to a business has to go through the balance sheet at some point. You can fudge a P&L and you can fudge a balance sheet but you can’t fudge both.

To understand that, read a few books on accounting for non-accountants and if you’re applying yourself you should pick up most of it inside six months or so.

3. A stock that you’re looking to buy now or have done recently

Our largest holding in the fund is four wheel drive accessory manufacturer aRB Corp. I’ve personally owned it for over 15 years and never sold a share, although I probably wouldn’t buy it right at this moment but it’s a great little company that keeps on getting stronger. The Aussie dollar is hurting them on export earnings at the moment and they’ve had a bit of a tailwind with the resources boom but it’s got wonderful management and intellectual property.

The other stock I’ve purchased more of recently is Woolworths. I think the price has come back enough now to be interesting on 16 times earnings for a business that’s basically one part of a powerful duopoly.

4. Your favourite book of the past 12 months

Easily The Greatest Trade Ever by Zuckerman. It’s very similar to Michael Lewis’s book The Big Short with a similar cast of characters. I read it inside three days; I just couldn’t put it down. He and Lewis have the capacity to take a dry business subject and inject the characters into the story that make it really, really interesting. I also really enjoyed The Brain the Changes Itself by Norman Doidge.

For more information: Fund updates, a product disclosure statement and Ganes’ stock selection and portfolio management approach can be found at www.ganescapital.com.

InTellIgenT InvesTOr vIew

pAlAdIn – Last reviewed in Bunker down in the uranium sector on 25 Mar 11 (Avoid—$3.23)

lYnAs – No official reco but see ‘Beware the boom in rare earths’

Arb COrp – Last update review on 17 Feb 11 (Hold—$7.80)

wOOlwOrThs – Last reviewed on 21 Mar 11 in Four things you don’t have to worry about Woolies (Long Term Buy—$25.94)

InvesTOr prOfIle

Intelligent Investor

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1. name two stocks from the top 100 that you can’t imagine ever owning

I found this question very, very hard because there’s nothing in the top 100 that I wouldn’t buy at a stupid price. Even stocks in poor industries like Bluescope and OneSteel are now trading at prices that are half NTA which is where we’ve always implied they should trade. At 10% of NTA I’d probably get interested. Instead, I’ve factored in a little bit of current prices and the business’ futures and arrived at my two selections.

The first is aMP, which has a large amount of funds under management and a big financial planning network which I believe is a product of a by-gone era. The whole commission-for-product business came from selling insurance products. The times are changing fairly dramatically now and I would hope that in 5–10 years’ time we’d have a genuine fee-for-service based industry.

AMP might be able to convert their model to this structure but if so, it’s highly likely to be much less profitable than it is now. People will realise that their advice is not worth the fees they’re paying in hidden fees and commissions. And if they can’t convert their model, they’re going to get left behind anyway.

My second selection is SevenWest. Firstly, I’m very pessimistic about the future of newspaper-based businesses. The days of media companies being able to carry $2bn in goodwill on their balance sheet because they have the right to distribute a newspaper are gone. That might be no bad thing for new media businesses but it makes it very hard for old media companies like Fairfax, which prospered in another era when monopoly profits could sustain high debt. The monopoly profits have gone but the debt’s still there.

I also think there are conflicts of interest with Kerry Stokes and Seven and Seven and WaN being put together at a price which to me didn’t look particularly fair to the owners of WAN. The price has come off a lot and it may be a reasonable price now but it’s a situation I wouldn’t touch because of the personalities and corporate structure involved.

2. A key investing skill and how you acquired it

My flatmate dropped me off at work the day after the RHg meeting, where we made a lot of money for a lot of people and she said, ‘You don’t look particularly excited’. I said, ‘No, I’m not really, I feel the same as I did yesterday’. That may seem odd but I think it gives me an advantage because it works the other way, too. When things aren’t going so well I don’t get too upset about it. I’m a relatively unemotional and rational person, which is my best attribute for being a successful investor. The ability to distance ourselves from what we’re feeling and examine the facts is crucial. Professional investors need a thick skin.

3. A stock that you’re looking to buy now or have done recently

I’ve recently topped up on Spark Infrastructure, which is something I know is being recommended by Intelligent Investor so I won’t go into that too much. Spark is a stock that is applicable to almost every investor and it’s a big percentage of our fund, too. It’s yielding 7.4% on its current share price, has 10% growth per annum locked in for five years and is trading at a multiple of its current cashflow of about seven times. I wouldn’t say it’s the greatest reward stock on the market at present but in terms of the trade off between risk and reward I think it’s a fantastic opportunity.

I’m also very enthusiastic about a couple of small, US commercial property stocks as well, both of which are listed on the ASX. They’re RNY Property Trust and Real estate Capital Partners USa Property Trust. I think there’s a huge disconnect between the prices being implied by their stock prices listed in Australia and equivalent property trusts listed in the United States, some of which are trading at a premium to their NTA. Here, these two stocks are trading at a discount of more than 50% to their NTA.

They do have some issues in terms of their structure, which need cleaning up, but I like the diversification they offer as well as their attractive prices.

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Special report | Stocks professional investors love & loathe

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4. Your favourite books of the past 12 months

Bethany Maclean’s All the Devils are Here is a really well written expose of the financial crisis. What fascinated me was how the future of the world’s financial system was really down to a handful of people like Tim Geithner, Ben Bernanke, Sheila Blair, head of the FDIC, and the heads of the investment banks, especially Goldman Sachs which was very well represented.

The other book I can recommend is No One Would Listen—a True Financial Thriller by Harry Markopolos. It ’s about how the author worked out that Bernie Madoff ’s operation was a ponzi scheme nine years before it collapsed and the repeated failures of the SEC to respond to the devastating evidence he had accumulated that pointed to this fact.

It’s fascinating how we imagine that people at the very top, managing billions of dollars, must have so much more expertise than the rest of us; incredibly smart people that live on a different planet. But they make the same mistakes and do the same stupid things as everyone else. This ended up costing people their lives and it’s quite scary that the whole scheme was fed by these feeder funds that were collecting enormous fees.

When Markopolos approached these funds and told them it was a fraud, they just couldn’t psychologically deal with it. They couldn’t accept that fact until the scheme collapsed. The commitment principle is so much stronger when there are hundreds of millions of dollars involved that we want the facts that don’t accord with our position to go away. And if they don’t, we tend to ignore them.

For more information: Read some recent thoughts on Steve’s Bristlemouth blog (www.iifunds.com.au/bristlemouth) or watch the Value Fund Presentation videos to see Steve explain his investment approach.

1. name two stocks from the top 100 that you can’t imagine ever owning

I can’t imagine owning any of the resource stocks or major banks. In terms of resources, this is not an area where I’ve focused on developing any real analytical competence over time. To stay interested and excited by the investment process, I believe it’s important to focus on the areas that we’re particularly drawn to rather than feeling forced to form an opinion on ‘every’ stock or sector. In terms of the major banks, I feel there are too many variables and that in Australia at least they are quite exposed to outlier events. How will they be affected by a serious economic downturn, a sharp real estate slump, or funding problems considering their reliance on foreign capital. Despite the risks and uncertainties, they’ve always seemed relatively fully-priced, perhaps on account of the dividend yield support they get in the investment community? Clearly, I couldn’t invest on a relative basis in the Australian market, considering the prominence of these sectors in it. Rather, my approach to investing reflects an opinion that you don’t need to be exposed to everything, but rather that you have competence and confidence in the areas that you do become exposed to, and that there is at least basic diversification across those ideas.

2. A key investing skill and how you acquired it

A key skill developed over time is being able to appreciate the fluid nature of the wider environment, that any individual, company or sector is subject to constant change, and that I am quite fallible. Together, these are an important skill in helping to overcome

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InTellIgenT InvesTOr vIew

Amp – Last reviewed in AMP: Setting up for failure? on 10 Mar 11 (Sell—$5.47)

bluesCOpe & OnesTeel – See Steel sector part 1: Carnegie to OneSteel and BlueScope reviewed on 25 Jan 10

spArk InfrAsTruCTure – Last reviewed on 24 May 11 in Powerplay: Spark versus SP AusNet (Long Term Buy—$1.18)

Intelligent Investor

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any inherent biases toward stocks once we own them. Recognising adverse changes or analytical mistakes, and acting on them, should be habitual. Instead, we’re inclined to hide from these inconvenient facts. This type of skill, I believe, is best acquired through experience: preferably vicarious, but inevitably it tends to be direct.

3. A stock that you’re looking to buy now or have done recently

An interesting stock at the moment is Harvey Norman. Issues such as its Irish operations and recent Australian acquisitions somewhat mask the strengths and resilience of its core retail business. I like very much its core business model which includes a mix of company-owned and franchised stores, but is underpinned by a highly valuable prime real estate portfolio. The real estate backing together with only moderate debt funding serve to considerably lower the company’s operational and financial leverage and place them in a very strong position relative to its competition. This is critical for long-term survival in an environment that is constantly evolving. A $2.50 share price in the context of current broad market levels may not be fully reflecting some of this company’s positive attributes and may be over-discounting the issues that they are working to address.

4. Your favourite books of the past 12 months

My favourite book of the last year is The Checklist Manifesto by Atul Gawande. In it, Gawande highlights the importance of diligently running through detailed checklists to avoiding errors and disaster in fields such as aviation and he shows how this process can be used with similar success in other areas such as the medical profession to lower rates of error or infection. The concept is also highly relevant in investment analysis. In attempting to form a view on the attractiveness of something as complex as a business one must sort through and weigh up the merits of a whole raft of aspects of a business and the investment opportunity.

These can be broadly grouped across categories, including the business itself, the environment in which it operates, the people running it and pricing/valuation considerations. Over time the process becomes habitual but as with any routine procedure—including, as highlighted by Gawande, that of inserting central intravenous lines—actually running through checklist items in a more structured way ensures key points are not forgotten or glossed-over.

The approach can bring order and improve manageability in the process of running a portfolio of shares, and is of equal importance to individual as well as professional investors.

For more information: Visit www.petersmacgregor.com.

InTellIgenT InvesTOr vIew

resOurCes – Last covered in The commodities conundrum on 5 May 11

bAnks – Last reviewd in Banks: a question of perspective reviewed on 2 Jun 11

hArveY nOrmAn – Last reviewed on 14 Dec 10 in Harvey Norman and JB Hi-Fi take a hit (Long Term Buy—$2.98)

Special report | Stocks professional investors love & loathe

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1. name two stocks from the top 100 that you can’t imagine ever owning

Qantas represents everything I hate about a business. It’s capital intensive, it’s heavy with debt and it has no real inherent cost advantage. Qantas has a great brand but that can only carry you so far and its competitors have all caught up now. They’ve now got a fuel or geographic advantage in Asia.

Bluescope has no advantages that I can think off. Maybe you could argue that it’s scale is an advantage but when you’re in such a cost-competitive industry, scale might not work for you. And it’s obviously a very cyclical business, which is something investors should be mindful of. If you happened to wake up one day and owned Bluescope by accident, you could make a fortune but it could go away just as easily, which is where I think the company stand rights now. Amcor is another stock I wouldn’t own for much the same reasons.

2. A key investing skill and how you acquired it

Investment is as much about patience as it is about understanding businesses. Successful investors are able to determine the making of a good business and have the patience to allow it to unfold. It’s actually quite breathtaking what time can do for you. The multiplier effect on what patience can deliver for you is quite incredible. Businesses blossom and aRB is a good example of it.

Patience isn’t an especially modern quality. There’s lots of pressure to answer questions immediately but give yourself some breathing space to ask yourself whether you’re right or wrong. A business has its own DNA and you need to determine what the key aspects of it are, and the risks attached to it. Have the patience to let things unfold but be quick to act if things fundamentally change for the worse.

3. A stock that you’re looking to buy now or have done recently

It’s on the speculative side but I’d pick Sirtex. It takes a certain type of investor to understand companies like this and you need tolerance for this type of investment but the upside is substantial. It’s now about 10 years old and listed in a blaze of glory. Approval for its cancer treatment, went extremely well and then totally dropped the ball. It stopped research and development and the company founder wanted out.

Now it’s gone through a rebirth. A new CEO started in 2005 that spent three years saving the company. It’s now on a path that it should have been on in the first place. It’s profitable, has net cash of $40m and is investing in R&D. The product is selling and oncologists and radiologists like it. Sirtex has treated 18,000 patients and has some recognition in the market. It hasn’t raised any more money since the float and is now in a profitable position, paying fully-franked dividends. I don’t think it’s as risky as people imagine. The risks are still there but the risk/reward is high.

Another stock that I would buy today is Newscorp. It has the right assets and even Murdoch seems to have adapted to the changing landscape.

4. Your favourite books of the past 12 months

I coach a soccer team of boys and girls so The Man Watching, which is about a soccer coach and his methods, had a particular appeal to me. It’s a great story about how one individual built a formidable dynasty that won 21 national championships in 29 years. He really knew how to bring out the best in people.

Management teams are almost more important than the businesses they run. You need the right people directing the traffic, getting the best out of the assets and the staff. Again, it shows the value of patience. If you can get the cocktail right it can be incredibly transforming. Each year this coach would pen a letter to each girl, taking them to a higher level of self belief. We tend to underestimate the value of human endeavour and this book shows how that’s a mistake.

For more information: Visit www.selectorfund.com.au

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InTellIgenT InvesTOr vIew

qAnTAs – Last covered in Confessions of an aeroholic on 16 May 08 (Coverage Ceased—$3.62)

sIrTex – Last reviewd in Sirtex enters remission reviewed on 8 Nov 10

news COrp – Last reviewed on 25 Oct 10 in Breaking news: There’s value in News Corp

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1. name two stocks from the top 100 that you can’t imagine ever owning

Two potential issues with Transurban are that the assets of the business will only produce income for a limited time, and that dividend payments are higher than profits.

Transurban’s main assets are toll road concessions, with CityLink the largest. This concession lasts until 2035 (most other Transurban toll roads have similar concession periods), after which the government takes over operation of the road and Transurban ceases to benefit from it.

In February 2011 Transurban paid an unfranked first half dividend of 13 cents per share (annualised, this is approximately a 5% dividend yield). In the same period it earned 5 cents per share. The company is paying out more in dividends than it is earning, something that cannot continue indefinitely as the equity in the business would eventually be used up through paying dividends.

Telstra is Australia’s original incumbent telecommunications provider, a widely held stock by investors and widely followed by researchers. The Telstra share price reached close to $9 in late 1999. It is now around $3, a decline of around 65%. Nonetheless, many investors hold Telstra for its dividend yield, which it may be forced to reduce in the future as profits are less than the dividend that Telstra pays to shareholders

Over the past decade Telstra has witnessed its core earnings deteriorate as competition has been introduced and mandated by the Australian government, which incidentally, were also the seller and original owner of the asset. Changing technologies as well as increased competition have consistently and repeatedly eaten away at Telstra’s profit, a fact that’s likely to continue.

Perhaps more importantly, a 9% fully franked yield doesn’t justify a 65% loss of capital over eleven years. Holding a Telstra position over the last eleven years would clearly have been a breach of the investment rule to ‘cut your losses’.

2. A key investing skill and how you acquired it

It’s important to let your profits run to cut your losses even more so. This rule is understood by prominent investors but very rarely followed by the inexperienced. If most investors followed it they would probably enjoy higher returns. Abiding by this rule in a disciplined manner also takes a lot of the emotion out of any particular investment. I read this simple rule almost 14 years ago, when I first started working in the financial services industry, but is has taken time to truly understand its importance.

3. A stock that you’re looking to buy now or have done recently

As a fund we’ve started actively looking at offshore assets, in particular US assets listed locally. With the Australian dollar having doubled over the last few years and, for example, property prices in the US having halved, an investor with Australian dollars can actually purchase up to four times as much real estate with the same amount of Australian dollars as they could a few years ago. It’s an astounding fact. We’re currently researching ING Real Estate Community Living Group. Although it’s not a ‘pure’ US asset investment, it’s interesting nonetheless.

4. Your favourite books of the past 12 months

After reading many of Tim Winton’s books, I finally got around to The Riders. The description of the Irish winter scenes make you cold from just reading them.

As far as finance is concerned, I recently re-read William O’Neil’s book How to Make Money in Stocks after reading another one of his books, The Successful Investor. His books are well written and make excellent reading.

For more information: Visit www.cadencecapital.com.au

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InTellIgenT InvesTOr vIew

TrAnsurbAn – Last covered in Transurban’s trip down memory lane on 27 Jul 10 (Avoid—$4.49)

TelsTrA – Last reviewed on 11 Feb 11 in The great Telstra beauty contest (Sell—$2.91)

Special report | Stocks professional investors love & loathe

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1. name two stocks from the top 100 that you can’t imagine ever owning

The two stocks from the top 100 that I wouldn’t own at the moment are Lynas Corp and goodman Fielder. Lynas is a grossly overvalued rare earths resources play and Goodman is an incredibly poor quality business.

From my perspective, Lynas reflects the speculative bubble from the China growth story. There are still question marks over the company’s ability to successfully mine the rare earths and whether the price of rare earths will hold up. The valuation of $3.8bn for a company that makes no money is excessive. To me it’s the sign of a resources bubble that will burst soon.

With respect to Goodman Fielder, I was an industrial analyst in the early 1980s when Goodman, Allied Mills and Fielder Gillespie Davis merged to form Goodman Fielder. The group never lived up to expectations. The reason for this was the fact that food manufacturing is a very difficult business. Since then it has become even more difficult because Woolworths and Coles have become more powerful and reduced the margins for the food manufacturers further. Food manufacturing is an incredibly tough business. They get squeezed at one end by the likes of Coles and Woolies and at the other by commodity price inputs. It’s a business you don’t need to own.

2. A key investing skill and how you acquired it

The skill I’d highlight is the ability to identify catalysts that will lead to a change in the valuation of a company by the stockmarket. A catalyst could be an earnings surprise, a structural change in the industry, a company selling a loss-making division or new management; anything that will rerate the companies share price upwards.

If you really want to maximise your returns, invest in companies before the catalyst occurs and enjoy the strong upward move in share price. It’s really only through experience that you can acquire that skill; you need to understand how and why the market rerates a company.

3. A stock that you’re looking to buy now or have done recently

We took shares in a small IPO called Corporate Travel Management and have been buying shares recently. We’ve been very impressed with management and how they’ve performed. Also, people in the industry speak very highly of them. We expect earnings will be up over 30% this year, mainly from acquisitions and the company trades on a prospective PER of a little over 11. There is also the prospect of corporate activity down the track, although we’re not buying for that reason.

4. Your favourite books of the past 12 months

The Big Short by Michael Lewis is fantastic. Like One up on Wall St by Peter Lynch, it shows how everyone can work on developing a competitive advantage. Both books show how you can’t swim with everyone else and expect returns that are different from the crowd. A good book being written at the moment that will be out for Christmas is The Bull, the Bear and the Croupier by my colleague Matthew Kidman. It will be a fantastic read.

For more information: Visit www.wamfunds.com.au//home.aspx

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ImpOrTAnT InfOrmATIOn

Intelligent InvestorPO Box 1158 | Bondi Junction NSW 1355T 1800 620 414 | F (02) 9387 8674info@intelligentinvestor.com.au www.intelligentinvestor.com.au

WaRNINg This publication is general information only, which means it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether a particular recommendation is appropriate for your needs before acting on it, seeking advice from a financial adviser or stockbroker if necessary. Not all investments are appropriate for all people.DISCLaIMeR This publication has been prepared from a wide variety of sources, which The Intelligent Investor Publishing Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about the investments and we strongly suggest you seek advice before acting upon any recommendation.COPYRIgHT© The Intelligent Investor Publishing Pty Ltd 2011. The Intelligent Investor and associated websites and publications are published by The Intelligent Investor Publishing Pty Ltd ABN 12 108 915 233 (AFSL No. 282288). PO Box 1158 Bondi Junction NSW 1355. Ph: (02) 8305 6000 Fax: (02) 9387 8674.DISCLOSURe As at 1 June 2011, in-house staff of The Intelligent Investor held the following listed securities or managed investment schemes: ABP, ALL, ALZ, APH, ARP, AVG, AVO, AWC, AWE, BBG, BER, CAH, CBA, CIF, CMIPC, CND, COH, CRC, CSL, CUE, EBT, ELDPA, FGL, FLT, HVN, IAG, IDT, IFL, IFM, IMF, IVC, JIN, KRS, LMC, MAP, MAU, MFF, MLB, MQG, MTS, NABHA, NBL, NWS, PLA, PTM, QBE, QTI, RCU, RHG, RNY, ROC, SDG, SDI, SFC, SGN, SGT, SHL, SKI, SRV, STW, TAP, TGP, TIM, TIMG, TRG, TRU, TWO, VMS, WBC, WDC, WHG and WRT. This is not a recommendation. The investors profiled in this report own the stocks they have mentioned. The Intelligent Investor Publishing Pty Ltd does not necessarily endorse their views.DaTe OF PUBLICaTION 1 June 2011

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gOOdmAn fIelder – Last reviewed on 4 Mar 09 in Goodman’s poor quality product (Sell—$1.06)

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If the book recommendations of the professional investors featured in this report have whetted your appetite, here our senior analysts offer their favourites of the past year.

gaurav sodhi

The Evolution of Cooperation by Robert AxelrodGame theory, a branch of mathematics that deals with decision making, is a daunting

field. The maths is blindingly tough and the assumptions aren’t always intuitive. But it’s worthwhile persisting because of its uses in international relations, biology, evolution, management and of course, investing.

At university I was forced to read this book, regarded as a classic in the field. I didn’t really understand it then and, like every activity inspired by compulsion, I didn’t like it much either. But reading the book again last year, I finally got it.

The beauty of Axelrod’s book is that it isn’t just an explanation of game theory. He posits real questions; why do selfish individuals cooperate? Is competition or cooperation the more likely outcome of interaction? Game theory just happens to be the tool he uses in searching for answers.

The book tells how Axelrod ran a competition among geeks and maths fiends to find the most robust strategy in game theory. A simple strategy known as ‘tit-for-tat’ turned out to be the best and Axelrod teases out the implication of this strategy for ethics and life. This isn’t a book about investing. But successful investing involves an exploration of ideas, and Axelrod’s ideas are well worth exploring.

nathan bell

The Guinea Pig Diaries: My life as a human experiment by A J JacobsThis book describes a collection of experiments by a respected writer who puts himself

in hilarious situations. In The Rationality Project Jacobs attempts to eliminate every irrational bias using the insights of behavioral economics. ‘I permanently changed the way I make every decision,’ says Jacobs, ‘from the simplest (what toothpaste to buy) to the biggest (how to raise the kids).’ The results are intriguing and the humour offers a welcome diversion from typical investing tracts. It’s a highly informative and amusing book.

gareth brown

The brain that changes itself by Norman Doidge, M.D.This is a wonderful working guide to the most important investment tool you’ll ever

own: your brain. The brain is not fixed in nature, as had previously been assumed, but has an amazing capacity to learn and reorganise after injury. Neuroscience has made explosive advances in recent decades and this book distils many of those into lessons for the layman.

For me, it’s been a call to arms. I’m now using my brain in ways that will keep it in the best possible working order for as long as possible, including committing to learning a second language (with some success, finally) and deliberately cultivating ambidexterity. I’ve since read three other books on the topic but this is the one I’d recommend.

james greenhalgh

Good to Great by Jim Collins Collins studies 11 ‘great’ businesses in the United States and seeks to determine

what they had in common. He finds out that great chief executives are rarely the most charismatic and that the best leaders are those that can confront the brutal truth facing a business. Collins also outlines that great companies have a ‘hedgehog concept’, which is one defining concept that underlines everything they do. Finally, Collins points out that technology should be used as an enabler rather than be a focus in itself. As an investor, it was sobering to realise how few companies (and chief executives) conform to the principles Collins outlines. It’s an illuminating read.

Special report | Stocks professional investors love & loathe

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Intelligent Investor

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