Monday, January 31, 2011

Book Review: F Wall Street

In today's age of renewed interest in, nay, obsession with, momentum-based quantitative investment strategies, Joe Ponzio's "F Wall Street" is like a breath of fresh air. Ponzio, an adherent of Buffettology, advises his readers to forget EPS, forget "you're not smart enough to manage your money", forget mutual funds and f... orget Wall Street. The message is clear: you're buying small parts of other people's businesses, you should think like an owner and focus on Owner's Earnings, a Warren Buffett-metric rooted in the value investing theology of Graham and Dodd.

"F Wall Street"'s greatest strength is that Ponzio is a good writer and an even better tutor. He's distilled down the wit and wisdom of generations of outstanding value and growth investment personalities like Graham, Buffett and Fisher into a final product whose length and organization are approachably practical. Though in the introduction Ponzio advises having familiarity with the rudimentary aspects of value investing the reality is that he leaves nothing to chance and fully and simply explains all relevant terms, concepts and calculations.

What's better is that after teaching the reader a lesson he follows it up by demonstrating the application of the new idea in a real-life scenario from the recent past. It makes the material seem fresh and interesting, though in time the examples may grow stale just as reading about Graham's railroad stocks of the 1920s and 30s seem a bit boring today. Luckily, the principle never changes even if the specifics of each situation do.

Ponzio's book has a few other strengths, as well. The opening discussion about the mismatched incentives between investors and their advisors on Wall Street is illuminating and does a good job of convincing the reader to maintain a level of healthy skepticism toward the constant noise emanating from that part of the financial world. The last chapter on special workout transactions is by no means an all-encompassing discussion of the subject but it still manages to be informative and helpful, nicely rounding out the value investing core and expanding the application of the basic principles of margin of safety and contrarian-oriented searching for value in odd places.

Finally, the book's website at, is simply put an outstanding additional resource and considering the fact that accessing it is free of charge, the value is nearly infinite. Whereas most book or author-related websites are nothing more than a place to further promote the content of the book without divulging the content of the book, is a goldmine of value investing education. Ponzio and a host of other guest investor-contributors talk principles, real-world applications, share investment ideas and more.

However, the book itself is not without its flaws. I am no bond market expert but the chapter on bond investing came across as simplistic and tacked-on, as if Ponzio felt compelled to talk bonds because his intellectual heirs, specifically Graham and Dodd, always recommended bonds play an important role in the portfolio of any intelligent investor. It's not that the advice is poor or wrong, it just doesn't seem sophisticated enough given the current context of real inflationary risks for fixed-income investors going forward. Furthermore, when it comes to economics, Ponzio and friends are certainly conventionalists and Austrian school readers will find themselves bemused by Ponzio's suggestions that US Treasuries are risk free. Sure, you may be "guaranteed" to get your money back on government debt, but what will it be worth at that point?

I give it a 4/5. If you want to read the Bible, go straight to the source and read Benjamin Graham's "The Intelligent Investor", otherwise Ponzio is hard to beat.

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