I always receive questions like, “where to start investing?”, “how do I start learning about investing?”, “what are the best investments?” etc. These questions, as innocent as they are, came from our desire to change our thinking, to improve our situation, and in our case, to be an investor.
There are only a couple of books that I think every beginner should read. Once they read and understand these books, you will be lightyears ahead of the pack. You will just have to invest a small amount of money to buy these books, and time to understand and think deeply about the ideas.
Here are the 10 books that I think every investor should read.
1. The Intelligent Investor
The bible of value investors. Warren Buffett is always being quoted as saying that The Intelligent Investor is still the best book about investing ever written. You should read this book first. But be careful, if you’re a total beginner, you might not understand it well. I know, because thats what happened to me. But don’t give up. If you read and reach the part where things don’t make sense, don’t panic. Its not because you’re dumb, its just that Ben Graham is smart. He just makes us mere mortals look dumb. He’s an academic, so he writes like an academic (reads very hard).
What you want to do is calm down. You’re not dumb. Leave the book for a while. Read some other books, and then come back to it. It took me 1 year to understand what Ben Graham is trying to tell us in this book. Which once in a while, I read other books and then come back to it. Little by little, you can understand it.
2. One Up Wall Street
Peter Lynch (the author) is perhaps the greatest mutual fund manager of all time. Averaging 29% per year during his tenure at Magellan. And there’s a lot to learn about his approach. When Graham talks about buying cheap companies, Peter Lynch talks about buying growth companies at reasonable price. Same concept but in a different time. But the main idea is still there. Not overpaying for an investment. This is a lot easier book to read. It teaches you to focus on investments that you know. Lynch convinces me that being an individual ordinary person who becomes an investor, has a huge advantage over the professionals. Its true. People like us have advantage over the professionals. Let Peter Lynch show you how you can harness that advantage.
3. Common Stocks and Uncommon Profits
You probably don’t know Phil Fisher. If Graham was the father of value investing using quantitative analysis, Phil Fisher is the father of qualitative analysis. This plus the intelligent investor book will teach you how Warren Buffett came up with the idea of buying cheap and great companies. In one interview Buffett was asked how these books affected his thinking as an investor, he said that he is “85% Graham and 15% Fisher”. But today, I think he is more a 50% Graham 50% Fisher.
Let Fisher teach you all about his own style of investing – the scuttlebutt approach.
4. A Random Walk Down Wall Street
Traders beware. This book sealed the deal for me. During the height of the 2008 Great Recession, I saw traders end their life because they lost money in the crash. I questioned myself, if traders and technical analysts are effective, why do they go bust in the most opportune time in history? This book explained it. The reason (according to the book) is that technical analysis and fundamental analysis is just luck. Its like flipping coin. People get fooled by randomness thinking that its skill (or chart) that they make money so they continue to use those methods until something really big happen, like a crash, that knock them out. They did proved fundamental analysis as something like luck. Which maybe so. But I have reasons to believe that different kinds of fundamental analysis like the one Buffett uses is a good enough proof that its working and not merely luck. Buffett beat the index 60 years in a row. How can that be luck?
5. The Little Book That Beats the Market
Do you want to beat the market (the index) the easy way? This little book will teach you how. For most people who don’t want to read annual reports, this one is a short cut. Joel Greenblatt explains to you, like how he explains to his 7 year old son how to invest. And you don’t need to read a whole lot of annual reports to arrive at the right conclusion. He devices a formula (the magic formula) to pick stocks, that somehow copy how Warren Buffett invests, buying cheap and great companies. Does the magic formula works? Yes. But not always. But still over the long run, they beat the index because its grounded by logic and Ben Graham’s and Buffett’s principles.
6. Buffett: The Making of an American Capitalist
Biographies have a way to teach us how a master thinks. Its not just about the formula or the principles, you have to know how a master applies the formula and the principles in different situations in his life.
This book is a short biography of Warren Buffett. How he started and how he came to be. The book ends just before the great crash of 2008. But all his investments and the back story of it is written in this book. Its a great book to look into the mind of the master.
7. The Snowball: Warren Buffett and the Business of Life
Another biography but this is quite a long biography of Warren Buffett with around 800+ pages. Its one hell of a ride. It starts from Buffett’s childhood years up until the great crash of 2008 and more pass that. It includes some details that “Buffett: The Making of an American Capitalist” missed. There are lots of things to admire from Buffett, not just being an investor. He is a great role model I think for people to emulate as becoming a better human being.
You might be asking why read another biography of Warren Buffett after reading the other biography (#6)? Well, because I’m a fan of his. But seriously, Buffett is the guy that when he dies, we will all want to read his life in a biography. Its just that he is still a living legend that’s why the books get outdated and we need new information about him and his investing everytime. The Snowball is the latest of his life story.
8. Berkshire Hathaway Shareholder and Partnership Letters
When Warren Buffett started managing money for other people, he send out letters to his investors every year. And these letters, available for free at Berkshire Hathaway website is a master class of investing. With all the noise of the internet and news and pundits all wanting you to notice them, reading Berkshire letters is like an oasis. The thoughts are so clear. Buffett makes investing look so easy.
9. Damn Right: Behind the Scenes with Berkshire Hathaway Billionaire Charlie Munger
Charlie Munger is one of my favorite people in the world. I am a fan of Philosophy. I read a lot of books about other things. I like Ben Franklin as a personal hero. And when I discovered this quiet man behind Berkshire and being overshadowed by Buffett’s success, I immediately became a fan. I’m more of a fan of Munger than Buffett actually. He’s a philosopher king. It is what Plato says every man should aim for. He likes to read other books, a fan of Franklin and doesn’t seem to care if other people don’t know him. His contribution to Berkshire is that, he is the one who pushed Warren Buffett into paying up for great businesses. He is the one who affected his thinking of not only buying cheap companies, but buying cheap AND great companies. And if push comes to shove, buy a great company at a fair or a little bit expensive of a price. This book is a somewhat biography of the man.
10. The Dhandho Investor
To wrap up all the things you learned by reading all the 1-9 books in this list, read The Dhandho Investor as the last. As it will ingrained into you (quite repeatedly), to invest in low risk – high reward scenario. All these concepts that you will learn, all comes down to this – “Find investments with low risk, but with high returns”. And this book, will feed you that concept over and over and over again with scenarios and examples on how to find them. The author is Mohnish Pabrai, he is the person who bid to have a charity lunch with Warren Buffett for $600,000. Mohnish is a great investor. One of the best of our generation.
So these are the books that I think every beginning value investor should read. It will take you time to read through those and by the moment you finish them, you will have ideas on what to focus on to come up with your own strategies for investing. They may be hard to understand at first. Especially for people who don’t have any background in accounting or business, but so am I (engineering). If you got stuck in these books, you can start by learning how to invest in the stock market then go back to these books to understand them more.
With all things in life, the things worth getting are worth suffering for. These books may make you suffer, but it would be worth it. If your goal is to become an investor that is.
I understand that its hard to find these books in the Philippines. So I linked all the books to where you can order online and receive the books delivered at your doorstep with free delivery worldwide. Its what I use.