Weekend time does not need to be downtime. For curious, new, experienced, and long-time investors, it can be an opportunity to take stock, learn, and plan.
Isaac Newton once said that, if he had seen further, it was because he “stood on the shoulders of giants.” Want to see further into the world of investing and investors?
Do you have time during the weekends to learn? If so, grab yourself something to each and drink and settle in with the 26 best investing books to read (in no particular order).
I’ve tried to develop the most diverse and wide-ranging list of investment-related texts for stretching your mind and investment horizons.
So without further ado here are what I think are the best books on investing:
The Little Book of Common Sense Investing, John C. Bogle
There are at least three things that recommend John C. Bogle to anyone interested in reading about investing: he and Warren Buffet were best pals; he founded Vanguard Group, and he gets the credit for creating the world’s first-ever market index fund.
Bogle’s book argues that the stock market is a no-win game, in part because fund managers and brokers are on the take.
Having said that, Bogle argues that the no-win game is one that can be turned around to the advantage of an investor by (spoiler alert!) investing in index funds — a way to “buy and hold all of the nation’s publicly held businesses at very low cost.”
According to Bogle, it’s an approach that ensures investors they’ll get a fair share of the market’s returns. Want another Bogle book? Take a look at Common Sense On Mutual Funds.
The Essays of Warren Buffett: Lessons for Corporate America, Warren Buffett
If you could read some of the thoughts of the man who is often described as the most successful investor in the world, why wouldn’t you?
You can in this compilation of the Oracle of Omaha’s essays on topics ranging from corporate governance, accounting and valuation, taxes, finance, investing, and alternatives to common shares.
The topics range far beyond mere investing tips and strategies, but that’s part of the collection’s value —especially to young investors.
Buffett breaks down Berkshire Hathaway Inc.’s fundamental principles, most notably the avoidance of investing trends and buying stocks that are trading at a discount from their underlying value.
Speaking of books that every young investor should read, add the 1997 classic Rich Dad Poor Dad to the list.
The book is a memoir in which Kyosaki talks about his two “fathers:” his own Dad; and his best friend’s “rich” dad. The subtitle tells you a bit more: “What the Rich Teach Their Kids About Money That the Poor and Middle Class Do Not.”
Twenty years after it was published, Rich Dad Poor Dad is still one of the most popular investment-related texts available.
Want a couple of investment-related takeaways? Look for investments that offer both periodic cash flow and opportunities for equity growth.
A couple of examples of things that fit the bill are real estate investments and stocks that pay dividends to investors.
If you need to know it to get started in buying stocks, it’s in Engel’s book How to Buy Stocks.
The title is a bit misleading since Engel breaks down investments beyond stocks alone.
He explains investments of all types and gives an overview of financial markets generally.
Fisher’s Common Stocks and Uncommon Profits has been described as an alternative approach to value investing from that taught by Benjamin Graham in The Intelligent Investor (coming up on this list).
Fisher encourages looking for the outliers — the exceptional stock investing opportunities — by an approach taking things like competitive advantage, management team, and long-term future room for growth into account.
This idea of analyzing stocks based on future potential started with Fisher.
Don’t let the fact that The Intelligent Investor was written in 1949 fool you. No less an authority that Warren Buffett has described Graham’s book as “the best investing book ever written.”
Graham’s focus is on value investing —searching out and buying stocks based on the extent to which they are undervalued. The Intelligent Investor doesn’t do what a lot of investing books do.
It won’t tell you how to make a killing. Rather, it tells you how to avoid getting wiped out in the market.
Graham sets out techniques for analyzing stocks to help you just do that. But seriously, Buffett said it’s the best. Who am I to argue with the Oracle of Omaha himself?
Antti Ilmanen works through current financial theory to address the vexing question of how to figure out a long-term investment’s expected return. Ilmanen’s approach is to explain how that investment’s historical returns, viewed through academic theory, can project future returns. Ilmanen’s theories can be complex.
Thankfully, though, the book includes a number of case studies on things like value-oriented stock-picking. The gist of Ilmanen’s book? Look forward toward expected performance using all available tools, including academic theory. Don’t rely just on historical returns and extrapolations from those past results.
You’ve heard of value investing and the “flight to quality.” Many value investors evolve gradually over time from investing exclusively in value stocks to investing in quality stocks.
Klarman takes a different approach in Margin of Safety, focusing on the cheapest available stocks, stocks whose prices are driven down by factors like neglect, complexity, and forced selling.
Margin of Safety develops distinctions between absolute value investing (using cash flow analysis to determine a company’s value) and relative value investing (measuring the relative value of stocks by looking at the common P/E — price to earnings — ratio).
One takeaway from Margin of Safety? Sometimes holding cash so you can take advantage of better opportunities later is an entirely rational option.
The sub-title of Lynch’s book says it all: “How to Use What You Already Know to Make Money In The Market.”
Lynch proposes that even new investors have what it takes to invest successfully. Big returns are not the exclusive domain of professional money managers.
According to Lynch, profitable investment opportunities are everywhere, even among the litter rejected by others. The trick, Lynch says, is just a matter of timing — capitalising on an opportunity before the sharks beat you to it.
The best way to find winners, Lynch says, is to slow down and look closely. Another book by Peter Lynch —one of the most successful investors and hedge fund managers of the last 100 years at the Magellan Fund — that you should read is Beating the Street. Lynch explains what he works through in deciding whether to buy or sell a stock.
This book offers no system for beating the market. According to Malkiel, there is no way — no type of technical analysis — that will ensure you can outperform the stock market.
Other authors on this list might disagree, but that’s Malkiel’s pitch. According to him, investing is like a “random walk.”
Rather than overwhelm new investors with the full scope of possible portfolios, Malkiel breaks things down to smaller steps. One example? Building an investor’s first 401(k). A Random Walk Down Wall Street defines basic terms and focuses on long-term investing and avoiding mistakes.
Are you familiar with the CAN SLIM system for choosing stocks? William O’Neil invented the CAN SLIM process for assessing a stock being considered for purchase. It’s an acronym that directs the investor to consider seven detailed criteria. If you’re interested in researching stocks, start here for specific, tangible tools for investing equity investment options.
Speaking of research, Michael Shearn’s book The Investment Checklist offers a point by point process for getting to understand a company well enough to decide whether to invest in its shares. Shearn’s is not the only investment research checklist out there.
Like others, its goal is to force a potential investor to consider objective, balanced, and logical factors and information when making decisions rather than just impressionistic, emotional, and trends-driven influences.
In a December 1996 speech to the American Enterprise Institute, then chairman of the Federal Reserve Board, Alan Greenspan, said: “But how do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions….”
Many interpreted Greenspan’s comments as a warning to investors that the stock market had reached the point that it was overvalued.
Nobel Prize winner Robert Shiller uses Greenspan’s comments as the jumping off point for this book, which gave its own warning — that the “dot.com bubble” would soon burst.
Don’t read Irrational Exuberance to find out “how to invest.” Instead, consider it as a guide to “how to think.” One takeaway? Don’t think about keeping up with a market’s cycles, but look at a decade’s worth of highs and lows to get a sense of a stock’s value.
The Coffeehouse Investor: How to Build Wealth, Ignore Wall Street, and Get On with Your Life, Bill Schultheis
Bill Schultheis argues that investing does not need to — and perhaps should not — be an all-consuming task. The Coffeehouse Investor is aimed at investors who don’t want that task to overwhelm them.
The book argues for the premise that, when it comes to investing, simpler is better. One simple way to escape the impossibility of stock-picking to beat the market? Invest in index funds.
Asset allocation is an approach to investing that seeks to balance risk and reward. At least to some extent, every investment strategy does the very same thing.
Asset allocation, though, does it by collecting different assets in an investor’s portfolio specifically according to factors like goals, return horizon, and risk tolerance. Since each asset class has different levels of risk and return, each set of assets in a portfolio will show different returns depending on the market and economy at any time.
Alex Shahidi’s book Balanced Asset Allocation argues for the logic behind a balanced portfolio structure and — better still — offers a step-by-step guide to setting up the ideal portfolio.
Best yet, Balanced Asset Allocation identifies some common investment approaches that, despite best efforts, threaten to expose seemingly well-balanced portfolios to unforeseen risk.
What is rule number one in investing? According to Phil Town, it’s simple — don’t lose money. On that simple premise, Phil Town has built an investment powerhouse in Rule One Investing.
His pitch for his book? “Rule #1 will show you how I turned $1,000 into $1.45 million in only five years.” Spoiler alert: there’s more than one rule.
Other rules include: don’t diversify; think like an owner; and never think the market is efficient. Rule #1 is a highly accessible book recommended especially for new or just-getting-curious investors.
In 1675, Isaac Newton said “If I have seen further it is by standing on the shoulders of giants.” To our knowledge, Newton never wrote an investment book. But the idea of standing on the shoulders of giants to get a good view of the landscape is one that John Train uses in his book The Money Masters and sequel The New Money Masters.
In both books, Train speaks to a wide range of investors with a huge variety of approaches to investing. The books are compilations of interviews with investors like T. Rowe Price, John Templeton, Warren Buffett, Paul Cabot, Philip Fisher, Benjamin Graham, Larry Tisch, Peter Lynch, George Soros, and Jimmy Rogers.
The Millionaire Next Door proposes seven common traits amongst people who have accumulated massive wealth.
Foremost amongst them is the idea that pop culture’s conception of the high flying millionaire is entirely off the mark. Rather, most millionaires live very simply.
In Stanley’s word, what are the common traits of millionaires? They live below their means. They spend their time, money and energy efficiently. Their grown children are economically independent. They chose the right jobs. They are good at identifying opportunities in the market. Their parents didn’t bail them out economically. They don’t correlate displays of high social status with financial independence.
Reminiscences is the biography of one Jesse Livermore. Livermore began speculating in New England at the beginning of the last century. He was banned from the bootleg brokerages for winning too much, only to find himself on Wall Street. There, he flourished… and floundered in turn. Reminiscences is no sermon, but is a collection of good advice in trading stocks — as good and worth reading today as it was when first published in 1923.
The Inner Voice of Trading: Eliminate the Noise, and Profit from the Strategies That Are Right for You, Michael Martin
This certainly isn’t the only book that approaches investing from a psychological and emotional perspective. There are several books on this list that speak, for example, of the psychological nature of the market and its inherent irrationality.
Martin’s focus is on psychology too, but on the relationship between psychology and emotional makeup of the individual investor.
To be successful, Martin argues, an investor must know himself and her emotional and psychological tendencies. An investment strategy that runs counter to the investor’s unknown emotional and psychological state may fail. One that is aligned with a well-considered state of mind has a better chance of success.
From psychology to philosophy. Nassim Taleb wrote several volumes of philosophical essays on the subject uncertainty that were collectively called the Incerto. Fooled by Randomness is the first part of that collection, and is about the fallibility of human knowledge. Fortune magazine selected the book as one of the 75 “Smartest Books of All Time.”
Taleb’s essential premise in this volume is that people — including investors — wrongly and dangerously fail to understand the extent of randomness that exists, including in the markets.
Those misperceptions lead to errors like survivorship bias and misapprehension of skewed distributions. Taleb has a gift, even in the complexity of his philosophy, of coming up with images and explanations that pierce an investors heart. One example: “Option sellers, it is said, eat like chickens and go to the bathroom like elephants.”
Le Bon’s book, written in 1895, is a study of crowd psychology and its basic characteristics: impulsiveness, irritability, incapacity to reason, absence of judgement, and exaggeration of sentiments.
Le Bon argues that an individual immersed for too long in such a crowd may find herself in a “special state” akin to hypnosis. Though the book is not about investing per se, Le Bon analyses topics such as how individuals adapt to a group’s views while suppressing their own knowledge. Investors engaged in the noise of the stock market will understand — or should try to understand.
On the subject of crowds, Charles Mackay’s even older book — published in 1841 — was published in volumes entitled National Delusions, Peculiar Follies, and Philosophical Delusions. Mackay sought to debunk follies ranging from alchemy to economic bubbles.
It is Mackay’s three chapters on economic bubbles that have attracted the attention of modern economics writers, including Michael Lewis and Andrew Tobias.
The book is famous for its descriptions of irrational mass behaviour and is often name-dropped when someone is reporting on a coming financial bubble. Sort of in the same way someone might name-drop Alan Greenspan’s “irrational exuberance” line.
Ray Dalio founded Bridgewater Associates, one of the world’s largest and best performing hedge funds. Dalio writes from the premise that investing and economics — and even life — can be systemized into rules and that they are capable of being understood as if they were machines.
From lofty philosophical ideas, Dalio works out practical lessons on topics ranging from efficient decision-making, building strong teams, and ensuring a strong meritocracy like the one built at Bridgewater. It is far from a typical investment book, but Dalio is an exceptionally successful investor.
You’ve surely heard of Jim Simons? If not, you’ve certainly heard of his brainchild — algorithm-based investing. Simons is no one less than the biggest money maker in history. One of his firm Renaissance’s funds — Medallion — has generated an average return of 55 per cent.
Renaissance has earned over $100,000,000,000 in profits. Simons himself has a net worth of some $23,000,000,000. Zuckerman’s book is written with the benefit of significant access to Simons and his staff, and tells the story of Simons’ pioneering of a data-driven algorithmic approach to investing.
Your Money and Your Brain: How the New Science of Neuroeconomics Can Help Make You Rich, Jason Zweig
Are you someone who makes really terrible financial decisions?
According to Jason Zweig, that may be a result of neuroeconomics. Neuroeconomics is a discipline that combines psychology, neuroscience, and economics with the objective of attempting to understand finance-related decision making and analysis.
Neuroeconomics attempts to explain how people — particularly investors — perceive and come to understand risk. In writing this book, Zweig subjected himself to several experiments at neuroscience laboratories, resulting in an entertaining, enlightening, and somewhat startling book.
You can afford the time to read your way through the books on this list. The better question, though, is this — can you afford not to read these books?