Maybe you want to be the next Warren Buffett or George Soros; or maybe you just want to get better returns on your retirement savings. In either case, there is a wealth of good books written about markets and investing. Here are some of the best.
I always recommend “A Random Walk Down Wall Street” by Burton G. Malkiel as a good place to start for anyone new to investing. It makes the case for the efficient market hypothesis in clear simple language that anyone can understand. Simply stated, the EMH says that it’s very difficult if not impossible for unleveraged investors to beat the market indexes on on a long term basis.
Needless to say, this is not what most of us want to hear. We’d all like to believe that with some diligent weekend reading we can turn our modest savings into millions. The overwhelming evidence suggests otherwise. For most investors, the best investments will be market index funds with low expense ratios.
Maybe you should just read Malkiel’s book and go put your money into some good index funds, but most people won’t be satisfied with that. The next stop on your investment journey should be Benjamin Graham’s “The Intelligent Investor”. Graham was Warren Buffett’s idol and mentor. He was a finance professor at Columbia and had his own investment firm which achieved stellar results over a long period of time.
Graham was one of the first of the quants: quantitative analysts who invest on the basis of fundamental financial ratios combined with an analysis of market history. He believed in “cigar butt investing”, buying shares in companies with weak businesses but strong balance sheets. This approach may still have value in the world of small and microcap investing, but probably wont work for larger capitalization stocks.
In any case, “The Intelligent Investor” is good common sense introduction to investing. Graham takes you through the world of stocks, mutual funds, and bonds in plain language a layman can understand. The most recent edition of the books, with an introduction and annotation by Jason Zwieg is particularly good.
A third book that should be on any investor’s bookshelf is “One Up On Wall Street: How To Use What You Already Know To Make Money In The Market” by Peter Lynch. Lynch was the incredibly successful manager of the Fidelity Magellen mutual fund in the 1980’s. During his time at the helm, Magellen was the best performing diversified fund in the country.
Peter Lynch is and advocate of using your specialized knowledge to out-think the market pros. He believes that the specific knowledge that we possess can be employed to find companies with great long-term prospects that will thrive over time. In Lynch’s eyes, a trip to the mall or a new chain restaurant can be a scouting trip on the way to finding a great investment. The very companies that we love as consumers will become the great stock investments of tomorrow.