Even if you’re freaking out about all these investment terms that you’ve been learning – we’ve got a silver lining. All investment mistakes have already been made, so you don’t have to lose money pursuing losing investment strategies.
Fortunately for us, investors who have graduated from the school of hard knocks and economists who have analyzed 400 years of market euphoria and crashes have compiled their lessons in these popular investment books. Instead of chick lit by the pool, why not add a few of these books to your reading list and work on your investment smarts.
The Intelligent Investor
The Columbia University professor whom Warren Buffet credits for instilling him with his investment smarts provides the basic ‘need to know’ information of value investing. The book, first published in 1949, has been expanded with the help of the famous student prodigy himself, Buffett.
All of the basics of how to read a company’s financial statements, conduct the valuation of a stock, and identify undervalued companies are in this book. He further provides sound advice on portfolio allocation. Much has changed. In Graham’s day you could kick the assets of a company; today, many company assets are virtual and part of e-commerce businesses, or leased in a low-cost developing country.
As Buffet has proven, the value approach to stock investing is as sound today as it was in 1949 when the US stock market capitalization was $150 billion – about the same as the market cap of Coca-Cola today, Warren Buffet’s favourite drink and one of his best-performing stocks. A cardinal rule of value investing – buy what you like!
Manias, Panics, and Crashes: A History of Financial Crises
Charles P. Kindleberger,
This investment classic takes readers on a journey through the 400-year history of financial markets to show that the boom-bust cycle of investment markets always repeats itself. Two common features of booms are the irrationality of investors and availability of credit to invest in speculative excess. Recent market busts, including the Internet boom ending in 2000 and the mortgage boom ending in 2008 had those same characteristics.
Despite economists selling a ‘new, new economy’ based on technological innovation, the 2000 Internet bubble burst, too, when investors panicked and converted their investments to cash. The object of speculative excess is the only thing that changes among manias. In the early 17th century, it was tulip mania in Holland. In 1929, investors flooded money into investment trusts, the precursors to mutual funds. In 2000, dot-com companies without revenue streams received billions of dollars in investment.
The Big Short: Inside the Doomsday Machine
Michael Lewis’ other book Liar’s Poker has traditionally been on the list of investment books to read. While there are many books on the mortgage crisis written by economists, Michael Lewis knows how to make a finance tale interesting. This best-selling, award-winning book provides an insider’s look at the housing and credit bubble through the eyes of some of the key players, including the biggest losers and winners of the 2008 credit bubble. Also, consider reading Liar’s Poker. The chronicles of Lewis’ time as a bond trader for Salomon Brothers shows how the credit boom that led to the junk bond and mortgage crises developed.
Common Sense on Mutual Funds
John C. Bogle
John Bogle, the founder of the $3 trillion mutual fund house The Vanguard Group, has written what is considered to be the Intelligent Investor of mutual fund investing. He cuts through the high volume of mutual fund hype to focus on how to get good investment performance. He advocates long-term investing and is a big proponent of index funds.
His Princeton thesis was one of the first studies to show that low-cost passive index fund investors outperform active investors on average, without the trading fees and high-stress level of moving in and out of stocks.
Bogle warns against getting caught up in the rankings of mutual fund investment manager stars but does advocate using past performance as a measure of risk. Today, Vanguard is also the second-largest provider of exchange-traded funds (ETFs).
The ETF Book: All You Need to Know About Exchange-Traded Funds
Richard A. Ferri
Exchange-traded funds now make up to 20% of equity mutual fund investments, yet many investors are still not very familiar with these low-cost, tax-efficient funds, according to a Charles Schwab study. ETFs allow individual investors to invest in the same markets as large institutional investors through indexes on various investment themes and sectors that trade like stocks.
Every investor should understand what ETFs are and which funds can help meet investment objectives. The ETF Book provides useful examples of portfolio management strategies to help with asset allocation. Another popular ETF guide is the Financial Times Guide to Exchange Traded Funds and Index Funds: How to Use Tracker Funds in Your Investment Portfolio (2009) by David Stevenson.
The Warren Buffet’s Next Door
At least one slot in the best investment books lists is always reserved for Warren Buffet, and we highly recommend you read at least one book on the investment pro. Mathew Schifrin’s book is also an educational and inspiring book for amateur and professional investors alike.
The book profiles 10 investors from all walks of life with “legendary’ investment performance records. On the master himself, The Warren Buffet Way by Warren Buffet is a good place to start. Also consider reading Buffetology by Buffet’s daughter-in-law Mary Buffet – one because it provides a detailed description of the master’s investment techniques, and two because Warren Buffet is known to designate family members to speak on his behalf.
Let us know if your investment performance improves after taking in this collective investment wisdom.
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