There are a lot of investment book recommendation lists out there.
Q4 hedge fund letters, conference, scoops etc
We even have our own list.
If you’re just getting started, however, these “best investment book” lists are way, way too long. Getting 10 or more recommendations can be overwhelming when you’re just beginning your journey. Where should you start? Do you need to read all of these before buying your first stock?
In my view, you don’t need to read 10,000 pages before you can get your feet wet. But there are some general topic areas you really do want to have some familiarty with, which are:
Asset allocation
Before you even get started analyzing a specific company, you should know about the different types of investments there are out there. Bonds, stocks, commodities, real estate, private equity, etc. There are a lot of things that will determine your investment success over time, but the amount of money you put in stocks vs. bonds (vs. other stuff), international vs. domestic, etc. will be one of the biggest determinants.
Financial statement analysis
The typical first step in analyzing a public company is using its reported financial statements. As a prospective owner, you need to know how much the company is worth, but before you can figure that out, you need to see how much money it makes and where its money goes. You need to form judgments about the way it does business. Being able to deciper an Income Statement, Balance Sheet, and Cash Flow Statement is critical. Yes, this means learning some basic accounting, but trust me, you don’t need to be a CPA. At the beginning, you’ll need to work your way through these statements, and that’s OK. It gets easier with practice.
Valuation
Once you’ve gotten some stock ideas, you need to figure out if you want to buy. For a valuation-driven investor, which is probably why you’re here, you’ll want to calculate the “intrinsic value” of “fair value” of the stock to determine if it’s worth buying at the current price or not. There are a lot of ways to do this, and this is where investing can become the most analytical. But getting your head around the basics doesn’t have to be insurmountable.
Strategy & Company Analysis
Financial statements only tell part of the story. Thinking about a company’s strategy, its industry, and its competitive environment will help you develop a perspective on where it will be in 10 years (because you definitely want to buy companies that will be around for the long haul!).
Process
An oft-overlooked part of investing is beginning to have and hone an investment process right from the beginning. Beginners are often most susceptible to reading a piece on the Motley Fool, Yahoo Finance, or Seeking Alpha, and leaping into a stock. Save yourself from yourself by giving yourself some guardrails, like a checklist. Know what your biases are, and take steps to account for them.
Beginner Investment Book Recommendations
Without further ado, here are my recommendations.
Asset allocation: Unconventional Success: A Fundamental Approach to Personal Investment, by David Swensen. An approachable and easy read, by Yale’s famous endowment manager.
Financial Statements & Accounting: Why Stocks Go Up and Down by William Pike. This is short and sweet but covers a lot of ground.
Valuation: The Little Book of Valuation: How to Value a Company, Pick a Stock and Profit by Aswath Damodaran. A great place to start.
Strategy: Harvard Business Review’s On Strategy must-read is a short, low-commitment way to get into it.
Process: Daniel Crosby’s “Behavioral Investor” is great. It has helpful synopses at the end of each chapter.
Conclusion & Postscript
So, there you go. Five books, all quite short, to get you started on your journey.
You may have noticed one glaring absence from this list: anything by Ben Graham.
Personally, I find Graham’s books to be very dense and dry. Almost like reading a very long whitepaper. They’re too much of a slog for beginners, in my experience.
Are they essential reads for more intermediate investors, who’ve already been bitten by the bug and are up-leveling themselves? Absolutely. Don’t skip the Graham, just maybe defer it a little.
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Article by Jae Jun, Old School Value
