Whether you are a beginning investor or have years of experience in the markets, learning tried and true investment processes from the world’s greatest investors can take your investment strategy to the next level in 2020.
The ultimate investing resources are often from authors who have spent decades actively investing in the stock market.
Other great investing books are written by authors in academia. Most of these authors have spent their careers devoted to studying market history, back-testing their theories, and publishing the best ways to maximize returns over the long-term.
There’s virtually unlimited supply of books on finance and investing exists today.
However, these are some of the very best books to read and shape your investing philosophy. Some of these books have molded the strategies implemented by the greatest investors and entrepreneurs of our generation.
The must read books for every investor:
- The Intelligent Investor
- Beating the Street
- The Snowball: Warren Buffett and the Business of Life
- Stocks for the Long Run
- The Little Book of Common Sense Investing
1. The Intelligent Investor by Benjamin Graham
Benjamin Graham is considered the “Father of Value Investing.” His book The Intelligent Investor was first published in 1949 and has been inspiring writers ever since.
In his writings, Graham pioneered the concepts value investors know today as “margin of safety” through his fundamental analysis.
Many well-known investors credit Graham’s teachings with shaping they way the invest.
For instance, Warren Buffett credits The Intelligent Investor for changing his life after reading an early edition at only 19 years old. The book inspired Buffett to attend Columbia Business School where Graham taught as a professor. Buffett even worked for Graham’s investment fund.
While some of the examples may seem outdated, the philosophies Graham developed will never go out of style.
Do yourself and your portfolio a service by learning important financial analysis from the “Father of Value Investing.”
For an in-depth review of Benjamin Graham’s The Intelligent Investor, check out this in-depth book review.
2. Beating the Street by Peter Lynch
If you are looking for investing strategies implemented by one of the greatest money managers of all time, look no further than Beating the Street.
The author, Peter Lynch, spent 13 years managing the Fidelity Magellan Fund. During his tenure with Fidelity, Lynch’s fund ranked as the top general equity mutual fund in the nation. With annualized returns of nearly 30%, his performance more than doubled the returns of the S&P 500.
In Beating the Street, he outlines his process for identifying market-beating investment ideas that led his fund to massive outperformance.
Buy What You Know
The key theme in this book centers around buying what you know. Often, this strategy implies buying stock in businesses that you use on a daily basis and you find familiar.
Lynch starts the book with a compelling example of a 7th grade class at St. Agnes School in Massachusetts. These 7th graders randomly picked a portfolio of stocks comprised of the companies they used such as Wal-Mart, Nike, and PepsiCo. The students’ portfolio returned nearly 70% over the two-year period compared to market returns of 26%.
Lynch uses this example to explain that even children can pick stocks that outperform the stock market by simply investing in what they know.
He also outlines how he picked stocks for his successful fund by buying the stock of popular products. By going to the mall and scouting popular stores or identifying the public’s favorite dining spots, Lynch explains that you can profit from consumer spending behaviors.
Beating the Street: Yes, Even You Can Too!
Beating the Street by Peter Lynch should be a read on every investor’s itinerary. The education and insights Lynch outlines centers around human behavior.
Why not try and profit from today’s consumer-driven economy?
If you are looking for a read to enhance your knowledge on investing, look no further than this helpful book written by one of the most successful money managers on Wall Street.
If you’re interested in a more in-depth analysis of Beating the Street, check out this book review which dives into the details of Lynch’s strategies.
Hands down, Alice Schroeder’s unparalleled access to the “Oracle of Omaha” makes this book one of the best books to read on one of the greatest investors of our generation.
3. The Snowball: Warren Buffett and the Business of Life by Alice Schroeder
As the only authorized biography written, this memoir offers a glimpse into Buffett’s life growing up, his investing career, as well as his investing views and strategy.
While the biography will not teach you how to analyze stocks, the lessons taught in this book outline the steps Buffett took to become the greatest investor of all time.
Be Patient
Patience represents and overarching theme in Buffett’s life that lead to his success.
After all, Buffett did not become a billionaire over night. Through frugality, hard work, and a disciplined investing approach, Buffett turned his investors’ small sums into gigantic fortunes over the decades.
A student of Benjamin Graham, author of The Intelligent Investor, Buffett’s investment strategy epitomizes a life of patient forbearance for a greater good. Just like Graham teaches through his allegory of Mr. Market, Buffett’s strategy for building wealth centers around buying great companies for the long-term.
Be Defined by Your Reputation
Buffett contends people build a positive, well-respected reputation over a lifetime. However, they can destroy their reputation in a single instance or lapse of judgement.
Therefore, Buffett implements choices in his investment portfolio and business life centered around protecting his reputation. Buffett advocates for integrity over short-term gain. He gives the example that business and investing decisions should be made as if they will be published on the front page of the Wall Street Journal for all to see.
Learn from the “Sage of Omaha” in this Biography
Schroder’s book, The Snowball: Warren Buffett and the Business of Life, teaches the principles that shaped Buffett. Young and old investors alike will benefit from Buffett’s life lessons and investing wisdom.
4. Stocks for the Long Run by Jeremy Siegel
First published in 1994, Wharton Business School professor Jeremy Siegel demonstrates in his book how a portfolio of stocks vastly outperforms alternative investments over longer duration.
For those interested in market history, Siegel dives into market events spanning the 1800s to present day. For those looking to gain an advantage in their portfolio, understanding the cyclicality of the market can help you identify trends or instances to bet against the consensus.
He explains that even considering the Great Depression and other market turmoil, stock performance in the long-run drastically outperforms other asset classes including bonds, gold, and cash.
Stocks Tend to Revert to the Mean
When investors enjoy periods of market exuberance, the market tends to find balance by reverting to the mean. This behavior results in short-term volatility.
However, in the long run, the market tends to increase steadily between 8-10% annualized. For the investor who chooses to buy and hold stocks, their portfolio may experience daily volatility.
However, in the long run, investors should profit immensely by taking on the risk of equity ownership.
Smaller Capitalization Stocks Outperform
In his book Siegel also outlines various strategies for outperforming the market.
As most investors would expect, smaller companies tend to outperform larger capitalization stocks over the long-term.
However, small and mid-cap companies experience much more volatility in their earnings and growth as they mold themselves into the next global powerhouse.
Investors who implement a portfolio of index funds and diversified small, mid, and large capitalization stocks limit much of the market risk and will reap the greatest returns.
Buy and Hold Stocks for the Long Run by Jeremy Siegel
In his book, Siegel outlines and defends the thesis for investing in stocks over the long-term.
He offers facts and figures that back up his assumptions, showcasing that stocks do indeed outperform other asset classes over longer durations.
While bonds outperform stocks around 40% of the time for periods less than 5-years, over a 30+ year time horizon, no asset class has outperformed a well-diversified portfolio of equities.
If you’re interested in a more detailed analysis of Stocks for the Long Run, you can find my book review here.
5. The Little Book of Common Sense Investing by Jack Bogle
No other titan of Wall Street has done more for the individual investor than Jack Bogle, founder and former CEO of Vanguard.
While Bogle passed away in early 2019, his influence can still be felt by “Boglehead” followers everywhere.
Even if you prefer to spice-up your portfolio with active stock picking, you still have Bogle’s passive investing philosophy and unwavering dedication to low-cost index funds to thank for bringing the cost of investing to virtually $0.
Keep investing SIMPLE
Just like Warren Buffett advocates that the majority of individual investors should invest in a low-cost S&P 500 index fund, Bogle champions that the “winning strategy is to own all of the nation’s publicly held businesses at a very low cost.”
With this strategy, you’re guaranteed to capture the entire return the market generates through dividends and earnings growth.
Achieve diversification through indexing
By purchasing index funds (which own a piece of each company in the market), Bogle contends you eliminate the risk of individual stocks, sectors, and manager selection. Ultimately, you’ll only endure the market risk.
Unfortunately, many retail investors fall prey to the temptations of trying to beat the market. Many investors do the exact opposite of what it takes to achieve outperformance by frequently trading individual stocks or attempting to pick superior fund managers.
However, Bogle’s philosophy asserts that over the long-term, these strategies can’t compare to the performance of owning low-cost index funds.
After all, over 92% of mutual fund managers have underperformed the overall market.
Not only does most mutual funds underperform, they also charge hefty fees ranging from 1.5%-3.5%+ annually. As Bogle explains, “The miracle of compounding returns is overwhelmed by the tyranny of compounding costs.”
Further, Bogle explains that most equity mutual funds hold ~5% in uninvested cash reserves. Not only are fees and lackluster performance detrimental to overall returns, the opportunity cost of having 5% uninvested greatly hinders your portfolio.
As a result, owning an low-cost S&P 500 index fund such as the Vanguard S&P 500 ETF (VOO) allows you match the overall market returns at an expense ratio of only .03%.
Even if you choose to actively invest a portion of your portfolio in individual stocks, reading The Little Book of Common Sense Investing and investing a portion of your portfolio in index funds will provide value in your investing strategy.