Top 5 Books For The Beginner Investor

Top 5 Books For The Beginner Investor

Reading is a crucial part of becoming a smarter human being. Warren Buffett has said many times that the best investment you can make is in yourself. One’s constant search for knowledge can bring them places they have never thought were possible. To help you get started I am going to give you what I think is are the top 5 books for beginning investors. These will help you jumpstart your knowledge and bring you to the next level.

If you desire a large amount of wealth then reading needs to become a part of your daily routine. It is one of the common traits of successful investors$ and one I highly recommend you adopt. It will make you a better investor and a better human being.

Here are the top books I recommend:

Rich Dad Poor Dad by Robert Kiyosaki

Quick Summary: Rich Dad Poor Dad gives you the tools you need to kick start your journey towards becoming wealthy. It teaches the mindset needed to succeed, the accounting basics, and the wealth-building strategies essential to becoming wealthy. The great part is you do not need any prior financial knowledge to understand it.

The main reason that over 90 percent of the American public struggles financially is because they play not to lose. They don’t play to win.” –Robert Kiyosaki

Why I liked it: If someone was to come to me and ask me for a book recommendation to become wealthy, this is the book I would send their way first. When I first read it I quickly saw the difference between choosing to be rich and choosing to be poor.

Many people let money control them instead of allowing money to work for them. I understand why; you work really hard for your money, the last thing you want to happen is to lose it all. See the difference between the rich and the poor is, the rich are not slaves for money, the poor are. They allow it to control them.

The first step to financial success is being able to take a step back and not allow money to affect your emotions. Harder said than done but it is possible. Just try.

The second big take away I had from this book was that you have to put your money in assets, not liabilities. To be very simple, an asset is something that puts money in your pocket over time and a liability takes money out of your pocket. Some examples of assets are stocks, bonds, or even certificate deposits. Some liabilities are car payments, cable bill, monthly subscriptions. The latter takes money out of your pocket. The former puts money in your pocket.

This is the crucial key to building wealth, create more assets than liabilities and you will be in a pretty good position financially.

Overall this is a great book for a beginner to learn about money and capital allocation. Capital allocation is going to be the main determinant of your financial future. If you put more money in assets than you will be much better off than those who have more liabilities.

One Up On Wall Street by Peter Lynch

Quick Summary: One Up On Wall Street shows you that everyone does not need to be a professional money manager in order to have nice returns in the stock market. It can come down to the simplest businesses that can make you a lot of money. As long as everyone is willing to put in the work than there is no reason you can’t do good for yourself.

The key to making money in stocks is not to get scared out of them.” – Peter Lynch

Why I liked it: I like to say that my investment philosophy was made by three men. Warren Buffett, Benjamin Graham, and Peter Lynch. This is the book that brought the stock market magician into my life and it had made me a better investor without a doubt.

Peter Lynch taught me many things but there are a few select things I will highlight here. First, he taught me you have to put in a lot of work to be a great stock picker. He refers to it as turning over as many rocks as possible. When he was at Fidelity he averaged 29.2% over the course of 23 years. That annual return over that long of a period is unheard of. He was known for working tireless hours trying to uncover the next great company and this tireless desire is, without a doubt, helped him achieve the enormous returns. If you are willing to put in the work there is no reason why you can not do well for yourself.

Second) I learned a boring business is a great business. Why? Because they are overlooked often. Lynch was a big advocate for finding great boring businesses, sighting they are the ones that will give you solid returns. He invested in things like garbage collection and rubber tires. Wall Street institutions will often pass on boring companies for simply that reason. As an individual investor boring investing is great investing. The flashy companies of Wall Street today will likely not be there in a few years. But someone will always have to pick up your garbage.

His book is a perfect place to start to grow your Lynch bone in your body. We should all have one. He was a great investor and deserves to be recognized by many for his accomplishments. It’s a book I highly recommend for the beginning investor because it will give you hope that you can do well in the stock market. In fact, you have the ability to outperform the stock market. You just have to do a lot of work and look where no one else is looking.

The Snowball: Warren Buffett and the Business of Life by Alice Schroeder

Quick Summary: This book is the only authored biography of Warren Buffett. The legendary value investor and currently the 4th richest man on earth$. He is worth over $80 billion dollars. This book provides a detailed look at his humble beginnings all the way up to his unfathomable success.

We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful. – Warren Buffett

Why I like it: Like I said earlier my investment philosophy was formed by three men, Warren Buffett is one of them. I try to model his success which will be near impossible to do, but his value investing techniques are ones that I try to emulate. After reading this book I have a much better idea of how to possibly make my success more of reality. There are three main ideas portrayed in the book that affected me the most.

Fist) Start early. If you are already late, start now. The best time to plant a tree is now. If you desire investing wealth you have to start early. As Buffett says time is a great thing for a good business and the opposite for a mediocre one. The earlier you start investing the better. It takes a very long time to amass a large fortune and the earlier you start the more of an advantage you have over the next guy.

Second) Be patient, choose tomorrow over today. This point goes hand in hand with the one above. Investing success takes a very long time. Decades. Not weeks or months. Years after years. Exercising patience will allow you to fully capture all the possible gains. A good investment will reward you a good amount of the course of time. The biggest element of investing is your ability to patiently wait. It is not easy and sometimes I find myself become a little impatient but I realize it and correct myself. Every day that passes is a good thing for the owner of a good business. Be able to pass up the short term riches of today for the wealth creation of tomorrow.

Third) Build a reputation. It’s hard to build and easy to ruin. When you live your life try to build your legacy that will live long after you die. There is no shortcut to this, just like investing success. Reputation is built over a long period of time and it only takes one thing to ruin it. Keep this in mind while living your daily.

Getting the insight into the life of Warren Buffett helped me see the true details that made Warren the true success he is today. He has done things that many of us will be unable to achieve, but the two main things that largely attributed to his success are things everyone can do. Everyone can start as soon as possible and exercise patience. These are things that require little to no talent. It is something we can all do.

The thing I truly admire about Warren is his extraordinary patience. His ability to sit and wait for that fat pitch is uncanny and someday I wish to be as patient and as picky as him.

The Intelligent Investor by Benjamin Graham

Quick Summary: The intelligent investor teaches everyone and anyone the approach Benjamin Graham used to uncover his incredible value picks. This approach was used for to generates steady profits over a long period of time. The key focus is to ignore the market and only focus on the intrinsic value of the business. One of the key people to come out of the Benjamin Graham education program was Warren Buffett.

An investment operation is one which, upon thorough analysis, promises safety of principal and an adequate return. Operations not meeting these requirements are speculative.” – Ben Graham

Why I Like It: There are very few books in the world that can truly change a person by one read. I did not pick up this book until after I had been “investing” for two years and that alone was the biggest mistake I have ever made. This book has honestly changed the way I look at companies.

Benjamin Graham has defined 3 key characteristics associated with intelligent investing and these principals are the ones responsible for the change in my view on investing. All for the better. How do I know its better? Because it is the same framework Warren Buffett uses. His success is a testament to the work of Benjamin Graham. We can all take something away from him.

The first characteristic of an intelligent investor is the focus on the long-term rather than the short term. The intelligent investor does not care about the short term moves of the company in the market. He is more mainly focused on the long-term prospects. Taking a keen curiosity into the management and the nitty gritty details about the company.

Focusing on the long-term details will be much more beneficial than the short term ones because we make investments for the long-term. Wealth is created over decades not months. It is all in the long term with investing.

The second principle is an intelligent investor always protects himself from losses. Ben Graham coined the phrase “Margin of Safety”. Defined simply it is the steps taken to ensure that you will make money on an investment even if your calculations are slightly wrong.

These steps involved calculating the intrinsic value of a business and paying for it at a steep discount. The difference between the price paid and the intrinsic value of the business is the “margin of safety”. We want the biggest margin of safety possible. That way if we are wrong, it won’t be a devastating loss.

The third and final characteristic embodied by the intelligent investor is there is no desire to chase massive profits. Rather the focus is on safe and steady returns. This one is much easier said than done. It is very hard for someone to sit back and watch stocks have these massive run-ups and not want to be a part of it. We all as humans want to be involved with what is going well. The issue that comes with this is the more you chase returns the more likely it is you will be paying way too much.

Everything in life has what’s called revision to the mean. For example, we are all good at something and terrible at other tasks. Why? We can not be this perfect human. Stock prices act in the same way. A company that might have a 50% run up one year could have a 40% down year the next. It is reverting to the mean.

Instead, investors should focus on companies that return them a steady consistent amount over a long period of time. 50% growth is close to impossible to sustain, 8% growth, however, is not impossible.

We look for companies that can grow at a constant rate over a long period of time, not the one hit wonders. The latter will lead you to a lot of chasing, something we never want to do as investors. Intelligent Investors are perfectly happy sitting back and are perfectly happy with a 10%-12% a year.

If I was to recommend anyone a book on investing it would be this. It teaches the principals of sound value investing, even though it might be boring, value investing is where the true wealth creation lies.

Benjamin Graham is the godfather of value investing and if there is one regret I have it is not picking up a copy of this book sooner. It has changed my outlook on investing and I hope it will do the same for you.

Security Analysis by Benjamin Graham and David Dodd

Quick Summary: This is the bible of value investing. End of story.

A stock is not just a ticker symbol or an electronic blip; it is an ownership interest in an actual business, with an underlying value that does not depend on its share price.” – Ben Graham

Why I Like It: This book goes hand in hand with the Intelligent Investor. This 400 plus page manuscript gives you all of the frameworks you need in order to be the best value investor possible. It’s hard to put into a few words why I like this book. Instead, I will tell you what the book has done for me.

Before finding this book I was constantly looking for something that tells you what to do and how to do it. Specifically, about value investing. I have kicked myself a few times because I heard about this book many times before but was reluctant to pick up a copy. That was a big mistake.

There have been nearly a million copies sold of a book that was originally written in 1934. Although the one I have is the most recent addition (The 6th edition) these principals have been timelessly relevant.

The focus of the book is the timeless guidance and advice for value investors of all ages. The key element they teach is that thorough analysis of the balance sheet is the primary road to investing success.

Before this book, I didn’t truly know how to analyze financial statements. I thought I did but I was truly mistaken. This book taught me how to analyze financial statements in a value investing way.

I have no words other than if you want to be the best value investor possible you need this book. Period.

Free Additional Reads

As two bonuses I will talk about resources I have read for free online. These will also help your investing knowledge tremendously.

First) Warren Buffett’s Letter to Shareholders

Being the huge Buffett follower I am, if there is anything he puts out, I need to read it. One of the best “free” resources the world has provided us are the letter to shareholders written by the man himself. If you truly want to dip into the mind of “arguably” the greatest investor of all time this is your place to go.

You have the ability to read these letters dating back to 1977 that are full of all the knowledge you will need to navigate the financial markets for the rest of your life.

Do yourself a favor and read these letters.

Second) Howard Mark’s Memos

If you have never heard of this man, like me until recently, you have sadly missed out on one of the greatest minds to make sense of the market we live in today. He is said to have the knowledge of Warren Buffett but writes like Michael Lewis.

Warren Buffett once said that if he sees a memo written by Howard Marks come in the mail it is the first thing he reads. These memos have helped me make sense of sometimes confusing financial markets.

They are entertaining and full of knowledge for every investor.  His investing style is one that is one formed by Graham and Dodd with an emphasis on steady consistent returns rather than chasing the biggest returns. He is also a major fan of maintaining a major margin of safety with all his investments.

In Closing

Books are essential for a investor to become the best he can. They are the easiest way to connect with those who you may never be able to sit in a room with. Books are the fastest way to get information from a mentor that you might not have a chance to meet. Books are powerful.

I promise you that if you read all of the books listed above your investing knowledge will improve and that will lead to better financial success.

If I had to recommend books to the beginning investor I would give them all of these. It gives the right framework needed to be a successful investor. I wish I could go back in time to when I began and start with these. Who knows how much capital would have been saved. But hey that’s the process.

Take some time out of your day to learn from these wealth legends and on your spare time go through Warren Buffett’s Letters to Shareholders or Howard Marks Memos. They are everything except a waste of time.

You never know when you are going to stumble across a sentence that can change the way you live. You just have to be willing to put some time in to find it.

Go read books.

Peace and Love,
Michael

 

P.S. if you want to read books for cheap I highly recommend checking out Thrift Books, go through this link and save 15% on your first purchase. This is an affiliate link.

 

(As a disclaimer almost all of the links on this page are affiliate links)


Let me know in the comments what your favorite investing books are!

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