How To Invest In Shares
May 27, 2010
6. The Best Books On Investing
A great way of improving your investment skills is to read the thoughts of others. The investment scene is littered with books that outline the stock picking principles behind many legendary stock pickers. While by no means covering every single publication, this feature will help narrow down the field for the Foolish stock picker.
However, a word of warning. Any book, regardless of who wrote it, should not be viewed as gospel. Unfortunately, there's never been an author yet who has distilled a winning stock picking strategy into an easy-to-replicate formula. Books ought to help form a foundation for personal investing guidelines, but nothing more. One other point to note is that the best books are often directed at a US audience. While the important philosophy parts should be readily understandable, UK readers will have to put up with dollar signs and the odd unfamiliar company name.
For beginners, there's no better book to get started with than Peter Lynch's One Up On Wall Street. The real beauty of Lynch's book is the easy-going review of the simplistic stock picking style that brought him so much success at US fund managers Fidelity. Low on number crunching but high on anecdotal stories, readers are given a clear picture on how to get off to a good start in the markets.
You're spoilt for choice for books about investor Warren Buffett. Unfortunately, the man himself has never summarised his investment secrets in a step-by-step guide. But that's not stopped many others from looking at his investment record and trying to formulate his approach.
But while books such as The Warren Buffett Way and The New Buffettology give excellent primers on Buffett and his investment philosophy, they mostly lose out on the "how to" part. It's also worth pointing out that most books about Buffett focus on his most famous long-term investments, Coca-Cola (NYSE: KO.), Gillette (NYSE: G.), and so on. And although it's true to say that those "business franchises" have generated most of Buffett's common stock success, this analysis discovered that Buffett's most frequent type of investment was in more ordinary of companies.
However, one useful Buffett book is the Warren Buffet Portfolio. The book concentrates on Buffett's investment style rather than attempting to dig into his stock picking secrets. But of course, the best way to learn from Buffett is direct from the man himself. It's worth visiting his Berkshire Hathaway website to read his Shareholders' Letters, which are all available for free. Alternatively, consider the Essays of Warren Buffett. This is a user-friendly version of Buffett's Letters, it being a book that has rearranged his thoughts into subject order.
But do you want to know what Buffett himself calls the "best book on investing"? Well, the answer is The Intelligent Investor, by Benjamin Graham. In a sometimes difficult-to-read book, Buffett's mentor lays down what is regarded as the first ever set of investment principles. Graham's speciality was that of "value" investing, principally buying companies valued at below their net asset worth.
Keeping to the value theme, and a book by David Dreman comes highly recommended. Although repetitive in parts, Contrarian Investing Strategies puts forward a sound argument on behalf of shorter-term investments in lowly rated companies, rather than to persist in looking for companies with longer-term growth potential. Another value argument is supplied by John Neff through his book Neff on Investing.
If you're really want to get ahead in the stock market, then becoming familiar with accounting is a necessity. Although we're biased, by far the easiest-to-read book on explaining the ins-and-outs of a balance sheet is the Motley Fool UK Investment Workbook. Another great book on accounting analysis, but slightly more in-depth, is Interpreting Company Reports and Accounts by Geoffrey Holmes and Alan Sugden. It's not gripping, but it's a gold standard reference for the UK investor.
There's also Reading Between The Lines Of Company Accounts which is another good bookkeeping read. And if you think you can ignore accounting, then Terry Smith's once controversial Accounting For Growth will be an eye-opener. Outlining the tricks of book keeping trade, Smith's book should inspire those who've previously dismissed accounting analysis to instead start combing through a company's finances.
Other must reads for any budding investor include Winning The Loser's Game by Charles Ellis, and more recent titles such as The Little Book That Beats The Market and Taming The Lion. But if you're thinking that you can't develop market-beating skills from a book, then there's even a book for you. Written by Burton Malkeil, A Random Walk Down Wall Street argues the case for investors to forget all about stock picking and plump for an index tracker instead.