Maybe you want to be the next Warren Buffett or George Soros; Or maybe you just want to get a better return on your retirement savings. In any case, there are plenty of good books written on markets and investing. Here are some of the best.
I always recommend Burton G. Malkiel’s “A Random Walk Down Wall Street” as a good starting point for anyone new to investing. It lays out the efficient market hypothesis in clear, simple language that anyone can understand. Simply put, the EMH says that it is very difficult, if not impossible, for unleveraged investors to outperform market indices over the long term.
Needless to say, this is not what most of us want to hear. We’d all like to believe that with a little diligent reading over the weekend we can turn our modest savings into millions. The overwhelming evidence suggests otherwise. For most investors, the best investments will be market index funds with low expense ratios.
Maybe you should read Malkiel’s book and go put your money in some good index funds, but most people won’t be satisfied with that. The next stop on your investment journey should be Benjamin Graham’s “The Intelligent Investor.” Graham was the idol and mentor of Warren Buffett. He was a finance professor at Columbia and had his own investment firm that achieved stellar results over a long period of time.
Graham was one of the first of the quants: quantitative analysts who invest based on fundamental financial indices combined with analysis of market history. He believed in “cigarette butt investing,” buying shares in companies with weak businesses but strong balance sheets. This approach may still have value in the world of small-cap and micro-cap investing, but it probably won’t work for larger-cap stocks.
In any case, “The Intelligent Investor” is a good common-sense introduction to investing. Graham takes you through the world of stocks, mutual funds, and bonds in simple language that a layman can understand. The most recent edition of the books, with an introduction and annotation by Jason Zwieg, is particularly good.
A third book that should be on any investor’s shelf is “One Up On Wall Street: How To Use What You Already Know To Make Money In The Market” by Peter Lynch. Lynch was the incredibly successful manager of the Fidelity Magellen mutual fund in the 1980s. During his tenure, Magellen was the best-performing diversified fund in the country.
Peter Lynch is an advocate of using his specialized knowledge to outperform market professionals. He believes that the specific knowledge we possess can be used to find companies with great long-term prospects that will prosper over time. In Lynch’s eyes, a trip to the mall or a new restaurant chain can be a voyage of scouting on the path to a great investment. The very companies we love as consumers will become the big stock investments of tomorrow.