During the last 2.5 years, I have read a whole bunch of best books for investing and personal finance which I have summarized in this blog. And many of you are asking: So, in this article, I am going to present the books about investing which I think will benefit the most in your share market journey.
Furthermore, I will rank them from simple to understand and more difficult to understand, so that you know in which order you should read them if you are brand new to the world of investing.
Best Books for Investing Beginners in 2021
7 best stock market books you must read before investment.
First of all, we will advise you on such a book that will make you understand the importance of investing, due to which you will like to read more books related to the stock market.
The Little Book That Beats the Market
The first book I think a new investor should read is a book called The Little Book That Beats the Market.
It was first released in 2006 and the book is authored by Joel Greenblatt, manager of Gotham Funds, a hedge fund with $5.6b in assets under management.
At 112 pages, the book certainly deserves its name, but don’t let that fool you! The Little Book That Beats the Market reveals what is probably my favorite stock screening strategy – the magic formula.
The Magic Formula finds a stockpile by looking at two important performance indicators – the return on assets (or capital) and the price/earnings ratio (or earnings yield).
Joel Greenblatt discusses why these two key performance indicators are essential to successful stock market investing and he does so in a really clean and humorous way.
The book is so over-the-top and sometimes blunt that I’m laughing out loud while reading it. And let me tell you – it’s quite unusual for a book about investing.
Just take this quote from the book I presented on the first channel. Picking different stocks without any idea of what you’re looking for is like walking through a dynamite factory with a burning match.
You may survive, but you are still a fool. The book is like 60% education, 40% humor, which makes it a really enjoyable read.
As an additional resource, I should add that the Magic Formula Screener can be found and used for free at magicformulainvesting.com.
One Up on Wall Street
One Up on Wall Street, and written by Peter Lynch.
It was originally published in 1989. Peter Lynch is a well-known investor at Fidelity Investments, and he was the manager of the Magellan Fund from 1977–1990.
During this period he delivered an average 29.2% annualized return and grew the fund from $18m to $14b.
It’s pretty insane so it’s no surprise that the book has sold over 1 million copies worldwide.
At 334 pages, the book is more comprehensive than the Little Book which certainly beats the market, but it’s still quite handy.
This book preaches that you should use everything you already know to make money in the stock market, and for me, this excerpt from the book was a wake-up call: “In general, if you know all doctors If you vote, I’ll bet only a small percentage will be invested in medical stocks, and more will be invested in oil; and if you choose shoe store owners, more in aerospace than footwear. while aerospace engineers are more likely to sink into shoe stocks.
Why it is that stock certificates, like grass, are always greener in someone else’s pasture, I’m not sure.”
The book’s highlights are Chapters 8 and 9.
In Chapter 8, Peter Lynch discusses the 13 traits of the “ten-bagger”, referring to stocks that have a tenfold increase.
In chapter 9, he discusses the 6 traits of the inverse ten-bagger. Key, referring to the stock going straight to the dumper.
Some of the characteristics of a ten-bagger that he listed in Chapter 8 are considerable. It’s funny and a little counter-intuitive, like: – Institutions don’t own it, and analysts don’t follow it – It’s in a no-growth industry and the best part.
Berkshire Hathaway University
Berkshire Hathaway is certainly Warren Buffett’s firm, and it is one of the largest public companies currently.
The book has a very apt title, as author Daniel Peck out is attending Berkshire Hathaway’s annual shareholder meetings, where for nearly 30 years, Warren Buffett and his right-hand man Charlie Munger talk about investing.
These 30 years are summarized in the book. The book is 338 pages in length, roughly the same length as One Up on Wall Street, and is a bit more advanced. It is also fairly new as it was first published in 2017.
Warren Buffett and Charlie Munger are two great minds and they’re not just smart, they’re also funny.
Just consider what they have to say when they hear rich people in Western countries complaining about high taxes:
We think – at least I think – I am treated exceptionally well by this society. is, and I think most people with higher incomes are. I think if you took most of them to Bangladesh or Peru or something, they would know how much it is and how much society is.Warren Buffett
Or sometimes they’re just really blunt, which is great too. Like when Charlie Munger is asked what he thinks about the GAP figure EBITDA that appears in the income statement of stock market companies.
Yeah, I think you’d understand any presentation using the term EBITDA, if every time you saw that word you substituted the phrase, “Bullsh*t earnings.”Warren Buffett
Highlights of the annual shareholder meetings at Berkshire Hathaway University for the years 1986–2017 include. If you’d like to see the meetings from 1994-2020 yourself, you can visit CNBC’s Warren Buffett Archive.
This is a great resource, but each meeting is about 5 hours, so that’s about 135 hours of total viewing time.
This book summarizes the same information in about 10.
Common Stocks and Uncommon Profits by Philip Fisher
Warren Buffett is often said to be 85% Benjamin Graham and 15% Philip Fisher, and Buffett was particularly inspired by this book, which originally dates back to 1958.
The book is about 200 pages long but has some more difficult lessons. It’s not that they’re technically or mathematically more difficult than anything you’ll find in the last three books, but they’re hard enough to apply in practice.
What Charlie Munger said about this book :
The basic idea is that it was hard to find good stocks, and it was hard to find good investments, and that you wanted to make good investments. And so, you find just a few of them that you knew a lot about, and focus on them, it struck me as such an obviously good idea. And in fact, it’s clearly proved to be a good idea. Yet, 98 percent of the investment world doesn’t follow it. It’s been good for us. It’s been good for you.Charlie Munger
Phil Fisher offered Warren Buffett the idea of buying great companies and keeping them forever and practiced what Fischer preached.
He and his customers’ investment in Motorola reportedly became a 2000-bagger when he held it for several decades.
With the 2000-bagger you only need to invest $500 to become a millionaire. One of the highlights of the book is when Phil Fisher presents how individual investors can use Main Street resources to beat Wall Street.
He advises serious investors to research companies by talking to their suppliers, customers, employees, former employees, and the best competitors.
He says that if you talk to the top 5 companies within a specific industry and ask each company about the other 4, you’ll have a really good picture of who is the strongest player in the business.
Benjamin Graham’s The Intelligent Investor
I know, you know, everybody knows—this list could never have been done without it. After all, I’m not being fair at all.
Benjamin Graham is the “Father of Value Investing” and was Warren Buffett’s teacher. The Intelligent Investor is the most famous work, even though I would argue that it is not the most complete.
The book is more technical than the previous books on this list, but it has certainly stood the test of time, considering it was first published in 1949.
You probably won’t be able to get the most out of it if you are not at least experienced within the investment field though. It is also 640 pages long.
There are three main messages in the book: –
Intrinsic Value: A stock is a piece of a business, meaning it has an intrinsic (or real) value.
Mr. Market: The stock market goes from too pessimistic to too optimistic. A true investor is not affected by the unpredictable mood of Mr. Market and only sees rising and falling prices as an opportunity and not as a carrier of information.
The margin of Safety: Decisions in the stock market should always be made with an inherent margin of safety. This means that you should insist on buying the shares at a large discount to their intrinsic (or actual) business value.
So those are the major takeaways. And I don’t want to argue with Warren Buffett about which chapters are the most important from the book: Chapter 8 and Chapter 20 are really what you need to do to prosper in this world.
If you could say that Warren Buffett himself wrote any of the books on this list, it would be it.
The Essays of Warren Buffett
A book where Lawrence Cunningham has rearranged and structured the most important takeaways from all of Berkshire Hathaway’s annual shareholder letters into one book.
Buffett himself wrote these letters and the book was published in 1997. The book is 328 pages, but there’s a lot of meat here.
Buffett covers everything from the activity required to become a great investor to mergers & Acquisition, Wall Street is a shining place, for the growth of the newspaper business for human psychology, for the failure of academics in finance, for the importance of paradox, and Wall Street is again a shining place.
Buffett is an exceptional author, educator, and investor, and that certainly shows in this book.
Sometimes, even if he is trying his best to explain his thinking to a less experienced audience, it just shows how far ahead his mind is, and some concepts can be quite difficult to grasp. Still an extraordinary book.
I should add that almost all Berkshire Hathaway Annual Shareholder Letters can be found for free at berkshirehathaway.com/letters, but Lawrence Cunningham does a great job of distilling down the information.
Security Analysis, Written by Benjamin Graham.
I would say that security analysis is Graham’s great work, even as Intelligent Investor has gained more popularity. It contains just too much information. And the massive 851 pages are divided into 52 chapters, which certainly makes sense.
You’ll learn everything from the psychology of investing to the different types of securities to financial statements, from portfolio structure to stock market movements.
I recommend that you get the second edition of the book which is from 1940 if you decide to buy it.
There are a lot of great examples in this edition and some of the later editions of the book clearly distort Graham’s words a bit.
Here, I’ll highlight three of my favorite chapters from security analysis:
Chapter 2, which covers the importance of studying both qualitative and quantitative data in your quest for excellent returns. How these two differ in their value and purity is discussed here.
Chapter 43, which is about the importance of current-asset values in listed market companies. This is the key component to the screening of net-net stocks like Benjamin Graham was famous for doing.
Chapter 50, which is about the discrepancies that sometimes occur between a stock’s price and value.
This chapter is about where you can find discrepancies, how you can be more certain once you think you’ve found them, and about an alternative approach to investing in the stock market, which I haven’t really investigated much, but which seems promising from a contrary to average approach: don’t buy companies that are likely to run into financial difficulties – buy those that already are. And there you have it.
The Little Book That Beats the Market, One Up on Wall Street, The University of Berkshire Hathaway, Common Stocks and Uncommon Profits, The Intelligent Investor, The Essays of Warren Buffett and Security Analysis.
I’ve put these books together in that order, in case you probably want to learn more about them before you decide to read them yourself. Check it out!