Investing Book List
I recommend them for anyone to read who wants to invest to make high returns. It has been some years since reading them, so not everything I recall from my memory might be 100% accurate with the content actually in the book.
Fundamental Equity Investing
Graham, B. (1973/2003). The Intelligent Investor (Rev. ed.).
A classic a and should be read as the first book on investing. Shows how to be cautious and establishes a good mindset.
Fisher, P. A. (1958/2003). Common Stocks and Uncommon Profits and Other Writings.
How to choose healthy, hight growth stocks. Must read! In combination with Graham one gets a Mr. Buffett investment personality. If you have read both books, then I recommend as the next reading Valuation by Goedhart. It will give the numbers of financial statements meaning in terms of underlying business logic that generated these numbers. And that is what ultimately drives business success and as a result stock prices in the long run.
Goedhart, M., Koller, T., Wessels, D. (2005). Valuation: Measuring and Managing the Value of Companies (4th ed.).
The bible on valuing a company fundamentally. Read it and then do one sample valuation of a large and mature company with only one division (the easiest example to value). It will drive home the concepts into practical skill and will deepen your thinking with any fundamental investing approach significantly. I did it myself for Coca Cola Company starting with the annual reports available on SEC EDGAR. It took me 2 weeks (14 days of work). In my DCF, the most unsure estimation, but key component, turned out to be the revenue growth in emerging markets and third world countries. While doing the DCF, I learned how important it is to actually understand the business dynamics of the company and how such understanding leads to robust DCF estimations. Without an understanding of the company and its markets or by relying on other peoples’ opinions about it, it’s just playing lottery. If you want to get better at valuation after having mastered the numbers crunching on the spreadsheet, then the next step will be the markets the company is in (customers & suppliers) and then the company itself. No company is without competition and here it becomes important how well the company’s products fit the market and how well it can sell them. And not only now, but also in the future. Here are some key-words to get you started: Porter’s 5 forces model, industry life cycle, dominant design, positioning (Trout & Ries), direct response marketing, management by objectives (Drucker), Kodak failure, disruptive innovations.
Schilit, H. (2002). Financial Shenanigans: How to Detect Accounting Gimmicks & Fraud in Financial Reports.
If you are doing valuations of companies then this helps in spotting accounting gimmicks and understanding the meaning of accounting policies.
Comiskey, E.E., Mulford, C. W. (2005). Creative Cash Flow Reporting: Uncovering Sustainable Financial Performance.
The same as Shenanigans with a focus on the cash flow statement. A very good read, if one has anything to to with fundamentals of a company. Sadly, the second part of the books is just a rephrasing of the first part and should be skipped – there is totally no new content. Nevertheless, I got value from the first part.
Event Driven Investing
Greenblatt, J. (1991). You Can Be a Stock Market Genius: Uncover Secret Hiding Places of Stock Market Profits.
Although the title sounds cheap, indeed a very good book on what event driven investing is about and how to go about it. While being very educative, it is also great fun to read.
Moyer, S. G. (2005). Distressed Debt Analysis: Strategies for Speculative Investors.
A book that explains how distressed investing works. The book explains strategies in an bankruptcy process. But distressed investing in bankruptcy proceedings is a niche – you need big bucks to begin with. Riding along with small money is often not possible as these shares and debt claims are not traded any more publicly at this stage. But it also is valuable if you are a “normal” fixed income investor. The book tells what happens in case of default and that might be important for your valuation. Aside from that, the strategic thinking is cool:)
Kindleberger, P., Aliber, R. (2005). Manias, Panics, and Crashes: A History of Financial Crises (5th ed.).
The title says it all. If you intend to be longer in the investing business than 5 years, it might be helpful….
Soros, G. (2003). The Alchemy of Finance.
A helpful book if you are interested in global macro. I got from the following takeaway from the book: thinking in cause and effect models and using them in the real world. Such a model thinking helps tremendously in solving the emotional clouding that so many people suffer in trading. Soros shows step-by-step his thinking process and how he builds up a model of how one item in the world influences another. He also describes how he used that model to guide his trading activities. His models were certainly not perfect nor did he understand everything, but the model did its job and that is key – everything else is meaningless. Parts of the book are more philosophical and more lofty. I tended to disagree with Soros on some of the philosophical discussions he made. However, when Soros turns to trading again, he looks at the real world data and adjusts his thinking and his models. This non-attachment to a previous thinking is really important and demonstrated by him in the book.
Some other investing books
Drobny, S. (2006). Inside the House of Money: Top Hedge Fund Traders on Profiting in the Global Markets.
A book full of interviews with hedge fund mangers (they were successful at least at the time of printing). If you are starting in the finance and investing world and you can have 1:1 conversions with successful money managers, than that would be great. If you can’t, then read the book.
Schwager, J. D. (1989/1993). Market Wizards: Interviews with Top Traders.
Similar to Inside the House of Money, but older. Technical trading was more prominent back then.
Klarman, S. A. (1957/2001). Margin of Safety: Risk-Averse Value Investing Strategies for the Thoughtful Investor.
The content is good, but if you already read the Intelligent Investor, then there are not too many new concepts in the book.
Lynch, P. (1989/2000). One Up on Wallstreet.
How to use everyday knowledge (e.g. while shopping in the supermarket) for your investing. It is a simple book but still helpful.
Lefèvre, E. (1923/2006). Reminiscences of a Stock Operator.
A classic book on trading. I did not get much out of it. If you like technical analysis and believe you can make money with it then it’s a good book to read.
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