Remorhaz
Morningstar (Investor/Premium) just published "12 of the best investing books of all time"
I'm unsure if it's also available outside the paywall (yet) so ...
12 of the best investing books of all time
There are investment classics on the list as well as some that you may have never heard of.
Reading is an investor’s best friend. Don’t believe me? Here are some of the world’s greatest investors on the subject:
“Never stop reading. History doesn’t repeat but it does rhyme.” - Seth Klarman
"I have learned more from reading than from formal education." - Roy Neuberger
"I don’t think you can get to be a really good investor over a broad range without doing a massive amount of reading." - Charlie Munger
“Read 500 pages like this every week ... That's how knowledge works. It builds up, like compound interest. All of you can do it, but I guarantee not many of you will do it.” - Warren Buffett
“I’ve found no substitution for constant reading to immerse myself in the flow of information that eventually results in ideas.” - Thomas Gaynor
"I have always found it much better just to sit and do your own reading. When I talked to people it would muddy my thinking. I was much more successful just sitting back, reading, and figuring things out." - Jim Rogers
Picking the best investing books of all time is a daunting task. I’m an avid reader and have read at least 500 books on markets. Inevitably, the list below is subjective and may change in the years to come.
1. ‘Supermoney’ by Adam Smith
Adam Smith, a pseudonym for George Goodman, writes of the ups and downs in markets during the 1960s and 1970s with wit, wisdom, and brilliant humour. What is supermoney? It’s profits, washed through markets. You either have it or you don’t. Smith explains why the green stuff in your pocket isn’t real money, and why the rich just get richer.
The themes that Smith writes of are as relevant today as they were then. The book also introduces, perhaps for the first time, a man that would go on to become America’s greatest-ever investor: Warren Buffett.
2. 'One Up on Wall Street’ by Peter Lynch
Peter Lynch was the manager of the Magellan Fund at Fidelity Investments between 1977 and 1990. His average annual return was 29.2%, making it the best-performing mutual fund in the world at that time.
In simple language suited to beginners and professional alike, Lynch explains how individual investors can beat professionals in markets. He says individuals often get information about a growing company before institutional investors, and that has the potential to turn into a multi-bagger (making many times your original money) investment.
Many investors site Lynch’s book as one that got them first enthused with investing, as it was for me.
3. ‘The Little Book That Beats the Market’ by Joel Greenblatt
After setting up a hedge fund in 1985, Greenblatt achieved returns of 50% per annum over the next 10 years – one of the most extraordinary investment track records. Here, he explains his methods in terms that a 7-year-old kid can understand.
Greenblatt used a so-called a GARP (Growth at a reasonable price) strategy, investing in companies with high returns on invested capital (ROIC) yet on low-to-average valuation multiples.
This is a book squarely aimed at beginners. The author has written a more advanced book, You Can Be a Stock Market Genius, which is just as good as this one.
4. 'Capital Account' by Edward Chancellor
This is for more sophisticated investors. Chancellor collates the investment letters of the highly successful UK-based fund manager, Marathon Asset Management. The letters introduce Marathon’s capital cycle theory. When investors analyse an industry, they often look purely at demand growth, where Marathon suggests the supply side is much more important.
If you read this, you’ll better understand why the US tech sector was ripe for a market reckoning in 2022, and where to find potential opportunities in under-appreciated industries.
5. ‘The Essays of Warren Buffett’ by Lawrence Cunningham
Buffett has done the world an enormous favour by writing about investing in his annual shareholder letters for decades. The letters are a treasure trove of information that every serious investor should read and re-read.
This book is a compilation of Buffett’s shareholder letters and it’s endorsed by Buffett himself. If you want to read about Buffett, start here first. Then go to Alice Schroeder’s, The Snowball.
6. ‘The Little Book of Common Sense Investing’ by John Bogle
Bogle revolutionized the finance industry by founding Vanguard in 1974 and introducing index investing. Low-cost index investing has become the norm and it’s made markets more accessible to millions of investors.
In this book, Bogle boils down complex investment issues into simple, understandable language. Yes, he preaches passive investing, but does it in a gentle, humble, yet rigorous way.
7. ‘The Money Masters’ by John Train
Train is one of the most brilliant, yet underappreciated writers on investments. A fund manager himself, this book examines the different styles of some of the investment greats and how they’ve outperformed over long periods.
Train was an early investor in Warren Buffett and his book analyses what makes Buffett brilliant in a way few others have done since.
8. 'Winning the Losers Game’ by Charles Ellis
Investing is more about making few errors, rather than picking winners. Ellis suggests the investment game has changed from a winner’s game into a loser’s game. In the decades before 1975, individual investors dominated the stock market. Since then, professional investors have proliferated, making the stock market more efficient. That means outperforming the market is much more difficult.
Ellis suggests that the way you win a winner’s game is different to that of winning a loser’s game. In the stock market, as it’s become a loser’s game in Ellis’ view, there are two ways to win. First, you can choose not to play the loser’s game. Even in 1975, Ellis had become an advocate of passive investing. The second way that you can choose to play the loser’s game is by losing less than your opponents via making less mistakes.
9. ‘The Big Short’ by Michael Lewis
Michael Lewis has been the best writer on markets over the past 20 years. His book Liar’s Poker became a cult classic about the high stakes gambling and deception at one of Wall Street’s largest brokerages in the 1980s. This book is equally as good, profiling investors who shorted the US housing market before 2008 and made extraordinary amounts of money.
Given the quality of the book, I haven’t bothered with seeing the movie version – though I should get around to it sometime.
10. ‘The Warren Buffett Way’ By Robert Hagstrom
This is the book to get if you want an in-depth look at Buffett’s investment strategies. For instance, it breaks down why he invested in famous portfolio holdings such as Washington Post and Coca-Cola.
It’s aimed at the intermediate to advanced investor who wants to deepen his understanding of the key tenets to successful long-term investing.
11. ‘Investing for Growth’ by Terry Smith
UK-based investor Terry Smith is one of the best global investors of the past decade. This book is a compilation of his shareholder letters. Smith is known for being both outspoken and blunt, and he doesn’t mind taking on the views of the financial establishment if he thinks they’re nonsense.
His letters give clear insights into why he invests in growth companies and avoids investing in certain sectors such as banks.
12. ‘The Downfall of Money’ by Frederick Taylor
This book is about history, not investing. Studying serious economic crises is a great way to learn about past excesses that went wrong. In this case, it’s the study of how debts incurred from World War Two led to Germany printing so much money, that it ended with hyperinflation in the 1920s. Before that, Germany was one of the world’s most advanced countries, but hyperinflation destroyed it. So much so that it played a big part in Hitler eventually coming to power. 100 years later, the period is still seared into the memories of Germans, who remain paranoid of both inflation and hyperinflation.
Frederick Taylor writes a moving and powerful story that shows the enormous damage done to societies and individuals.
SeanSchilling
I recently finished my first two money/ investing books. Last year I made the mistake of trying to tackle "The intelligent Investor" as my first investment book and well I didn't make it very far through and a lot of it just seemed out of my depth at the time. But after looking at some people's recommendations I downloaded " The little book of Behavioural Investing" By James Montier. I really enjoyed listening to this book and I feel like I learnt more about what kind of investor I currently am and how I can improve my own behavioural downfalls.
The Second book I downloaded was " The Psychology of money" By Morgan Housel. I think if I was to recommend a first book or a book that everyone should read it would be this one. I do wish Schools would teach more about the ideas/ themes that are discussed in this book. Even things as simply how powerful saving can be and not accumulating debt, things that don't seem so hard but really doesn't get talked about at all to young people.
Anyway I was wondering if anyone might have a suggestion or recommendation on what might fit in well for my next read.
Bear77
See also: What investing books am I missing? (strawman.com)
And Looking for investment books to read. (strawman.com)
And Good Books (strawman.com) [This one even has the same title as the one you're reading now, but is a different thread]
And Review of book - 100 baggers C Mayer (strawman.com)
And Investment-related reading for your weekend (strawman.com)
And Interesting reading (strawman.com)
Pity we can't get all of those under one heading or merged into one thread with posts in chronological order... I get the impression many people aren't using the "search" function on the "Forum" page to see if there is already a thread there that they could add to - rather than creating a new one about the same topic.
SaberX
Besides the old time recommended Intelligent Investor, what are most using for core skills in valuation and actually putting a tangible calculation to excel? There's a fair few books that cover the theory of fundamental analysis, but far few that actually go into the nuts and bolts on actually calculating/having a go at the valuation process (like full on details, than jsut generic revenue, COGS, interest, and other high level labels).
I do know Aswath Damodaran gets a fair bit of thumbs up on valuation and financial modelling. Are there any specific books in his series or other authors and books that are well suited for retail investors? It'd be nice to get a list together for those retail holders who may not come from a finance or investment background and therefore have had on the job training with valuation and models so that they can start on their journey of arriving at a 'value'.
Vandelay
Aswath is the writer of "The little book of valuation" which I found very good.
Rick
This forum on ‘Good Books’ has been a great read. There has also been some great discussion about DCF valuations which would be great to bring together in a forum on Valuations (of which there seem to be many).
To be honest I haven’t used a DCF to value a business. I’m keen to understand DCF valuations so I’ve bought ‘The Little Book of Valuation” recommended by @Vandelay. I’m wading my way through it, but while it might be a “little book” it is certainly not a “small read”. I’m struggling to understand some of it and will most likely go through it a few times before I can grasp it. Are there any Strawfolk who might be interested in a “Little Book of Valuation - Book Club” forum on Strawman?
Most of my business valuations are currently based on McNiven’s Formula which is explained in Brian McNiven’s book “Market Wise” published by Hinkler Books back in 2006. Unfortunately, from my searches, the book is no longer available.
There is later book by McNiven titled “Concise Guide to Value Investing: How to Buy Wonderful Companies at a Fair Price”. I haven’t read this, but the content, including the formula, looks familiar. There are limited copies available on Amazon here.
Someone has also put up a brief explanation of McNiven’s Formula online which I often refer to in my valuations. The explanation here is accurate in my view.
As you can see my copy is well used, heavily book marked, and inside their is highlighted text throughout.
It has taken me a while, but the formula is no longer a mystery to me. It is no longer some sort of ‘black box’ where I blindly enter the variables and come up with a valuation. It now makes complete sense to me and has changed the way I think about investing and the businesses I invest in. @Noddy74 made a similar comment about going through the DCF steps and how it helps you to understand what matters when you value a business.
My mind is always open to alternative views and methods of valuation including the DCF. There seems to be so many smart people here on Strawman using DCFs that it is about time I learnt how to do one!
Until now, while not understanding DCF, there is a section on McNiven’s book that had me doubting it. Not being familiar with DCFs, I can’t really comment on what McNiven says about DCF. However, I am hoping there might be a few gurus here on Strawman who understand DCFs and can comment on McNiven’s view:
McNiven’s view on Discounted Future Cash Flows, Dividends and Reinvested Earnings.
Someone once proclaimed – and others now repeat the nonsense – that a company’s value is the sum of its future annual cash flows over the life of the business discounted by an appropriate interest rate. Cash flow for the purpose of the calculation is defined as net profit after tax, plus amortisation and depreciation allowances less capital expenditure (capex) – what Buffet calls ‘owners earnings’.
Let’s suppose that we estimate that owner’s earnings will increase by 10% p.a., and desirous of a 10% return, we use a discount rate of 10% to determine the PV of the company’s future cash flows. If a company’s per share cash flow today is $1, and we assume it will increase in each subsequent year by 10% and discount those future sums at 10% p.a., each future year’s cash flow will have a discounted PV of $1 (1 x 1.1n x 1.1 -n = $1). The theory therefore suggests that the value or PV will depend entirely on how long we expect the company to remain in business. Should such a period be 10, 100 or 1000 years, the PV of each future year’s cash flow of $1 will be $10, $100 or $1000. If we assume that the company remains in business in perpetuity, the value will be infinite.
Moreover, if a business is able to maintain an annual increase in its internal cash flow of 10% p.a. while contemporaneously paying dividends, its value will obviously be greater than if the return for from the stock is solely attributable to reinvesting 100% of profits at 10% p.a.. Quite clearly, like a fixed-interest deposit where the interest is allowed to compound, the value in the above circumstances, excluding any provision for dividends and based on an required return (RR) of 10%, is simply the current equity per share (equity x ROE10% / RR10%).
What this theory fails to recognise is the difference between the cash flow retained by the company to increase subsequent internal cash flows and the cash flow received by the owners. I have even seen the value of the cash flow counted twice – once I the year in which it occurred and secondly when the future value it created is discounted back.
When using the discounted cash flow method, the cash flow to be discounted is the owner’s cash flow as measured by annual dividends and the terminal value of the stock – at some future point of time – that the reinvested cash flow (retained profits) creates.