If you’re just getting started, “best investment book” lists are way, way too long. (We have our own list, too.)
Getting 10 or more recommendations can be overwhelming when you’re just beginning your journey. Where should you start? Do you need to read all of these before buying your first stock?
You can get going a lot quicker. There are a few main topic areas you should be comfortable with, so depending on where you’re starting, you may even be able skip a few of these.
Here are the main areas:
5 Main Investing Topics to Feel Comfortable With
Before you even get started analyzing a specific company, you should know about the different types of investments there are out there: bonds, stocks, commodities, real estate, private equity and so forth.
There are many things that will determine your investment success over time, but the amount of money you put into stocks versus bonds (versus other stuff), international versus domestic, will be one of the biggest determinants.
A really approachable book that I enjoyed is from David Swensen, the famed Yale endowment Chief Investment Officer.
Unconventional Success by David Swensen
Financial statements & accounting
The typical first step in analyzing a public company is to go to its reported financial statements. As a prospective owner, you need to know how much the company is worth. But before you can figure that out, you need to see how much money it makes and where its money goes. You need to form judgments about the way it does business.
Being able to decipher an income statement, balance sheet and cash flow statement is critical. Yes, this means learning some basic accounting but trust me, you don’t need to be a CPA. At the beginning, you’ll need to work your way through these statements, and that is okay. It gets easier with practice.
A little basic knowledge will help you answer questions like: how fast is the company growing? How profitable is it? How efficient is it? Will it run out of money?
A short read that will help you get going in this area (also recommended by the great Michael Burry on an early investors forum post) is:
Why Stocks Go Up And Down by William Pike
This short book does a pretty great job introducing you to the core accounting concepts you need in order to walk through financial statements and understand how they impact a stock price.
Once you have some stock ideas, you need to figure out if you want to buy. For a valuation-driven investor, which is probably what you want to be if you’re here, you’ll want to calculate the “intrinsic value” or “fair value” of the stock to determine if it’s worth its current price or not. There are many ways to do this, and this is where investing can become the most analytical. But getting your head around the basics doesn’t have to be insurmountable.
Aswath Damodaran does a nice job in his short book explaining what you need to get going here.
The Little Book of Valuation by Aswath Damodaran
Numbers will only tell you so much about a company’s future. You need to be able think independently about whether the company will be around in 10 or 20 years, and how well it’ll be doing.
This is not easy, but some basic introduction to how to think about strategy, industry structure, and competitive landscape is in order.
Most people recommend a Michael Porter book here, but I really find his long-form business school strategy books to be pretty out-of-touch with real thinking about strategy.
To get a little taste of how to begin here, I recommend this short book from HBR:
HBR Must Read: On Strategy
Investment Process/Behavioral Investing
Gaining self-awareness about where your most likely investment errors will come from is absolutely critical. In my experience, you’re far more likely to make a behavioral error than an analytical error.
Over time, you should build a checklist for yourself of the things you need to analyze, what the results need to be, and the process you need to follow before buying a stock.
Dr. Daniel Crosby’s recent book is a great way to learn about yourself as an investor.
The Behavioral Investor
Conclusion and postscript
So, there you go. Five books, all quite short, to get you started on your journey.
You may have noticed one glaring absence from this list: anything by Ben Graham.
I find Graham’s books to be dense and dry — almost like reading a very long whitepaper. They are too much of a slog for beginners, in my experience.
Are they essential reads for more intermediate investors, who have already been bitten by the value bug and are up-leveling themselves? Absolutely. Don’t skip the Graham, just maybe defer it.