Home » 8 books on Stock market investing that can make you good investors.

8 books on Stock market investing that can make you good investors.

Photo courtesy Annie Spratt on Unsplash.

Making money is not difficult in the stock market, provided you know the basics and follow a disciplined approach to investing. Many people enter the stock market during the bull market only to lose money and never think of returning back. The lure of easy money makes them invest their hard-earned money without enough knowledge and when the market collapses they lose a big chunk of their savings.

Every profession takes time to learn; if you want to become a good doctor or an engineer it takes time to master the knowledge and put it to practice. In the same way, you have to pay the learning cost in the stock markets too, but the journey would become much easier when you read the methods used by famous investors to accumulate wealth through investing. Some of the books that can teach us some smart investing lessons are:-

1) The Intelligent Investor (By Benjamin Graham):-

Benjamin Graham an American economist known for his book ‘The Intelligent Investor, was a noted Guru on finance and investment and is considered amongst the first persons to advocate value investing when he was teaching at Columbia Business School in 1928. He advocated that the investors should ignore the market noise that is created by the greed and fear of the investors and traders, and invest in companies after analyzing their financial reports. An investor should keep searching for price-value discrepancies and once he identifies an opportunity he should buy the stock and sell it when the price and intrinsic value of a stock are aligned.

During his 15 year career on Wall Street, Graham was able to accumulate a good amount of money but lost much of it during the stock market crash of 1929. His experience taught him to consider minimizing the downside risk in a company and invest in companies that traded below the liquidation value.

The Intelligent Investor has been regularly updated since its first publication in 1949. The advice of Graham to buy stocks with a margin of safety is still relevant today as it was when the book was first written. Once an investor invests in stock he should have patience till the market realizes that the stock is undervalued and pushes up to its true value. The companies trading below their true worth provide the investors a cushion, called the margin of safety.

2) The Essays of Warren Buffet (By Lawrence A. Cunningham):-

Warren Buffet is one of the most successful investors in the modern age with a net worth of $101.1 billion as of October 2021. He is the Chairman of Berkshire Hathaway since 1970; is known to follow value investing, and has an ethical disposition towards the shareholders. Berkshire Hathaway invests in high-quality businesses that offer a margin of safety. Time magazine has listed Buffet as one of the most influential persons in the world.

Every year Warren Buffet writes letters to the shareholders of Berkshire Hathaway and ‘The Essays of Warren Buffet’ is a collection of Warren Buffets letters to the shareholders over the past few decades. They reflect his investment philosophy and provide a very valuable learning lesson and information to the investors. There have been many updated editions to the book that was first published in 1997 and consist of carefully curated and organized Buffet’s annual letters along with commentaries from Lawrence A. Cunningham. The timeless lessons are important for the investors providing important business wisdom.

3) One Up On Wall Street (By Peter Lynch):-

One Up on Wall Street was published in the year 1989 by investor and Fund manager Peter Lynch. He was the fund manager at the Magellan fund, at Fidelity Investments between 1977 and 1990 and during this period he averaged a 29.2% annual return on his investments. During these 13 years, the assets under the management of Peter Lynch increased from $18 million in 1977 to $14 billion in 1990.

Peter Lynch explains how a common investor can outperform the investment gurus by following investing principles and a common-sense approach to investing. A common person would have heard of many local industries in his area before the professional fund managers. They can make good returns by investing earlier in these companies. The other thing is that a person should invest in what he knows. A doctor would be much more informed on the products of a pharmaceutical company, but what they do is invest in banking or a renewable energy stock. On the other hand, a banker invests in a pharmaceutical company. This would not result in great returns, but if they stick to their circle of competence and invest in the sectors they work and know, they would make great returns.

There are six categories of companies in the market; the slow growers, the stalwarts, the fast growers, cyclical, turnarounds, asset plays and he advises in detail on when to invest in these companies. The price of a stock depends on the earnings and there is a description on how to read the balance sheet and reports. A good piece of advice is to look for companies with niches and moderately fast growers (growth of 20 to 25 percent) that turn out to be ideal investments. Study the dividend record of the companies and look for companies that buy back their shares time and again.

4) Common Stocks and Uncommon profits (By Philip A. Fisher):-

The book was first published in 1958 and Philip Fisher is a widely respected and admired investor of all time. Philip fisher started his career in 1928 when he dropped out of the Stanford Graduate School of Business to take the job of a security analyst with the Anglo-London Bank in San Francisco and finally started his own ‘Fisher and company’ in 1931. Buffet sought out Philip Fisher after reading the book ‘Common Stocks and Uncommon profits’.

To be successful an investor has to commit time and effort to do research and get information that others are not aware of. Philip Fisher popularized the term ‘Scuttlebutt’ among investors and that is to get first-hand information about a company from reliable sources. The technique is to learn in great detail about the company and industry before making an investment. The information can be got from suppliers, vendors, customers, competition, trade association executives, and previous employees of a company. Fischer had a 15 point checklist for investing in a company and most of his teachings are relevant to this day.

5) The Warren Buffet Way (By Robert G. Hagstrom):-

Warren Buffet, we all know is one of the world’s greatest investors of all time and has been one of the richest men in the world for many decades now. He invests in companies as a business rather than investing according to the prices on the screen. The Warren Buffet Way gives investors a look into the investment and business strategies that have led him to be extremely successful. The book uses examples from Warren Buffet’s portfolio to teach us how various strategies can lead us to be successful. It teaches people how to think for the long term like Buffet and behave rationally during the ups and downs of the market. Robert G. Hagstrom, the author is a graduate of Villanova University and a Chartered Financial Analyst. The greatest challenge to an investor in following Buffet is to stay with sound investments during economic and market adversity.

6) The Little Book of Common Sense Investing (By John C. Bogle)-

John C. Bogle was the founder and Chairman of the Vanguard Group of Mutual Funds that he founded in May 1975. The Little Book of Common Sense Investing is a book written by Bogle to help investors maximize their returns in the long term. Also known as the man who created the world’s first index fund, the book written by him provides insights into investing with statistics and charts. There is a summary at the end of each chapter that highlights the lesson he wants to convey.

Bogle discloses how to get the most out of investing by holding low-cost index funds. He advises buying and holding at very low cost, a mutual fund that tracks the stock market such as the S & P 500 and that is an effective strategy to build wealth over the longer term. Trading too often turns a winners game into a loser’s game, but index investing lets you sit back and let the market generate returns for you. The more the managers and the brokers take; the fewer returns the investors make.

Bogle advises to forget about the fads and invest in what works in the real world. The stock returns are generated by dividend yield, earnings growth, and an increase in market valuation and a person should have rational expectations of stock returns. Investors should learn to harness the magic of compounding, all the while trying to overcome the investment costs, taxes, and inflation.

7) A Random Walk Down Wall Street (By BURTON G. MALKIEL):-

A Random Walk Down Wall Street written by Burton Malkiel is a book that popularized the random walk hypothesis. Malkiel says that the share prices show signs of a random walk like how a drunken person walks in a street, and a person can’t consistently outperform market averages. It doesn’t have a relationship with historic values or other variables. The short-term and mid-term movements i.e. the daily, weekly, and even the monthly stock prices appear to be random and can’t be consistently predicted.

The use of past price movements is unreliable for predicting its future direction. Random walk theory suggests the buy and holds investing strategy is a successful approach as over the long term advantage can be taken of the stock trends that are predictable and emerge when we look at the market over a number of years.

Malkiel also examines technical analysis and fundamental analysis and notes flaws in both the techniques and concludes that following these methods will produce inferior results to the passive strategies. In the same way, he cites studies of actively managed funds. Their results vary over a number of years when after outperforming their benchmark, they underperform for a number of years and show a regression towards the mean.

8) Money Masters of Our Time (By John Train)

This is one book where you get to know the investment strategies of several money masters that have led them to be successful. John train the author emphasizes the investment techniques that have led to the exponential financial growth of these master investors, like their criteria of selecting a stock, where they get their information from, how they reason, and various other methods.

The list of master investors covered in this book that will add to the investing knowledge of the reader are; Warren Buffet, John Templeton, Benjamin Graham, Philip Fisher, Peter Lynch, Paul Cabot, Philip Carret, Mark Lightbrown, John Neff, T. Rowe Price, Richard Rainwater, Julian Robertson, Jim Rogers, George Soros, Robert Wilson, Michael Steinhardt, and Ralph Wanger.

Success in investing for everyone doesn’t come in a short period of time. When the basics of investing are well understood a great amount of wealth can be created over a longer time period. The books on the master investors and the methods they used to accumulate wealth provide insights on how to become a successful investor.

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