Summer is here and so are – hopefully – lazy days with relaxation and more time to read.
But is the stock market going on vacation, or will the current turbulence continue over the summer?
What can you read to gain more faith and learn more about the mechanisms at play in the market?
I’ve picked five investing books that I think you should read this summer.
None of them are new. In fact, I’ve picked the ones that have had the greatest impact on my investing practice.
Here they are:
1. The Snowball by Alice Schroeder
Great men and women write their memoirs, don’t they?
Warren Buffett did not.
He chose to outsource the task to a journalist, so he could continue focusing on what was important to him: investing.
“You’ll do a better job than I would, Alice,” he told Alice Schroeder as she interviewed him for the book.
It’s usually very hard to get an interview with Warren Buffett. So it’s exceptional that Warren Buffett collaborated with Alice Schroeder to help her write The Snowball. None of the other biographies have had that kind of access.
The book is entertaining. It’s a coming-of-age story about an introverted boy raised by a cruel and controlling mother. The boy turns into an obnoxious teenager and gradually grows into the investing genius that we know now.
The book illustrates that he wasn’t born this way.
Becoming a great investor was a journey with many barriers and many lessons, from selling stocks as a teenager to betting and losing it all on a horse race, then later trying to make profits from the so called ‘cigar butts’ that had no puff left in them. You’ll see what I mean when you read it.
2. Irrational Exuberance by Robert Shiller
This book turned me into a value investor during the dotcom bubble.
Humans are subject to vacillating between extreme fear and extreme greed. When humans – as a group of investors – are very fearful or very greedy, the prices of stocks fall below the real – intrinsic value – and rise to exuberant levels.
This is what the book describes, and I recall thinking that this book was the most truthful thing I had read in business school. It resonated with me and it determined how I invested from then on.
It’s a sobering and thrilling read at the same time.
I sometimes return to the book for a quick re-read when I feel I need to be reminded why I don’t follow the Efficient Market Hypothesis that would have me investing in index funds.
3. The Dhando Investor by Monish Pabrai
The theme of this book is finding a free lottery ticket, a bet with a very low risk and a huge upside.
Like Monish Pabrai puts it: ‘Heads, I win; tails, I don’t lose much.’
The book describes cases of investors – from Indian motel owners to Richard Branson – who have made such bets, and Pabrai explains in detail why the particular business in question was a good bet.
It’s a case in point for betting huge when you find a free lottery ticket.
It’s also a case in point for waiting patiently for the right deal to materialize. Like he writes: ‘Few Bets, Big Bets, Infrequent Bets.’
You could say that it’s a case against the popular idea of always having your money in the market and lowering your risk through diversification (investing broadly).
4. The Education of a Value Investor by Guy Spier
Guy Spier – who happens to be friends with Monish Pabrai – has written a lovely autobiography about life and investing.
He shifts seamlessly from talking about living a good life to talking investing, like they are two halves of the same coin. His main point seems to be that in order to invest well, you have to live well and vice versa.
At some point, Guy Spier shares his 8 investing rules. You can either read the book or wait for my next blog post to see them. You can sign up here to get the post in your inbox.
5. The Intelligent Investor By Benjamin Graham
Before Benjamin Graham there was no value investing. He invented it.
Without Benjamin Graham, there would have been no investing geniuses like Warren Buffett, Monish Pabrai or Guy Spier.
I wouldn’t be writing this blog post without him.
The Intelligent Investor (and his other book Security Analysis) is the most comprehensive text on the subject, becoming essential reading for investors. That’s why some of us call this book ‘The Bible’.
Chapter eight is the most important chapter. It introduces Mr. Market, a very hyperactive and moody character. Stock prices are determined by his erratic mood, fluctuating up and down as he dips in and out of exuberance and depression. They are not based on the real – intrinsic – value of the business in the market.
This chapter goes well hand-in-hand with Robert Shiller’s Irrational Exuberance.
So, if you find yourself with some time on your hands, pick up one or all of these five investing books, you will be glad you did.
Do you want to learn how to evaluate and calculate the value of a company? I teach you how to do that in my e-book Free Yourself. You can download it here.