10. The Top 5 Books Every Young Investor Must Read¶
It’s imperative for young adults and professionals to start investing early. One of the main reasons for doing so is to obtain the power of compound interest. By holding long-term investments, one can allow his or her assets to generate more returns. Investing just a few years earlier could translate into tens of thousands, if not hundreds of thousands of additional funds for your retirement nest egg.
But while it is important to invest early, it is also important to invest wisely. These five classic investing books can provide indispensable business and finance insights for young investors.
“Rich Dad Poor Dad” (1997) by Robert Kiyosaki
This classic is a must-read for young investors. Kiyosaki’s view is that the poor and middle class work for money, but the rich work to learn. He stresses the importance of financial literacy and presents financial independence as the ultimate goal to avoid the rat race of corporate America.
The author points out that while accounting is important to learn, it can also be misleading. Banks label a house as an asset for the individual, but because of the required payments to keep it, it can be a liability in terms of cash flow. Real assets add cash flow to your wallet.
Kiyosaki advocates investments that produce periodic cash flow for the investor while providing upside in terms of equity value. Real estate investments and stocks that provide dividends are viewed favorably. The author advises that America’s educational system is designed to keep people working hard for the rest of their lives and that the school system does a poor job of teaching people to create enough wealth so they won’t have to work anymore. Kiyosaki also highlights the importance of tax planning.
Kiyosaki advocates investments that produce periodic cash flow for the investor while providing upside in terms of equity value. Warren Buffett provides his views on a variety of topics relevant to corporate America and shareholders. Peter Lynch is one of the most successful stock market investors and hedge fund managers of the past century. Graham delves into the history of the stock market and informs the reader on conducting fundamental analysis on a stock. “Think and Grow Rich” was written during the Great Depression, and has since sold more than 100 million copies worldwide.
“The Essays of Warren Buffett: Lessons for Corporate America” (1997) by Warren Buffett
In his essays, Warren Buffett—widely considered to be modern history’s most successful investor—provides his views on a variety of topics relevant to corporate America and shareholders. Young investors can get a glimpse of the interface between a company’s management and its shareholders, as well as the thought processes involved in enhancing a company’s enterprise value.
Buffett’s essays include discussions on corporate governance, finance, investing, alternatives to common stock, mergers and acquisitions, accounting and valuation, accounting policy, and tax matters. Buffett outlines his basic business principles, and as the steward of Berkshire Hathaway Inc. (BRK-A), informs the shareholders of the company that their mutual interests are aligned. He has a philosophy of bringing in talented managers at portfolio companies and leaving them alone. He advocates purchasing shares of businesses at times when these stocks are trading at a discount from their inherent value, but he opposes following investing trends.
“Beating the Street” (1993) by Peter Lynch
Peter Lynch is one of the most successful stock market investors and hedge fund managers of the past century. He started as an intern at Fidelity Investments in the mid-1960s. Nearly 11 years later, he was tasked to manage the Magellan Fund, which at the time had close to $18 million in assets. By 1990, the fund had grown to a whopping $18 billion in assets with nearly 1,000 stock positions. During this time, the fund boasted average returns of more than 29% per year.
“Beating The Street” allows the reader to peek into Lynch’s mind and thought processes in terms of deciding whether to buy or sell a stock. Lynch believes that an individual investor could exploit market opportunities better than Wall Street, and encourages investors to invest in what they know.
“The Intelligent Investor” (1949) by Benjamin Graham
This book was written in 1949 and has been hailed by Warren Buffett as the best investing book ever written. Benjamin Graham is considered the “father of value investing.” This paradigm advocates the purchase of stocks that appear underpriced relative to their inherent value, which is determined through fundamental analysis.
Graham delves into the history of the stock market and informs the reader on conducting fundamental analysis on a stock. He discusses various ways of managing your portfolio including both a positive and defensive approach. He then compares the stocks of several companies to illustrate his points.
“Think and Grow Rich” (1937) by Napoleon Hill
“Think and Grow Rich” was written during the Great Depression, and has since sold more than 100 million copies worldwide. Hill conducted extensive research based on his associations with wealthy individuals during his lifetime. At the suggestion of Andrew Carnegie, Hill published 13 principles for success and personal achievement from his observations and research. These include desire, faith, specialized knowledge, organized planning, persistence, and the “sixth sense.” Hill also believed in brainstorming with like-minded people, whose efforts can create synergistic energy.
This book conveys valuable insights into the psychology of success and abundance and should be considered a priority read given the current period’s emphasis on shock-value entertainment and negative news.
The best investors did not emerge overnight but instead honed their skills through years of thought, research and practice. When you are done with these books, there are several more to add to your reading list.
10.1. 5 Books for Millennials Interested in Investing¶
A common denominator that can be found among the world’s wealthiest and most successful persons is that they attribute many of their accomplishments to constantly investing in their knowledge base. Approximately eight hours of Warren Buffett’s day is spent reading. That equates to more than 500 pages each day, or just under 3,000 hours of reading a year. Bill Gates, the founder of Microsoft Corp. (MSFT), is also an avid reader who reads one book a week.
In “The Monk Who Sold His Ferrari,” Robin Sharma explains that “investing in yourself is the best investment you will ever make. It will not only improve your life, but it will also improve the lives of all those around you.”
Reading books about finance and investing is a great way for Millennials to effectively invest their time and pocket money into becoming better investors. Books can be great mentors as they allow for wisdom to be easily accessible at any time of day and virtually anywhere. Below are five books that can help millennials become better investors.
“Alwaleed: Businessman, Billionaire, Prince,” by Riz Kahn (2005)
According to Forbes, Prince Alwaleed Bin Talal Alsaud is the world’s 34th richest man. In “Alwaleed: Businessman, Billionaire, Prince” Riz Khan, a prominent British journalist, documents the life of the man who is often referred to as the Arabian Warren Buffett. Despite being a member of Saudi Arabia’s Royal Family, Prince Alwaleed is considered a self-made man. The biography shares the story of how the Prince built an investment holding company worth $85 billion from scratch. The book also gives insight into his unique approach to investing.
“Rich Dad’s Cashflow Quadrant,” by Robert Kiyosaki (2011)
There is no doubt that Robert Kiyosaki is one of America’s most sought-after finance experts. His New York Times bestseller, “Rich Dad Poor Dad” taught millions of readers a number of things. In “Cashflow Quadrant,” Robert briefly outlines the basic principles shared in his first book “Rich Dad Poor Dad” and expands on those concepts by explaining the advantages and disadvantages of the four possible ways people can make money: by being an employee, self-employed, business owner and an investor.
“Warren Buffett Invests Like a Girl,” by The Motley Fool (2011)
The number one takeaway from The Motley Fool’s “Warren Buffett Invests Like a Girl” is that an investor’s temperament can either be a great asset or a huge liability. It is quite obvious that Buffett’s temperament, which the books describe as extremely feminine, is a great asset. The easy-to-read book compares the characteristics of female investors to male investors and points out that, like Buffett, investors should take a feminine approach to investing.
“Warren Buffett’s 3 Favorite Books,” by Preston George Pysh (2012)
Warren Buffett’s investment philosophy was greatly influenced by Benjamin Graham’s “The Intelligent Investor” and “Security Analysis” in addition to “The Wealth of Nations” by Adam Smith. These three books are great resources for investors, but they can be a bit complex for beginners. Preston Pysh realized this and simplified the primary concepts shared in each of those books into one easily digestible text called “Warren Buffett’s 3 Favorite Books.”
“Berkshire Hathaway Letters to Shareholders,” by Max Olson (2014)
Every year the undisputed heavyweight champion of the world of investing, Warren Buffett, writes a letter containing timeless wisdom and insights into his mind to the shareholders of his multi-billion dollar conglomerate, Berkshire Hathaway. These letters have been compiled by Max Olson into a book called “Berkshire Hathaway Letters to Shareholders” and allows readers to see how Buffett and his investments have evolved over the last forty-nine years.
The Bottom Line
Although experience and knowledge come as a result of making many mistakes, investors should try to learn from the mistakes that others have made in the world of finance and investing as much as possible. This can save investors a lot of time and prevent large monetary losses. Reading books is a great way to learn about the lives, philosophies and strategies of successful investors.
Top 10 Books Every Investor Should Read
When it comes to learning about investing, the internet is a convenient way to navigate the current information jungle. But those seeking greater historical perspective and a more detailed analysis should consider reading the following classic investment themed books: “The Intelligent Investor” (1949) by Benjamin Graham
The undisputed father of value investing, Benjamin Graham’s “The Intelligent Investor” birthed ideas about security analysis that laid the foundation for a generation of investors, including his most famous student, Warren Buffett, who called this work: “By far the best book on investing ever written.” Published in 1949, this book teaches time-tested principles that every investor can use. “COMMON STOCKS AND UNCOMMON PROFITS” (1958) by Philip A. Fisher
Another pioneer in the world of financial analysis, Philip Fisher has had a major influence on modern investment theory and is credited with the idea of analyzing stocks based on their growth potential. “COMMON STOCKS AND UNCOMMON PROFITS” teaches investors to analyze the quality of a business and its ability to produce profits. First published in the 1950s, Fisher’s lessons are just as applicable, more than a half-century later.
Investing can be a confusing endeavor, with vast choices that can either generate or hemorrhage one’s wealth. Fortunately, there are many books on the subject, containing valuable strategies, written by those who have achieved investment success. A list of top titles include:The Intelligent Investor, by Benjamin Graham COMMON STOCKS AND UNCOMMON PROFITS, by Philip A. Fisher Stocks For The Long Run, by Jeremy Siegel Learn To Earn, One Up On Wall Street, and Beating The Street, by Peter Lynch A Random Walk Down Wall Street, by Burton G. Malkiel The Essays Of Warren Buffett: Lessons For Corporate America (Revised 2001) by Warren Buffett and Lawrence Cunningham How To Make Money In Stocks, by William J. O’Neil Rich Dad Poor Dad, by Robert T. Kiyosaki Common Sense On Mutual Funds, by John Bogle Irrational Exuberance, by Robert J. Shiller
“Stocks For The Long Run” (1994) by Jeremy Siegel
As the title suggests, Wharton School of Business professor Jeremy Siegel champions the concept of investing in stocks over the long haul. Extensively drawing on more than two centuries of research, Siegel believes equities will not only surpass all other financial assets when it comes to performance, but he argues that stock returns are safer and more predictable during inflationary climates. “Learn To Earn” (1995), “One Up On Wall Street” (1989) or “Beating The Street” (1994) by Peter Lynch
Peter Lynch came to prominence in the 1980s as the manager of the spectacularly-performing Fidelity Magellan Fund, and he has since authored a trio of well-received books. Geared towards a younger audience, “Learn To Earn” explains many business basics, while “One Up On Wall Street” makes the case for the benefits of self-directed investing. Not to be outdone, “Beating The Street” focuses on the process Lynch used for picking winning stocks when he ran the famed Magellan Fund. All three titles preach a common-sense approach, insisting that individual investors who conduct thorough due diligence can invest just like the experts. “A Random Walk Down Wall Street” (1973) by Burton G. Malkiel
According to Malkiel’s book, no amount of fundamental or technical research will help investors beat the market, and he consequently likens investing in a random walk. Like any good academic, Malkiel backs up his argument with copious research and statistics. But even so, many find Malkiel’s ideas to be controversial at best; blasphemous at worst. “The Essays Of Warren Buffett: Lessons For Corporate America” (Revised 2001) by Warren Buffett and Lawrence Cunningham
Although he seldom comments on his specific stock holdings, Warren Buffet is transparent about the principles behind his investments. This book is a collection of letters he wrote to shareholders over the past few decades, that definitively summarize the techniques of the world’s greatest investor. “How To Make Money In Stocks” (2009, 4th ed.) by William J. O’Neil
Bill O’Neil founded Investor’s Business Daily, a national publisher of daily financial newspapers, and created the CANSLIM system of choosing stocks, where each letter in the acronym stands for a key factor to look for when purchasing shares in a company (C = Current quarterly earnings per share, A = Annual earnings increases over the last five years, etc.) If you’re interested in stock picking, “How To Make Money In Stocks” is a great place to start because it skips generalities to provide tangible ideas you can immediately apply to your research. “Rich Dad Poor Dad” (1997) by Robert T. Kiyosaki
This book centers around the lessons rich folks teach their kids about money, which, according to Robert Kiyosaki, poor and middle-class parents too often neglect. Kiyosaki’s simple-but-effective message preaches the importance of investing early, to make your assets work for you–a concept all children should know. “Common Sense On Mutual Funds” (1999) by John Bogle
John Bogle, the founder of the Vanguard Group, is a driving force behind the case for index funds and the case against actively-managed mutual funds. His book begins with a primer on investment strategy, before blasting the mutual fund industry for the exorbitant fees it charges investors. Mutual funds investors should be sure to give this book a read. “Irrational Exuberance” (2000) by Robert J. Shiller
Named after Alan Greenspan’s infamous 1996 comment on the absurdity of stock market valuations, Shiller’s book, released in March 2000, gave a chilling warning of the impending dot-com bubble’s burst. The Yale economist dispels the myth that the market is rational and instead explains that the market is more influenced by emotion, herd behavior and speculation.
The more you know, the more you’ll be able to incorporate the advice of some of these experts into your own investment strategy.