I have written book reviews in the past in bits and pieces. However, it has been a long time wish to make a comprehensive list of the best investing books that I have read. Such a list goes beyond the typical finance focus and takes a multidisciplinary approach, which is something investment legend Charlie Munger had been advocating for. Hence, in this long (really really long!) piece, not only you will find the usual topics such as valuation and accounting, but also life advice, culture, philosophy etc. The list is however only limited to books that I have personally read and so don’t be disappointed if one of your favorites did not make it. I know that some great books are missing and once I have read those I will include them also.
We start with fiction and fun books to read. These books create passion for the subject of finance and remind us why we fell in love with investing in the first place. The educational content embedded in them are an added bonus. Then I move on to Investing and Risk Management which goes hand in hand. Books on Valuation, Accounting and Economics play a supporting role to the investing decision making process and come next. Everything else including Emerging and Frontier Markets, Life advice, History and Culture, Philosophy comes next.
The first three books are by David Liss who basically writes historical fiction related to the development of the financial industry. The first book is about England during the South Sea Bubble. The coffee trader gives us a glimpse of how financial speculation happened in the old days. These books are the best of both worlds with a mix of entertainment and knowledge.
While David Liss touches upon finance, Russell Roberts (also the host of Econtalk) explains economics through his books. A lot of what he writes is about the benefits and costs of free markets in contrary to centrally planned system. He has also written two other books, The Price of Everything and The Choice which also look interesting.
Fun books to read
The right word to describe books by Michael Lewis is entertaining. They are filled with interesting characters, have the right amount of humor and educational content for the finance enthusiast. For these reasons, I kind of forgive some of the liberties that Michael takes to increase the entertainment value of the books. Liar’s Poker was the first book he wrote and is about on the evolution of mortgage backed securities based on his experience as a bond salesman. The Big Short came in later after the financial crisis and focuses on people who were able to correctly predict and profit from the housing market crash. Boomerang focuses on countries which were quite adversely affected due to their exposure to the global financial crisis.
This book focuses particularly more on John Paulson compared to The Big Short. After watching the movie version of the The Big Short, I decided to read another account of the financial crisis.
There are important lessons. Firstly, to be able to make strong returns one has to do very very in depth research and go the extra mile. Secondly, the best trades usually makes stomachs churn. While a lot of people realized there was a bubble in the housing market many intentionally decided to stay away as a bubble can continue for a long time (making short selling a risky proposition).
In this book, David Einhorn tells the story of Allied Capital which according to him was duping the investing community. I think more important takeaway is the extraordinary length David went to prove a point. Just goes on to show that there is no exception to hard work in this profession. The challenge for the individual investor is that this level of analysis cannot be done when following too many stocks. There are sure trade-offs between running a concentrated
This is the story of how a bunch of highly qualified people (two Nobel Laureates) with poor social skills came out of nowhere to dominate Wall Street and their eventual fall. The books shows how hubris can lead to downfall and over-leveraging is a double edged sword.
Outliers is probably the best book by Malcolm Gladwell. His book shows how environment and hard work play a crucial role in shaping us and how an early advantage can turn fairly big over time. He makes a lot of points but the important one for me was again how much a person needs to practice to master something.
The Knack is the book I would recommend to any startup founder. It talks about the basic challenges faced by entrepreneurs and suggests solutions. It’s interesting that for both startups and matured companies cash (flow) is indeed the king.
The Innovators is written by Walter Isaacson, who wrote the bio of Steve Jobs. The book traces the earliest computers to the most modern innovations. It’s a good account of how the life cycle of various products have become so much shorter these days. The book also proves that innovation is often the contribution of various people and not one specific person.
The best book I read in 2015. A must read for anyone engaged in forecasting. Read about how a group of people have the extraordinary ability to forecast future events much better relative to thousands of other people.
For the beginners to stock investing these are the best three books to start with. The first one by Joel Greenblatt explains stock investing in the simplest possible way and gives a magic formula for investing. The second one, which is by Pat Dorsey focuses on moats (aka competitive advantages). The last one explains value investing, which in its most common form means buying companies for less than their fair value.
The next three books helps the investor go a bit more in-depth in the art of investing. In Common Stocks and Uncommon Profits, Phil Fisher explains how he performed 360 degree evaluation of companies by speaking to various stakeholders of a company. The other two books are by Peter Lynch and quite similar to each other. Aimed at the average investor, Peter explains how a normal person can perform due diligence on a company and outperform Wall Street veterans.
Warren Buffett, is arguably the most successful and well-known investor in the world. Not only has he made spectacular returns but he has pretty much revolutionized the art of investing. Along with his close friend Charlie Munger he has evolved from buying Cigar Butts at cheap prices to buying quality companies at less than intrinsic values.
Robert Hagstrom explains Buffett’s investment philosophy in the The Warren Bufett way. The other book is a compilation of Warren Buffett’s letter to shareholders which has been carefully organized by topic.
These two books take a closer look at the concept of competitive advantage. Read to know the types of competitive advantages that exist and how sustainable each of them are. Valuable information about investing in different sectors will also be available from these books.
Manual of Ideas focuses on investment idea generation which is a key part of the investment process. The book is the result of John Mihaljevic’s interview with top value investors of the world.
Many investors use a checklist approach to investing. Personally I have found that such a method can be quite useful. Michael Shern has put together a very comprehensive list of questions that can be used to analyze companies.
These two books are the best ones available on special situation investing. The first by Joel Greenblatt has successfully revolutionized investing to such an extent that many of the opportunities he mentioned have vanished. The second by Seth Klarman of the Baupost Group not only looks at examples of special situations but focuses on other issues (like investment fads that seem to spring up from time to time).
While Warren Buffet has moved away from the typical Net-Net investments (aka Cigar Butt investing) advocated by Ben Graham, there are still deep value investors that exist. This particular book takes a look at a few methods used by such deep value investors.
These four books are a must read for anyone interested in the financial markets. The broad diversity of investors interviewed, starting from well-known superstars to people who keep a very low profile makes them very unique. The biggest takeaway for me was the diversity of techniques people can use to make money. Proves the point that there are many paths to the same destination and the path each of us should take depends a lot on who we are.
The best book for equity research analysts. This is the type of book that has the experience and wisdom of a top wall street analyst, condensed in a few hundred pages so that thousands can enjoy and benefit. For me, this book was surely Godsend.
The Alchemy of Finance by George Soros is a fairly complicated and to extent philosophical book in my view. The most important takeaway is that just as real economy impacts markets, the reverse can also happen. Soros also discusses about his theory of reflexivity where two variables tend to feed each other and take trend continuously in one direction (until some other factor reverses the trend).
Two remarkable books on risk and mathematics. Starting from the beginning of risk (and even mathematics) the authors take us to modern-day events. While the former focuses on how the discipline of risk management evolved over time, the latter one is about how some people used mathematics to win at the game of chance (gambling) and later also in the stock market. In between a lot of discussion on the two contradictory schools of though about market efficiency.
Multinational companies with operations across multiple countries and portfolio managers have to understand the top down macro situation as well as bottom up on the ground realities. This is the best book I read on analyzing country risk.
The author of this book compiled a list of around 50 behavioral biases which adversely impacts our decision making. A lot of these biases are interlinked and have overlaps. The author used neat examples to explain them.
James Montier has written a larger book on behavioral finance. However I choose to read this one as I enjoy short books. James has done a good job of highlighting how our biases impact investment performance. He also gives such tips on how to keep those biases under control (e.g. setting a buy price in advance when stocks are coming down so that we don’t try to perfectly time the market ).
Competition and Strategy
Bruce Greenwald took the five forces model and simplified it for people by proving that the major force to watch out for is barriers to entry. He also explains why some of the ‘competitive advantages’ that are considered sustainable are not sustainable at all. An example was the brand recognition of American car makers which soon saw their playground being taken over by Japanese. A lot of examples were provided with some frameworks on understanding the competitive landscape.
No need to describe this book as marketing students are quite aware of it. The key theme is to avoid fighting it out in the same markets where everybody is a loser and instead create a new segment by itself (almost increasing the size of the industry).
One of the most popular CEOs of all time, Jack Welch explains how his strategy of running a company. He put a lot of examples in the book and shared unique wisdom. He shares some questions to ask to set the strategic direction of the company which I found very useful as an analyst.
Management frequently mixes up targets with strategy. “We will grow profits by 30%” is not strategy but rather a target. Without knowing the constraints to achieving that target and without really formulating a proper plan to get there we don’t exactly have strategy. The author of this book explains the difference between good and bad strategy. He also goes on to explain why there is so much bad strategy around. It is because good strategy requires hard work and we do not want to work hard.
This book is a short book with some models for thinking. The book doesn’t elaborate much on the models but rather lets the reader use his or her creative juices to figure out the best possible use. I found it quite useful.
The outsiders is the story of few CEO’s who have created enormous value for their shareholders. Some of them were quite ahead of time and used methods which were considered very unconventional at those times. They were even misunderstood at times. The book shows that CEO’s can create shareholder value in many different ways (although some common factors appear such as continuous cost control). For example, while acquisitions are considered negative as acquirers frequently overpay, some CEO’s have used acquisitions very opportunistically.
These two books by Aswath Damodaran are the first books to read to learn the art of valuation. Damodaran also has a pretty great blog which sort of complements his books. Investment Valuation was the first book on valuation that I read.
Valuation by Tim Koller, David Wessels and Marc Goedhart is a must read book not only for equity analysts but for company management. It is in my view a masterpiece. The only issue with this book is that it will be a bit complicated for the young analyst. However, I would suggest that people read it at various levels of their career to come out with different insights after finishing every single time.
This is one of the best books on analyzing financial statements. The authors made it easy to understand and touched upon important topics that were ignored by many other books. Both laymen and professionals will benefit.
Greg Ip is a highly respected economic journalist. In a short punchy book he explains macroeconomic concepts from a very practical standpoint. He does a good job of explaining how economic policies are actually made and the major institutions that play a role.
In the Puzzles of Economic Growth, the authors compare and contrast a number countries who have been paired together. In all these cases, two countries who had almost similar levels of economic prosperity at one point saw wide deviation in economic growth. The book tries to explain what ultimately led to the difference in performance.
The list will not be complete without a guide for understanding economic indicators. I have read a number of book on this topic and found this one to be the best.
The popularity of Freakonomics led to a number of similarly styled economic books for the average person not educated in economics. Being an economics and finance graduate myself, I still had a lot of takeaways from these books. These books will make the average person love economics and explain the logic behind a lot of everyday phenomenons.
How can economics help managers? A lot of ways it seems. After reading this book you will realize why it is said that finance is an offshoot of economics.
Emerging and Frontier Markets
The Growth Map by Jim O Neill and Breakout Nations by Ruchir Sharma sort of contradict each other. The former highlights why emerging countries have long-term economic drivers while the latter focuses on the differences between them. I see truth in both the books and instead of looking at them as contradictions, I would use them as complements.
This book is not written for the investment professional but rather for companies interested in moving into emerging markets. The key takeaway for me was that building a strong franchise in an emerging market is not a short term thing. It takes a fair bit of time to build the brand, the distribution network and get the right human resources. However this also means that once a company takes up a dominant position it is not that easy to upend it.
Gavin Serkin travels to various emerging markets and describes his experiences during the travels. He also discusses interesting companies that are domiciled in those countries. Altogether, one of the few books written on emerging and frontier market investing.
Written by Mark Mobius, one of the earliest investors in emerging and frontier markets. I put this towards the last because I felt that its useful for people who have very little knowledge about these markets. It will serve as a primer on emerging markets.
James Altucher has an unorthodox way of writing. However, he has a way of touching the soul through the blunt and abrupt style of his. I don’t exactly buy everything he says but I still consider this book to be very useful.
These are the two best books on life and business advice that I read. Written by seasoned professionals, the books contain advice that everybody can benefit from. How should you impress a potential business partner on the first meeting? How much information to gather on customers and competitors? Read on to know the answers.
Marie Kondo has written the ultimate book on keeping the house tidy. Having an organized house or office actually allows our thoughts to be organized as well.
Equity analysts such as myself also have lot of data sources starting from annual reports, conference call transcripts, information from our sources which have to be stored in an organized way. The tips from this book can be used for organizing such data also.
History and Culture
This book does exactly what it promises. Gives a little history of the world from the earliest days to modern times in a short and concise way. A great book to piqué interest in history once again.
In The Culture Map, Erin Meyers looks at various dimensions of culture across the world. A very thought provoking book in my opinion. The way we look at the world will surely change after reading this book. Quite useful for employees of multinational companies as well as investors in the developing world.
Sophie’s World is exactly the type of book I like to read on a subject to understand the basics. It is an educational book disguised as a novel. The author explains the evolution of philosophy and the thought leaders behind various schools of thought. The interesting characters in the book makes it entertaining.
Contrary to the first book which covered philosophers like Socrates, Plato etc, this book focuses on the great thinkers that shaped the discipline of economics. Adam Smith, David Ricardo, John Stuart Mill etc the type of people featured in this book.
More than you know is written by Michael J. Maboussin who is the Global Head of Financial Strategy at Credit Suisse. This book covers his thoughts on investment philosophy, psychology, strategy and science as they pertain to money management.
Roger Lowenstein wrote this biography of Warren Buffett after getting three years of access to the family, friends and acquaintances. This book was helpful in understand why Buffett is one of the greatest investors in the world.
The book tells the story of the rise of Walmart. After reading the book I made a comment on facebook that I probably learned more about business from this book alone than my undergraduate degree.
Mathematics and Statistics
I was never fond of mathematics as a child. Growing up I felt that any subject could be made interesting by the right teacher. Steven Strogatz did not disappoint at all. This book will make you fall in love with mathematics.
Like mathematics, another very dreaded subject is statistics. However it is something which is necessary for finance professionals. What The Joy of X does to Mathematics, Naked Statistics does to the subject of Statistics. Fun fact: Did you know Milton Friedman the Nobel laureate in economics was originally a statistician?
How many ways can statistics be used to manipulate us? As far as Darell Huff is concerned, numbers can be used to mislead in many ways. The only way to avoid getting duped is know them and remain aware.
Two hilarious books on investment banking (a coveted job among graduates of top business schools for high salary levels). In between the jokes and the exaggerated accounts of the experiences, the books also manages to explain to touch on the difficult part of the role and why it pays so much.
The book to read to really get to understand the technical details of investment banking is this one. Concrete examples and explanations makes it the go to ‘reference book’ for anyone thinking of breaking into this sector.
Communication and Presentation
What is the relationship between investing and communication? In my view, being able to explain the investment hypothesis in a clear way and using the right supporting material (charts and presentations) helps us become better investors. I have often found flaws in my arguments while pitching an idea to a client.
Who better to learn which chart to use than the Director of Visual Communications of Mckinsey and Company. This book will not disappoint anyone.
The go to book to learn how to make really great presentations. Nancy Duarte is one of the best in this field and had helped Al Gore on the documentary An Inconvenient Truth.
We have covered how to make great presentations and the right charts to represent data. The last and most important part is the actual delivery. Bill Mcgowan is a two time Emmy Award winning journalist and trainer to people like Sheryl Sandberg and Jack Welch. Why would you miss the chance to learn from him?
Technical analysis is a controversial topic. A lot of people swear by it while others find it useless. I thought that I should make up my own conclusions by reading on the subject myself. Having read a number of books, I have mixed feelings. I would rather use technical charts to gauge the sentiment of the market than to make investment decisions. Charts can also show whether analysts are missing anything. These are the three best books I would recommend.