4 Books to Kickstart Your Investing Journey
I believe that if a larger % of our society were invested in the markets, our society would function better. Our incentives would be more alligned and we could achieve more efficient levels of cooperation — which is ultimately what the economy is about. In this post, I will share with you 4 books that kick started my investment journey and that enabled me to build a strong foundation. The more people read these books, the better the world will be. The more you take them in, the wealthier and more alligned you will be with the world.
Before we go on, consider that succesful investing varies in definition. Outperforming the market requires a great level of skill, knowledge and intuition. However, by and large, the only way to make money in investing is by assessing the fair price of an asset, buying below that price and then holding the asset through thick and thin, until a compelling selling opportunity presents itself. This, I believe, is the bottom line in investing and pretty much anything that deviates from this will eventually cause pain.
In the abstract, the above seems like a simple rule, but once you are out in the market it is easy to get carried away. Arguably, the most important organ in investing is not the brain, but the stomach, to not get too excited when prices go up or too depressed when they come down. Onto the books now.
1. Security Analysis by Benjamin Graham and David Dodd
A 700 pager which instills the succesful reader with a sense of what “fair value” is in the world of assets and how to deal with “Mr. Market”. The book is technical, but nonetheless, the takeaway is rather qualitative. By closely studying this book, you will get a sense for how to avoid overpaying for assets and how to avoid the pitfalls and illusions that “manic Mr. Market” sets up for the uninitiated.
2. The Intelligent Investor by Benjamin Graham
You can read The Intelligent Investor and Security Analysis interchangeably. This book essentially reinforces the lessons learned in Security Analysis. I highly recommend reading them in the order they appear in this post.
Once you have read these first two books, you will have gained a sense of how to navigate the market at its essence. However, these books were written at a time in which bargains were frequent, due to the aftermath of the Great Depression. Today, bargains are not as frequent or as easy to spot and as such, investors have to evolve their thinking in order to continue making money. This does not mean that the knowledge in the first two books has been rendered obsolete, but that we must build new knowledge on top of the lessons they teach us.
3. Paths to Wealth through Common Stocks by Philip A. Fisher
When I finished the first two books, I went on a hunt for more of the sort. I learned, however, that Warren Buffet´s style was a combination of the lesson he learned from Benjamin Graham and Philip A. Fisher. Graham taught Buffet the principles of security analysis — how to asses the fair price of an asset, in order to spot under priced ones which could later be sold at a profit. Fisher taught Buffet how to buy companies with great prospects at reasonable prices, in order to compound capital over the long term. As such, Buffet evolved from looking for bargains to looking for long term investments with the capacity to compound capital through time. The main takeaway from this book is adding the dimension of capital compounding onto the knowledge the Graham left us.
4. Common Stocks and Uncommon Profits by Philip A. Fisher
Again, this book serves as a reinforcement to the previous one. Fisher gives us a framework to understand growth investing and to take wise decisions in the ever so tricky market.
I recommend reading these whilst following the market and reading some annual letters from leading CEOs. In this way, you can begin to apply the concepts you will learn in these books to real world scenarios and see how rationally or irrationally the market is behaving for the asset in question.
The first two books give us a foundation for value investing, whilst the last two books give us a foundation for growth investing. I find that the modern investor has to be well schooled in both types of investing, because opportunities are more likely to arise when you having a broader investing skill set. Incidentally, opportunities occasionally arise when are effectively an intersection between value and growth investing — companies that are fundamentally undervalued today and that have strong growth prospects ahead. One of them is GoPro ($GPRO). Check out these posts I have written on the $GPRO long thesis: