5 Must-Read Investing Books

The most successful leaders always had one thing in common: they never stopped learning. As Charlie Munger, Vice Chairman of Berkshire Hathaway puts it:

Those who keep learning will keep rising in life

If you’re looking on improving your investing knowledge, you’ve come to the right place! Here are the 5 must-read investing books:

1. The Intelligent Investor by Benjamin Graham

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Benjamin Graham forever changed the investing world with this timeless contribution. He builds the foundation of value investing by providing the concept of Mr. Market, defensive investing and margin of safety. This iconic book is considered by many the bible of investing, and for Warren Buffett:

“I picked up a copy of The Intelligent Investor. It not only changed my investment philosophy, it really changed my whole life- I’d be a different person in a different place if I hadn’t seen that book…it was Ben’s ideas that sent me down the right path.” 

Pick up your copy of this classic: here.

2. The Most Important Thing Illuminated by Howard Marks

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Howard Marks shares his thoughts on value investing in this mind-shattering book. He gets straight to the point on investing subjects such as second-level thinking, market efficiencies, value, contrarianism, risk, randomness and the other aspects that make up the 20 most important things. To make this book even better, there are even commentaries from other leading investing managers such as Seth Klarman, Christopher Davis and Joel Greenblatt. Marks’ work is even praised by legendary founder and former CEO of The Vanguard Group, John C. Bogle:

“Few books on investing match the high standards set by Howard Marks in The Most Important Thing…If you seek to avoid the pitfalls of investing, you must read this book!”

Find this invaluable book: here.

3. A Random Walk Down Wall Street by Burton G. Malkiel

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Burton G. Malkiel’s best seller is jam-packed with quality investment insights and financial history. It takes a look at stocks and their values, analyzes both fundamental and technical analysis while comparing them to the random walk theory. Furthermore, he explores the concepts of EMH (efficient market hypothesis), smart-beta and rebalancing. He puts much emphasis on indexing and diversification through no-load, low cost funds and ETFs. The later chapters consists of personal finance and investing strategies for different age groups. Whether you’re a starter or expert in investing, this book is a must-read. Find it: here.

4. Common Stocks and Uncommon Profits by Philip A. Fisher

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Known as a pioneer of Growth Investing, Philip A. Fisher’s contribution to the investing world will not be forgotten. In this book, consisting of 3 parts, he lays out the a general description in what to look for in stocks, and when to buy. He opens the book with his concept of “Scuttlebutt”, then puts in 15 detailed points to look for in common stocks, as well as 10 investor don’ts. In the second part, Fisher outlines his 4 dimensions in which he describes cues to look for in companies, such as the company’s superiority in production, research, marketing and financial skills. He notes the importance of employees and management, investment characteristics of certain businesses, conservative investments and much more. Fisher closes the book with his philosophy along with its evolution that has made him one of the most influential investors. Find this book: here.

5. Technical Analysis of the Financial Markets by John J. Murphy

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John J. Murphy provides the fundamentals of technical analysis in simple enough terms for anyone to understand. You’ll learn the trends and essentials of chart analysis. This book gives excellent graphical examples of various price patterns and reversals. Furthermore, it teaches the basic methods of analysis, you’ll learn about moving averages, MACD, RSI, Bollinger Bands, and all the other fancy technical indicator terms. Whether you’re a beginner or experienced investor, this is a classic for the technical investor. Find it: here.

Through chances various, through all vicissitudes, we make our way…

-Aeneid

Those are the first words printed on The Intelligent Investor. I read this timeless classic some years ago and this quote made an impression on me. I’ve revisited it twice since, and every time I read it, not only does it get better, but I appreciate this quote more and more.

If it’s your very first time reading The Intelligent Investor, know that I am envious of you, the feeling of learning new knowledge of this quality is rare, and no words can describe that state of enlightenment. I invite you take your time and enjoy the invaluable information you will gain. I hope you will enjoy it as much as I have, and that you will revisit it in years to come.

For starters: Index and ETFs investing in your 20s according to Burton G. Malkiel

Suppose you are new to investing, and would like to participate in the market but don’t have the time or knowledge to research individual stocks (or  you’re just lazy), what should you do? Let’s explore a few options from the book: A Random Walk Down Wall Street by Burton G. Malkiel. For this article, let’s focus on two things, the importance of low fees and the asset allocation for the folks in their 20s according to Burton G. Malkiel.

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HIGH FEES? WE DON’T NEED NO STINKIN’ HIGH FEES.

Now before you purchase that mutual fund your bank advisor is trying shove down your throat, consider looking at the different expense fees. Recently, many funds have come under criticism for their high fees and poor performance (compared to the benchmark), and rightfully so. Be aware of the MER, TER, front and back loads on these funds. A MER (Management Expense Ratio); is whats going to cost you for them to manage your money per year. A simple example is the following:

You find a nice mutual fund you’d like to invest in, and decide to place your hard earned $10,000 into that fund with an MER of 2.5% (this is high, and quite common). Essentially, you’ll lose $250 just to management expense fees. Now let’s assume the benchmark is the market, and it’s returning about 7%. Simply put it, you better hope your fund returns at least 9.5% just to get even with the market. Note that many funds, after fees don’t consistently outperform the market.

Now I know what you’re thinking, what’s 2.5% to you? Don’t think 2.5% is a lot?

Consider the following:

Let’s say you choose a fund that performs just as well as the market but has an MER of 2.5%. You invest $10,000 for 20 years.

Market performance: $10,000 at 7% compounded for 20 years: $38,697.

Fund performance: $10,000 at 4.5% (7-2.5) compounded for 20 years: $16,386.

You’ve indirectly lost $22,311, or about 136% to that “tiny” 2.5% fee. The longer the time, the more you lose indirectly to fees. High fees are crippling, and most people (especially starters) don’t notice them, so be careful.  

“It is not necessary to do extraordinary things to get extraordinary results… By periodically investing in an index fund, the know-nothing investor can actually outperform most investment professionals.”

– Warren Buffett

For beginners, Burton G. Malkiel recommends diversifying to decrease risk by purchasing different Indexes or ETFS: Stocks, Bonds and REITs and by weighing them differently during the stages of your life. For starters in their early 20s, diversify, seek a no-load, low expense, broad-based index funds, and it’s advisable to make these purchases in a Tax-Free Savings Account (TFSA).

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Because you’ve got much time in your 20s before retirement, Malkiel recommends consistent contributions (to a no-load fund) and that the majority of your holdings:

(70%) be of stocks. He recommends to put one half in U.S. small cap growth stocks (no-load, low expense Index and ETFs) and the other half in international stocks, including emerging markets.

-Cash (5%) should be in money-market fund or short term bond funds.

-Real estate (10%) should consist of high quality REIT portfolio.

-The remaining bonds (15%) should contain: no-load, high grade corporate bond fund, foreign bonds, some Treasury inflation protection securities or dividend growth stocks.

Some Equity Index Funds and ETFs tickers from A Random Walk Down Wall Street:

FSTMX, SWRXX, VFIAX, VOO, VTI, IWB, TWOK, VEMAX, VTIAX.

Now as you enter your 30s, 40s and so on, the mix of stocks, bonds, real estate (REITs) and cash will change. For instance, according to Malkiel, in your 30s, your Stocks-Cash-Bonds-Real Estate allocation would be: 65%-5%-20%-10%, respectively. You would slowly move to “safer” investments as you age.

If you’re relatively new to stocks, don’t expect quick gigantic returns, especially not from Malkiel’s recommendation. This type of diversified allocation has the goal to decrease risk through exposure of broad indexes. Long term index and ETFs are made to pay off in the long term. Briefly, for starters: the takeaway would be to look out for high fees and contribute to index and ETF funds according to your age. Always do your own research.

All in all, you can find the full asset allocation by age from: A Random Walk Down Wall Street. It was an amazing book, written like no other and it sheds new light to numerous important topics such as the efficient market hypothesis (EMH), behavioural finance, random walk theory, diversification and much more. I will have a review on this book soon. Meanwhile, you can find the book here.Of course all this, JMO (just my opinion).

In investing money, the amount of interest you want should depend on whether you want to eat well or sleep well.

-J. Kenfield Morley

Disclosure: I have no positions in any of the recommended ETFs or Indexes at the date of this article. I wrote this article myself and it expresses my own opinions, I am not a financial advisor. I do not get any compensation from this, other than from Amazon Affiliate links and advertisements. On the date that this article was posted, I have no affiliation with any of the ETFs or Indexes.