One of the most frequent questions I get is, “I just started to learn how to invest, which books do you recommend on investing for beginners like us?”
I always believe that reading the right books — about all areas of life and not just about investing — is important because the best ones will shape your thinking and make a positive impact in your future. Therefore, I can be rather particular in choosing the right books to read.
So where do you start if you’re looking for the best books to read on investing for beginners? I’ve personally read countless books throughout my decade of investing, and while many can be a complicated read, some of the best ones share great knowledge and wisdom while written in way that is still easy for a beginner to comprehend.
So for today, I am going to share with you the top five books if you’re just starting out in learning how to invest. Here are the top five books on investing for beginners:
1. The Little Book of Value Investing
This book is one of the most easily digestible books on value investing you can find. You can probably finish it within a day, but don’t let its length deceive you — reading this book will give you an overall understanding of the philosophy of value investing, how it works, the intrinsic value of stocks, and margin of safety. If you have no clue about balance sheets, income statements, or financial ratios, the author also offers some basic explanations in the book.
He also lists 16 questions to ask yourself when analysing a company to better understand its competitive position and growth prospects. If you are new to investing, The Little Book of Value Investing should be one of the first books on investing to grab.
2. The Essays of Warren Buffett
When it comes to value investing, almost every investor will tell you to read Warren Buffett’s annual letters to Berkshire Hathaway shareholders as they contain the wit, wisdom, and some of the deepest insights you can find from the Oracle of Omaha himself. What makes The Essays of Warren Buffett one of the best books to read is because, instead of reading Buffett’s letters chronologically as you normally do, the author carefully organised his letters into specific individual investment topics.
Hence, you can read this book in any order – just go to a specific topic you’re interested in and learn more about what Buffett has to say about it. If you want to understand Warren Buffett’s philosophies on life, business, and investing, this book is a must-read.
3. One Up on Wall Street
Peter Lynch is said to be one of the best money managers of all time — his Magellan fund earned an average annual return of 29.2% from 1977 to 1990 (which is higher than Buffett’s average of 19.1%, although Buffett’s track record is much longer – from 1965 to 2017 and counting). In his book, One Up on Wall Street, Lynch shares how the average investor can become an expert in their own fields (circle of competence) and pick winning stocks. He talks about the concept of looking for investment ideas in your daily interactions and shares examples of how he found some of his best ideas in this way.
I also like his explanation of how he categorises stocks into six categories — slow growers, stalwarts, fast growers, cyclicals, asset plays, and turnarounds – and what to look out for in each category.
4. Common Stocks and Uncommon Profits
Philip Fisher is another mentor that greatly influenced Warren Buffett’s investment philosophy. Fisher focused on investing in high-quality, well-managed companies with strong growth drivers. In his book, he popularised the term ‘scuttlebutt’ which means to go on the ground to interact with a company’s employees, suppliers, customers, competitors, and management to find as much information as possible about its business.
The most useful part of the book is his list of 15 points to uncover high-quality companies with compelling growth prospects. Common Stocks and Uncommon Profits provides a great framework for investors who want to learn more about the qualitative aspects of investing in a stock.
5. How to Read a Financial Report
Investing is rather similar to treasure hunting. When hunting for treasure, you need a treasure map and the right tools to help you locate your treasure spot and decide whether what you find is worth a fortune (or not). When it comes to investing, a company’s annual report and its financial statements are like your treasure-hunting map and tools. Hence, it is crucial to understand the financial statements and what the figures are trying to tell you.
Personally, I think that John and Tage Tracy did a great job in their book, How to Read a Financial Report. They provide a clear explanation about the different financial statements, and examples of how the numbers and ratios are connected across the financial statements. If you are someone that doesn’t have a background in finance/accounting, this is definitely the book for you.