Top 5 Investment Books for Beginners
If you want to bone up on your investment skills a good place to start is reading a book. However, the trouble with financial tomes is that they’re a lot like diet books, there are lots and lots of them and it’s hard to know what is best for you. Some financial expert authors make outrageous claims; others have seen their strategies turn obsolete, even if their names remain in the limelight.
Yet for all those realities, some truths apply on a very consistent basis.
For starters, people who’ve made money often excel at teaching others how to do the same. Also, authorities with huge followings don’t get there by being right only a small part of the time. You can also look at the author’s stature in the financial world to get a sense of how much they have to offer you.
The following list of five investment books will help you navigate the financial waters. Even if you buy all of them, you have a very good chance of making back the total book purchase cost many times over.
1) The Intelligent Investor: The Definitive Book on Value Investing (2006 updated, HarperBusiness)
by Benjamin Graham
It’s hard to fathom why this book only earns 4.5 stars on Amazon.com when the review that might count the most is from billionaire Warren Buffet. The Oracle of Omaha lists “The Intelligent Investor” as “the best book on investment that was ever written.” First published in 1949, Graham explains the concept of loss minimization, which involves investing over the long term.
Beginners are encouraged to eschew market trends in favor of “value investing,” which teaches the virtues of research and patience. After reading this book you’ll take away solid investment advice that has stood the test of time. Though updated over the years, “The Intelligent Investor” teaches bedrock principles that have survived for decades.
2) One Up on Wall Street (2000, Simon & Schuster)
by Peter Lynch
In his tenure with the Fidelity Magellan Fund from 1977 to 1990, Lynch managed one of the most successful mutual funds of all time. In “One Up,” he stresses the value of common knowledge and taking advantage of what you already know to make sound investments. One of the take-aways is Lynch’s explanation of how he made his own stock picks. Before pulling the trigger, Lynch always performed a fundamental analysis, taking into account both a qualitative and quantitative study. The book is easy to read (and follow) and provides information about the basics of price/earnings ratio, book value, and cash flow.
3) The Richest Man in Babylon (2002 updated, Signet)
by George S. Clason
This book dates back to the 1920s and teaches finance through parables that have appealed to neophytes and experienced investors alike. Rich Arzaga, Founder, and CEO of Cornerstone Wealth Management in San Ramon, Calif., says it teaches the basics of financial planning through modified spending. “This control starts with some very simple principals of living within your means, keeping reserves, and having a strategy to invest savings,” says Arzaga.
A good read for anyone who wants to retire well, this book does a good job outlining the framework of how families can make good choices. Clason makes it easy for readers to readily absorb the principles as they’re stated with a sort of “financial bible-speak.” These include “make thy gold multiply” (i.e., use powerful investments) and “guard thy treasures from loss” (i.e., watch for brokers with their hot tips).
4) The 5 Mistakes Every Investor Makes and How To Avoid Them (2014, Wiley)
by Peter Mallouk
Peter Mallouk was rated America’s No. 1 independent financial advisor in 2014 by Barron’s. And his company, Creative Planning, was ranked the nation’s top independent wealth management firm by CNBC. In this book, Mallouk explains how investors trip up by getting in their own way or working with the wrong advisor (i.e., someone who cares more about selling them products than making them money).
Mallouk (who has a reputation for entertaining readers as much as educating them) also has a major bone to pick with “Mad Money” host Jim Cramer. The author makes a well-reasoned argument for readers to stay away from the self-styled pundit’s advice while showing readers how to pick the right financial planner. He also frequently quotes Warren Buffett on matters such as cash, which the billionaire calls “the worst investment you can have.”
5) The Little Book That Beats the Market (2010, Wiley)
by Joel Greenblatt
“The Little Book” (which nets four stars on Amazon) picks up where the “The Intelligent Investor” leaves off, using the principles of value investing and applying Warren Buffett’s quality criteria for stock selection to create a “Magic Formula.” The idea is to earn returns that beat the market by investing in stocks for the long haul with the expectation that given time, stocks will rise. Greenblatt cautions to expect bumps and market dips along the way, but to stick to the principle of “buying a group of above-average companies but only when they are available at below average prices.”