A wise man once said, “a mind needs books as a sword needs a whetstone if it is to keep its edge”. This holds true even for investors. If you want to strike gold continuously in the markets, add these books to your library.
A random walk down wall street by Burton Gordon Malkiel
Most investors rely on past trends to predict the future of a certain stock. Malkiel dismisses this approach (the “nonsense paradigm”) and states that stock prices follow a “random walk” in the short term. He goes on to prove how stock markets have little to no memory and the past acts as a flawed indicator of the future. Another important learning from the book is the role of fundamental and technical analysis in deciding price movements. He illustrates how these two factors can be combined profitably by investors through his “castles in the sky” theory. And finally, the author leaves the readers with four golden rules to choose the right stocks.
Key takeaways:
- The markets move in a random manner, especially in the short-run. So predictions are of no use!
- In the long run, though, the market tends to move towards an efficient state.
- Attempting to always outperform the market is not a wise idea.
Fooled by randomness by Nassim Nicholas Taleb
Luck favours the prepared, is something we all have grown up hearing. But Taleb explains how preparedness can be an over-hyped concept, especially in the world of business and investing which is characterized by randomness. The book describes how aspects such as chance, uncertainty, irrationality work in tandem to influence our actions. The author argues that if we kept our irrational emotions locked up, we most probably will be unable to make any decisions. Lastly, he speaks about how losses are not the end but knowing how much you can afford to lose is important.
Key takeaways:
- Chance plays a bigger role in successes than we usually think
- Success is not contagious. Following others’ success stories may not be fruitful for you
- Life is not linear – even small actions can lead to big wins
Devil Take the Hindmost by Edward Chancellor
Chancellor takes you through the entire history of financial speculation in this book, right from its origin to the evolution to its current state. He takes the help of various incidents of speculative insanity and bubbles to prove his point. Though written in 1999, the principles of speculation shared by Chancellor hold good even for the current market scenarios. While it does not talk about preventing this market phenomenon, it will leave you wiser on how to spot bubbles and learn from past manias.
Key Takeaways:
- A speculation is a cyclical event – frenzy, downfall, retrenchment followed by renewed speculation
- It is difficult to limit or prevent speculation.
- Speculation can adapt or even circumvent any control that is placed upon it.
The most important thing by Howard Marks
This book takes a different approach to invest. Rather than focus on numbers, Marks highlights the role of psychology and how thinking differently can generate results. He helps you understand the market vagaries and highlights common traps that many investors fall for. The 20 chapters act as building blocks for successful portfolio management.
Key Takeaways:
- Importance of Psychology.
- Market forecasts are typically unreliable, because of the high variability.
- Ditch the trend and hunt for unusual bargains.
Poor Charlie’s Almanack by Charlie Munger
This book is a compilation of the business (and general life) wisdom given by Charlie Munger (Warren Buffett’s partner at Berkshire Hathaway) over three decades. He advocates factors such as patience, preparation, discipline and mental models and how they impact your investing decisions. He stresses on the importance of interdisciplinary knowledge, value investing and opting for focused approach rather than diversification. He concludes with how to create a trillion-dollar empire from ground zero.
Key takeaways:
- Objectivity and ability to turn a situation around will take you ahead.
- Multidisciplinary learning is vital for success.
- Know your competence circle. If you find yourself outside that, then learn more before acting.
The Boglehead’s guide to investing
This book is an excellent guide on the basics of investing, especially for the newbies. It gives a good overview of the fundamentals involved in investing, costs involved, the importance of diversification and the need to track and rebalance whenever required. The author also explains the common errors which one should avoid to make the money last longer and grow faster. If you are considering investing, then this book can be your holy grail, especially if you have a conservative risk profile.
Key takeaways:
- Importance of a sound and disciplined financial lifestyle
- Know what you are investing in, especially the costs
- Role of Asset allocation, diversification and insurance
So, if you are an avid investor, these are books that must not miss.
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