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Have you always wanted to make wise and simple financial decisions without having to obtain a Ph.D. in economics and finances? Or without having to know all the ropes and have a permanent headache caused by reading about things that are so difficult to swallow that you can choke on them?
There is no need to do so. Books are windows to the world. Especially, the right ones. When it comes to investment basics, there are a couple of books that stand out from the rest:
1. One Up On Wall Street: How to Use What You Already Know to Make Money in the Market
The author Peter Lynch is one of the all-time most successful mutual fund investors. From 1977 to 1990, as a manager of the Magellan Fund at Fidelity, he managed to achieve the unachievable – a 29.2% average annual return. Was he a magician or a great tactician? Both? Neither?
It doesn’t matter. But he can definitely teach you a thing or two when it comes to investing and monetarizing each and every penny you’ve got.
Overall, this book focuses on the “normal”, everyday investor, including rookies, rather than professionals with decades of experience. Lynch shows how to actually beat financial gurus by… simple knowledge. For example, Lynch explains that before he makes any decisions he always performs a fundamental analysis.
However, the thing that distinguishes this book from others is just one word – simplicity. It’s easy to read and understand as well as provides readers with some invaluable financial advice, which is not specific. Mr. Lynch’s biggest tip is to carefully research a stock before you splash out some cash. He shows you how to actually do that: examine a company’s financial statements, use financial ratios and identify the numbers which actually show whether a stock is a good bet or not. And I’d like to wrap up the review of this book by quoting some of his most famous words:
“The trick is not to learn to trust your gut feelings, but rather to discipline yourself to ignore them. Stand by your stocks as long as the fundamental story of the company hasn’t changed.”
2. Buffet: The Making of an American Capitalist
The Oracle of Omaha. Most probably one of the most renowned investors of our time. Guess who I am talking about? Mr. Buffet.
Author Roger Lowenstein took up the tough task of writing about the life of one of the biggest financial geniuses in America and did an amazing job. What makes this book so special and why do I recommend it to you?
To begin with, everyone knows who Buffet is, but how many people know what his life was or what his successes and failures were? The book doesn’t provide its readers with miraculous ways of becoming rich and wealthy in a fortnight, nor does it focus too much on specific investment strategies. Rather, it gives a general understanding of the mentality of a successful investor. Three main motifs reappear throughout the story and they are:
Be focused and determined – that’s the first main motif in the book. Buffet, even when he was a kid, used to be quite focused and determined to achieve what he wanted to achieve. The instant you lose sight of what you strive for is the moment when you fail.
Update your OS – The way we constantly update Windows or Linux, we need to update our own software. Buffet is a perfect example of an 87-year-old man who keeps on learning and updating his knowledge even though he’s achieved almost everything, including a net worth of approx. 85 billion.
Invest, don’t spend – It seems like one of the richest people on earth is not willing to spend a penny on something he doesn’t perceive as an investment. That’s right. Buffet never spends, he rather invests in profitable ventures. That’s what we should all do.
3. The Essays of Warren Buffett: Lessons for Corporate America by Lawrence Cunningham
One of America’s most successful businessmen and magnates, Buffett has a few lessons to share with those who want to follow in his footsteps… but not only. He can teach you more than that.
In his book The Essays of Warren Buffett: Lessons for Corporate America, Lawrence Cunnigham has collected the best “essays” by Warren Buffet: these are annual letters which the shareholders of Berkshire Hathaway received. Cunningham has taken up the uneasy task of “stitching” excerpts from these letters and turning them into “stories” from which anyone can learn about investing, money and markets.
What are the lessons you will learn from this book?
Lesson 1: Invest wisely
Buffet will teach you how to be a smart investor and make wise choices; many of the essays focus on technical analyses. Also, you can find information on the types of investments, how to choose the best managers you can trust as well as turn your investments into long-term ones.
Lesson 2: Show commitment
According to Buffet, combining ownership with a partnership is key to successfully managing and increasing your wealth. He claims that people should try to invest most of their money in companies they own or have shares.
Lesson 3: Be generous
It’s surprising to see that coming from a person whose entire life has been dedicated to increasing their fortune, but actually Buffet has been known for his philanthropic actions. According to him, most of the money one owns should be given away to charity.
4. The Ascent of Money: A Financial History of the World by Niall Ferguson
Almost everyone nowadays is obsessed with money, whether we want to achieve a luxurious lifestyle, travel the world or create a business empire. But money has its own history and there is no better book than The Ascent of Money by Niall Ferguson to show your way through the tunnel.
Ferguson is a history professor at Harvard and his specialty is the history of money. However, this book is not purely historical. The author has managed to give explanation and justification of past occurrences in relation to other factors, such as politics, socio-economic factors, etc.
Some of the most interesting parts of this 360-page book are the ones that chronicle several financial bubbles and the following collapse of the economy. It also follows the history of debt: how mankind found out that lending is a way to rapidly spur economic growth and as a consequence of that – more wealth.
However, everything has two sides. Excessive lending can lead to economic bubbles and consequently to the collapse of banks or other lending institutions due to defaults by their clients. We can find examples back in the 14th century, when Italian “banks” collapsed due to unpaid debt.
In my opinion, Niall’s greatest achievement is that in just 360 pages (yeah, history books are much longer) he’s managed to convey a very important message: never trust anyone telling you everything is perfect in the financial world. You will be in for a big surprise.
5. The Intelligent Investor: The Definite Book on Value Investing by Benjamin Graham.
Although Benjamin Graham, the author of the book, published it several years after the end of the Second World War back in 1949, it has totally withstood time and has been referred to as the “Market Bible.” And there are reasons for that.
Graham himself was a successful investor, who coined the term intelligent investor and who based his investments on value.
What can you learn from his book?
- First of all, how to become an intelligent investor, which means analyzing the stocks before you buy them
- Do not speculate and deceive people, invest.
- Understand the forces of the market and how it works; unless you do, you will never be able to benefit from its fluctuations
- We call this strategy value investing. This is a defensive type of strategy which will bear fruit in the future.
- Always have a risk strategy and try to minimize the risk associated with your investment.
On the downside, keep in mind that the book was written in the distant 1949 and the style is quite academic and formal, therefore you might have some problems understanding specific economic and financial terms.
All in all, this work has been here for a while, some 70 years. And the reason for this is simply because it works. It shows us the path of investment, which includes lots of preparation and knowledge, patience and understanding of the market.
6. The Four Pillars of Investing by William J. Bernstein
You do not need a financial advisor to tell you how to invest your money. The Four Pillars of Investing is the financial guru you need. In his straightforward and easy to read book, Bernstein has outlined the four main aspects anyone needs to become a successful investor.
According to writer William J. Bernstein, investing is based on four main pillars and they are:
- Theory of Investing – in this first part, there are several chapters which focus on the theory of investing. Here Bernstein discusses in detail the idea of risk – the riskier an investment, the more profit an investor can make. You’ll also learn here how and why to diversify your investments.
- The History of Investing – in this part, you will find more information and some interesting observations about previous financial events and bubbles.
- The Psychology of Investing – the third pillar consists of two chapters dealing with three main ideas regarding the psychology of investing – trading too often, buying assets whose price is way too high and not diversifying enough.
- The Business of Investing – this section deals with the elaborate mechanism of the whole financial system and how the stock market actually functions.
This book is very suitable for beginners because it doesn’t focus on specific investment strategies nor does it discuss a specific type of investment. Here you will learn much more about the mechanism of the market, how it functions and the psychology of brokers and successful (or unsuccessful) investors.