Unless you have a business degree or work in the world of finance, investing can be intimidating. However, what you don’t know about stocks, bonds and mutual funds can be downright expensive; if you pick the wrong fund for your 401(k), IRA, taxable account or any other, you can put your financial life at risk.
Fortunately, there have been some terrific influential books written that can help distill the art and science of investing into something the average reader can understand. Here are five great books every new investor should add to their library, as they try to comprehend the world of high finance.
This post was written by our talented writer, Will Lipovsky. Enjoy!
The Intelligent Investor
If you could only read one book on investing, Benjamin Graham’s 1973 classic is the one to choose. The Intelligent Investor describes the history and operation of the stock market, its inner workings, and the forces that affect it. Once he defines the environment, Graham goes on to explain how to evaluate companies and their stock, provides tips on how build an effective portfolio, and offers several case histories to clarify what constitutes good and bad investments. The latest version features annotation by investment expert Jason Zweig, which provides modern context for many of Graham’s original thoughts.
A Random Walk Down Wall Street
Another classic that was also published in 1973, A Random Walk Down Wall Street offers an explanation and a spirited defense of the efficient market hypothesis. The author, Princeton’s Burton Malkiel, argues that stock pricing and valuations are so hard to predict that one could consider them almost random. He then proceeds to describe the best ways to build a portfolio to achieve your investment goals. Malkiel’s discussion of mutual funds, and the updates he’s provided to the text over the years since originally publishing this book, are of particular value to today’s beginning investors.
The Motley Fool Investment Guide
David and Tom Gardner of the Motley Fool, an internet staple since the time of AOL and telephone modems, published a great beginner’s investment guide in 2001, and have updated it routinely ever since. While some of their advice is admittedly dated (like the “Foolish Four” dividend stock strategy), their information about how to evaluate companies and choose stocks for the long run is as timely as ever. The brothers write in an irreverent, approachable style too, which makes this book the least dry of all the offerings on this list.
The Essays of Warren Buffett: Lessons for Corporate America
Warren Buffett, the Oracle of Omaha (he lives a few miles from me — how awesome is that?), is arguably the most famous investor of all time. In Essays, Buffett lays out all of the ideas that he has developed in his five decades at the helm of Berkshire Hathaway, a company whose growth has averaged nearly 20 percent for 50 years. Buffett describes how he evaluates companies to determine if they are worth investing in, he discusses assets like real estate, and goes into great detail about the things he believes an investor must take into account when taking a chance on a company. Mr. Buffett also shares a great deal of his philosophy about the role of business and wealth in our society, which is equally worth reading as well.
The Millionaire Next Door
The Millionaire Next Door, by Thomas Stanley is a bit of a counter-intuitive choice for this influential books list, since it does not directly deal with investing. However, Stanley’s detailed analysis of this nation’s wealthy is a must read for anyone who desires to achieve financial security for themselves. Millionaire looks at the affluent and surmises the traits that they all share. In helping us understand the reason why the rich have achieved their financial success, Stanley offers us a path to follow suit. Many of the habits of the rich (their no-nonsense frugality, for instance) are as invaluable to people seeking to achieve their financial goals as any information about the stock market.