The Best Books on Investing
Investing may seem terrifying.
You might be thinking that it is something that only the rich, powerful, financially and mathematically savvy, intelligent, and/or enterprising do.
However, it is actually something that anyone should and is fully-capable of undertaking.
In our education system, especially in the UK, there tends to be a lot of anti-capitalist thoughts thrown around willy-nilly. This mindset, however, is probably unhelpful in the long term for those who aspired to have wealth. Having done two university degrees myself, I’ve certainly experienced my share of capitalist guilt-tripping.
Perhaps it is a failure of the education system that so few young people have any concept of how to build wealth.
Very few have an idea of how much tax they’ll end up paying throughout their lifetimes.
Even fewer understand the concept of a mortgage, or pension.
Investing in School
So, what do we learn in school?
Aside from the basic maths skills that we ought to carry through life, and concepts of money, the two ideas that I believe to be the most important are the ideas of ratio/percentages/fractions, and compound interest.
As we receive a salary, the first step in investing is always to consider how we allocate our funds.
The average saving rate in the UK ranges from around 4% to about 20%. Consumers obviously tighten their belts during more difficult financial times, lock downs, or extreme economic times. The extreme divergence in how the public approaches saving reveals how shockingly poor the average household is at maintaining consistency in their finances. Read this blog to find out more about the average statistics on saving rates.
Anyone can improve their financial situation by setting a rule for how much of their monthly salary they choose to devote to savings. Savings are useful in times of hardship, and can also be deployed when there is an opportunity.
Primary School and Savings Rates
The first ideas that everyone learns in school, that really helps you understand your finances better are the related concepts of ratio, fractions, decimals and percentages.
By the end of primary school, a child should have a decent enough grasp of these concepts to apply them in their adult lives.
A saving rate of about 20%, is far above the average, yet it is really what people should be putting to the side.
If you were to lose your job tomorrow, how many months could you live without turning to benefits? If the answer is less than 3 months, then you’re in trouble. If the answer is 6 months to a year, your situation isn’t so bad.
It is best to be consistent and apply a set rule for your saving rate. Although you may not get much of a return on your savings if the interest rates are low, you still have a buffer against the perils of an unpredictable world.
I remember sitting in a GCSE mathematics class as a young whippersnapper, messing around as usually and talking far too loudly when my mathematics teacher started explaining the idea of compound interest.
I turned around and saw this mysterious equation on the board (or at least something like it):
|=||initial principal balance|
|=||number of times interest applied per time period|
|=||number of time periods elapsed|
I must admit that whilst my mathematics teacher did not touch upon the magic of this equation, she did explain something related to an interest rate and bank account that transfixed me. I immediately took out my calculator and started plugging in numbers. I then imagined investing £5000 at a 3% annual interest rate and compounding for 5 years, then 10 years, then 30 years.
After 5 years, I would make £5796.37.
After 10 years, I would make £6719.58.
After 30 years, I would make £12136.31.
After some time and consideration, I realised quickly that the growth was not linear. It was rising exponentially – growing quicker and quicker over long periods of time.
I suppose that in school, most students do not experience the wonder of this realisation, but for me, it lit a fire in my heart.
I understood how mathematics could be used practically – perhaps even help me build a fortune.
Investing – What is it?
Investing is the allocation of resources to receive a return.
These resources are typically either time or money.
The return is usually in the form of profit or some other intrinsic benefit.
One of the reasons why I entered the education industry is because I wanted to help young people realise their potential.
The students give their time and parents offer their money in order that the student will somehow be able to make a return. This return often amounts to an abundance of knowledge, confidence, and skills.
These returns are every bit as meaningful as money wealth as they offer the child choices and freedom. If they have a wide range of skills, confidence to tackle new experience, and the foundational knowledge necessary, they are able to unlock doors in the future.
The Best Books on Investing that we’ve found
If you want to find out more about investing, we have included some great reads on this subject below.
The Amateur Investor’s Path to Wealth is my attempt to condense my many years as a disciplined and active investor in one place.
I teach you about the things you need to know about markets and condense each lesson down into manageable sections.
Building wealth and becoming a disciplined investor is more than just an exercise in making yourself rich.
You will see everything differently.
Please let me know what you think.
Recommended Further Reading on Investing
These books are for anyone on the first part of the journey. Learn the basics and build up from here!
This investing book is a real classic, though I do have some mixed feelings about it.
Robert Kiyosaki presents his understanding of wealth through the story of two fathers. One of them was his biological father, who worked really hard and was academically smart.
The other was his rich father who taught him that the wealthy have a completely different attitude and understanding of wealth building than ordinary workers.
Probably the most positive aspect to the book is the way Kiyosaki engages with the reader. It is one of the most approachable books on wealth-building that anyone could pick up and is suitable for younger people too. I find it quite simplistic personally, but it is definitely a must read for anyone starting out.
Another Kiyosaki book, Rich Dad’s Cashflow Quadrant presents the idea that people fall into four different groups: employees, the self-employed, business owners, and investors.
Each group has special characteristics in terms of how they build wealth, and work. They also have certain personality types and traits that make them fit into each group. For instance, the business owner is fiercely independent, but is also likely to fail many times before achieving success. For those who want to become truly wealthy, they need to position themselves in the business owner and investor quadrants.
‘One up on Wall Street’ is the first stock market investing book I would recommend to anyone. Lynch is, first and foremost, a formidable investor who was able to achieve a compounded annual return of 29.2% between 1977 and 1990 for Fidelity’s Magellan Fund.
He is also a fantastic writer, able to engage his reader and present the subject matter in an effective and straightforward manner. He also describes how someone who is not part of the financial elite, can have distinct advantages over the investing professional by concentrating on opportunities that are close to home.
The result of looking close to home, is that the typical, ‘man on the street’, will naturally concentrate on slightly smaller cap companies that are not being pursued by analysts.
‘Economix’ provides a fantastic history and explanation of many of the foremost economic ideas. When I did my MA in Economics and Politics back in 2014, I had very little concept of how economics worked. I knew that I needed to find an accessible guide that would provide the necessary scaffolding to take my understanding further. I think that learning through a comic is also far more engaging than reading a textbook.
Whilst learning economics will not make you a great investor, a firm grounding in the subject will help you understand the system better.
I attended my undergraduate degree at the University of Birmingham from 2008 to 2011. Most of you may remember the 2008-2009 financial crisis. I remember being intrigued by just how violent the crash was and was determined to learn more about it.
In 2010, I picked up John Lanchester’s book ‘Whoops’. As he is a journalist by trade, the book is written in a way that is both informative and engaging. He explains the mechanics that led to the eventual crisis.
You’ll learn all about Subprime Lending, Mortgage Backed Securities, Collateralised Debt Obligationss, Credit Default Swaps, etc. He does a brilliant job of demistyfying the technical aspects of the crisis and touching on the lack of morality that existed in the system.
Morgan Housel concentrates on the idea that wealth is not a matter of great knowledge and learning, but more of a result of behaviour and psychology.
I believe that this book is preferable to Napoleon Hill’s Think and Grow Rich, as it is less spiritual and more practical for those with a logical mindset.
Warren Buffett is arguably the greatest value investor of all time. Unfortunately, Warren Buffett himself has stated that he does not wish to write a book at any point. However, Robert Hagstrom has delivered one of the best biographies on Warren Buffett.
The amount of depth that he goes into for Buffett’s investment decisions is particularly interesting for those who want to understand the logic behind many of his key decisions. Furthermore, this book offers fantastic value with its length and detail.
You may have seen the movie, ‘The Big Short’, directed by Adam McKay, and starring Christian Bale, Ryan Gosling, Steve Carrell and Brad Pitt. Well, the original book that the movie is based on, provides more of an in-depth study of the key events that led to the 2008 financial crisis.
The best aspect of this book is definitely how Michael Lewis brings the characters to life. Consequently, the most important lesson we can learn from this book is how the characters who were able to benefit from the financial crisis were radically different from the herd. Thinking differently is a valuable tool for the best investors.
I recently finished the audiobook, ‘Richer, Wiser, Happier’, by William Green. As William Green is a well-renowned writer and editor, he had privileged access to some of the greatest investing minds. ‘Richer, Wiser, Happier’, therefore gives us a unique insight into the billionaire investor mindset. William Green is a renowned author, editor, and writer. In his book, he recounts meetings with some of the greatest investing minds. These include: Mohnish Pabrai, John Templeton, Howard Marks, etc.
I also think that the message of aiming for a wiser and happier mindset is important. What’s the point of being incredibly wealthy if your life has little meaning?
For a more detailed view of investing
These books are more technical, and are necessary reads if you want to understand the science behind investing.
The point of this book is that the reader achieves a basic understanding of Accounting and Finance. In order to become a great investor in individual companies, it is necessary to understand accounting.
This book is, furthermore, easy to follow, has online resources included and quizzes at the end of each section that are designed to test your understanding.
Warren Buffett believes that ‘The Intelligent Investor’ is the greatest book ever written on investing. It is, however, in my opinion, not an easy read. Benjamin Graham was a professor at Columbia University and this fact is reflected throughout his work. I would recommend that anyone gain a basic understanding of accounting before attempting to read this book. Also, as Graham went through the Great Depression in the 1930s, his style of investing is centred around finding companies which traded at a discount to book value per share, to protect an investor’s downside risk. Even Warren Buffett deems this to be a slightly outdated view on investing. It is, however, still a must-read.
Joel Greenblatt’s book, “The Little Book that Still Beats the Market” is a real classic. Greenblatt is a famous investor and also lectured at Columbia University. He is most known for the “Magic Formula”, which essentially allows an investor to screen stocks for certain characteristics. I’d also recommend trying out the tool on the website.
John Bogle, founder of Vanguard was arguably the most important figure in finance. He revolutionised the industry by pioneering index fund investing. He has helped so many people across the world become wealthy with this unique innovation. I think that this book is brilliant if you like to delve into statistics and enjoy learning deeply about the market.
“Security Analysis” is, in my opinion, more difficult to read than “The Intelligent Investor”. I’d definitely recommend trying to read the latter before you try reading the former. It is very dense and designed for those who are academically-minded. You can probably tell by the serious title that it is also a serious read.
I think that this book is meant for those who want to gain an insight into central banking – especially in the wake of the 2008 financial crisis. I read this book at university, so it’s been a few years and I cannot remember it well, but I remember enjoying it at the time. If, however you’re not interesting in central banking… I cannot recommend it.
Malkiel drives home one point: the typical investment manager is no better than a chimpanzee picking stocks at random. That might sound glib but then Malkiel produces impressive stats showing successful managers very rapidly losing their midas touch. That shut me up. The book gives the lowdown on well-known manias (South Sea, Tulipmania), some not so well-known crashes in the fifties and sixties and then Malkiel very impressively explains in simple language some of the sophisticated finance theory taught in MBAs and MSc Finance courses e.g. random walk, efficient market hypothesis, modern portfolio theory, technical and fundamental analysis etc. The first two-thirds of the book are a joy to read and instructive for everyone.
Widely respected and admired, Philip Fisher is among the most influential investors of all time. His investment philosophies, introduced almost forty years ago, are not only studied and applied by today’s financiers and investors, but are also regarded by many as gospel.
Howard Marks, who runs Oaktree Capital, is a distressed debt investor. The most important thing focuses on his philosophy of investing, rather than any particular method. He demonstrates how challenging investing can be and how it contradicts commonly accepted wisdom. A huge endorsement for this book is the fact that Warren Buffett himself asked Howard Marks to write a book.
Seth Klarman, as you may be able to tell, is a value investor. “Margin of Safety”, as mentioned before, is the concept of buying a stock at a discount to book value.
I also recommend anyone who is looking to learn more about the ins and outs of basic accounting to watch the explanation given by Bill Ackman. It is very easy to follow and offers a lot of value for those who are interested in understanding businesses.
Do you want to get a free stock share worth up to £100?
Create an account using this link: www.trading212.com/invite/FMlfbN1N
or use promo code “FMlfbN1N”
You will get a free share!
Click on this link to copy my Dividend Pie that pays dividends weekly:
Disclaimer: This is not financial advice. Please do your own research before making any decisions.