10foot reading list
I was recently flattered to receive an email asking if I had a reading list that would help somebody who wanted to learn about investing. I thought that I would tidy my emailed response up further and publish it for the benefit of all.
With the caveat that I am not a professional investor and not qualified or licensed to provide financial advice, this is my list.
Probably the most important book for a beginning investor would be either Barefoot Investor (which I have not read) or the Richest Man in Babylon, as these will help you learn to think about money the right way. I’ve read Richest Man in Babylon (George S. Clason) and recommend it. It is also a good introduction to thinking about the basics of investment and concepts like a circle of competence. After this, consider:
One Up On Wall Street (Peter Lynch) – Lynch is an entertaining communicator and his book is engaging. In my opinion this is the first investing book you should read as it will give you an overview of common investment situations and ways to win or lose. There is also a fun speech from him here.
Letters to Shareholders of Berkshire Hathaway (Warren Buffett) – A long read but will give you a decent overview of the way Uncle Warren thinks about insurance, businesses, and growing shareholder value.
Forager Funds Bristlemouth Blog – Sometimes a little technical, but an excellent blog by an Australian investment manager targeted mostly at a non-investing audience. Often gives explanations of how various businesses really work and how to think about valuation. I’d suggest reading the whole thing over time.
Education of a Value Investor (Guy Spier) – This book is mainly about the psychology of investing. You won’t actually learn anything about investing per se, but if you are impulsive or a known sucker for share price movements or the noise of financial markets, this book may help you.
EGP Capital Blog (Tony Hansen). An investment manager who, in his words, is “notoriously tight” with money and runs a no-performance no-fee fund. His blog is a bit like the Richest Man in Babylon but more advanced and more investing focused (rather than personal finance), so if you like that book then read this blog.
Taxlosstrades: An unintentional omission from the original list, primarily due to how infrequently he(?) publishes, Taxlosstrades is a snarky, insightful (and hilarious) take on some of the doublespeak in Australian listed companies. Coining terms such as “shit sandwich” (give investors some good news, then some bad news, then some good news), I always get a laugh out of taxloss.
Six months of panic (Trevor Sykes) – Covers the GFC in Australia. This book details 3-4 main types of business failure you will run into time and time again as an investor, so this is well worth reading.
Long term front running (Michael Fritzell) – This is a short, cheap, and simple book about how to find investment ideas by identifying expectations that are wrong and looking out a little further into the future than the market does.
Capital Returns (Edward Chancellor/ Marathon Asset Management) – This is a book explaining the capital cycle, with good anecdotes. It is a bit involved but very valuable because a lot of new investors, including me, sacrifice money on the altar of capital intensive businesses in the wrong part of the cycle.
Common stocks and uncommon profits (Phil Fisher) – this is probably the only “how do I actually invest?” book on the list. It is a timeless classic and for good reason. A must read.
Margin of Safety (Seth Klarman) – This is a popular book, and it is worthwhile – if you don’t know what a margin of safety is, you should read it. However I did not really value it. Howard Marks’ The Most Important Thing falls into the same category for me, only less important than Margin of Safety.
Bronte Capital blog (John Hempton) – Blog of a well known hedge fund manager that often does deep dives into businesses and investing concepts. This post and its prequel are particularly poignant for those who have already started investing: http://brontecapital.blogspot.com/2017/01/when-do-you-average-down.html
Confidence Game (Christine Richard) – Bill Ackman’s long running battle with complex insurer MBIA and its financial mis-statements. Excellent for learning about complex financial companies and their risks.
The Smartest Guys in the Room (Bethany Maclean) – Classic read about a “high quality” company, massive, persistent fraud, and management self-enrichment. We discover that the best and brightest individuals are not always particularly capable (this is a recurring theme in most investing books).
Fooling some of the people all of the time (David Einhorn) – one of my favourite books because the author’s voice really shines through (I hear Einhorn speak when I read). An exhaustive look at a comprehensive fraud where the bad guys and girls got away with the loot. It also offers an excellent outline of the fundamental issues that investors in unlisted assets face (e.g. ASX:BLA in 2018).
When Genius Failed (Roger Lowenstein) – about the collapse of Long Term Capital Management. An excellent lesson in hubris and also a passable overview of complex trades, circle of competence, and the risks of leverage.
The Big Short (Michael Lewis) – A thoroughly brilliant story – the book is better but the film is easier to understand. The underlying finance that is going on is very complex and if you’re a beginning investor it will take you several years to fully understand the depths of the fraud implied.
Findthemoat – Another very popular Australian blog (for good reason), findthemoat no longer publishes, but his/her site is good for a detailed walk through various businesses.
Measuring the Moat (Michael Mauboussin) – you should be able to find this for free. A dry but useful technical text about competitive advantages. I found this more valuable than Competitive Strategy, below, but both are useful.
Competitive Strategy (Michael Porter) – I don’t have much to say about this one as I didn’t particularly enjoy it, but it’s a classic for a reason.
This is a Twitter link that contains links to free versions of several of these texts:
Stockdale on Stoicism I and II –
The Discourses of Epictetus – this and Stockdale’s lectures above are probably the best lessons you will ever get on psychology. If you have a different mindset to me then you may not find them as valuable, but I internalised their lessons at a young age and find that they are important for maintaining my equilibrium in a field like investing where something as subtle as fatigue or mood (or an interesting stock recommendation from a smart person) can drastically alter your perception on investments.
Pierpont (Trevor Sykes) – Pierpont is a column by veteran journo Trevor Sykes who writes about various shenanigans (some real, some fictional) in a humorous way. This is a truly excellent, all-encompassing list of scams, swindles, and ways that management screws shareholders. However, if you read it too soon (assuming you understand what’s going on), you’ll never put any money in the market at all. In my opinion, read this only when you’re more experienced and have already made a couple of investments.
Ben Graham’s Intelligent Investor -I think this is excruciatingly boring and its main strategy of buying “net-nets” is no longer really viable. It’s an OK book for beginners who are still learning but for myself I read it once and will probably never read it again. Other blogs or books on this list will teach similar lessons suited to the modern investor.
Some thoughts on media/podcasts:
This may sound counterintuitive given the investment blogs I suggest above, but in general I believe beginning investors should avoid consuming too much fund manager content. Fund management people are far too smart and as a beginner you don’t want to find yourself trying to imitate parts of some complex strategy that is going to lead to sub-par outcomes for you.
Generally speaking, if you are a beginner, I think the goal should be to gather the experience and wisdom of fund managers, not their investment strategies or ideas.
That said, a crucial question for beginner investors to answer is whether you are able to invest successfully on your own, or if you would be better off selecting a skilled and honest manager to do it for you. Either way, learning to understand investments and finance for yourself will assist you in finding a manager.
If you must podcast, these podcasts are generally excellent, with the above caveat that most of them are fund managers. Tony Hansen and Wayne Peters interviews would be suitable for beginners:
I generally think most financial media and content is rubbish. TV is particularly insidious – mainly because it puts low quality people on the same platform as high quality ones, and it’s not easy to tell the difference if you’re a newbie. There is also nothing less useful than watching a great fund manager having to answer audience questions or commentate on some “stock of the day” he’s probably spent no time on, has no position in, and doesn’t care about.
Worse, you don’t want to be in a position of taking recommendations from some guy who might be trying to encourage more people to buy XYZ stock so that his fund can sell out of it without losing too much money. (this is known to happen, by the way).
I read a fair number of fund manager letters and they are often valuable, but if you are new to investing I would avoid it until you have more experience.
Where to start?
For a beginner investor I would say go with One Up On Wall Street as your first read as it is engaging. Then in no particular order, Letters to Shareholders of Berkshire Hathaway, the Forager Funds Bristlemouth blog, the EGP Capital blog, and Common Stocks and Uncommon Profits. Also have a dabble in the Dunning Kruger paper as that is a huge and persistent investor error – even experienced professionals get stung by that one from time to time.
I think those are the must-reads, but I’m not sure of prospective readers’ financial knowledge/ experience. Hopefully I’ve picked well!
I have no financial relationship with any of the people/organisations mentioned in this article. I am not a qualified or licensed financial professional or adviser. This post reflects my personal opinion only. This is a disclosure and not a recommendation.