Wednesday, August 28, 2013

Book Recommendations for Investing

Charlie Munger, Buffett's partner and Vice Chairman at Berkshire, mentioned during a Berkshire annual meeting that all the intelligent people he knew read a lot. I agree with his conclusion and people who are impressed by my knowledge should know that I devote at least 3 hours reading books, reports and financial news. I sometimes find myself reading all day despite the good weather outside. I'm not saying you should spend all your weekends or holidays reading but I do suggest everyone to spend 1-2 hours a day read. It doesn't matter if you are interested in finance or not. There are plenty of good materials to read and learn new concepts.  

To anyone who is interested in markets or finance, I highly suggest you keep up with current events and interesting developments by reading Wall Street Journal, Financial Times, Bloomberg, Reuters, Globe Business or Financial Post. My favorite two are the Wall Street Journal and Financial Times. As for a magazine recommendation, my favourate one is Barron's, which I spend my Saturday morning reading. 

I hope everyone at least try reading some of the books listed below. You won't be disappointed.

Basic Investing: (Everyone should read) 

  • The Intelligent Investor by Benjamin Graham. The absolute best investment book ever. When I first picked up the book at the age of 15, I could hardly understand it because of the writing style and I wasn't familiar with the terminology like "high yield bonds". After re-reading it 4 more times over the years, I began to fully appreciate the material presented and fully agree with Warren Buffett that this is by far the best investment book ever written. Re-read chapter 8 and 20 over and over until you understand the concepts presented . Understanding Mr. Market and the Margin of Safety Principle are key to investing success
  • Common Stocks and Uncommon Profits by Phil Fisher Another Investing Classic. Fisher wrote a lot on the art of analyzing a good business (mostly on qualitative factors) using what he calls the "scuttlebutt approach". His 15 points provided in chapter 3 provides an excellent guidance on picking a good company. One of the best advice in the book in my opinion is that if an investor does his/her homework correctly on a stock, there is no need to sell the stock. As he phased it, "the best holding period is forever". This sounded absurd when I first read the book, but after years of thinking about his point, I finally agree with him. I bought a stock after doing considerable amount of research and still holds it after 2 years. I hope this encourage other young investors (I'm only 22!) to hold their stocks for a longer period than a few days or month. 
  • One Up On Wall Street by Peter Lynch. The best book on investing for small retail investors. Lynch advocates a local approach where investors should purchase companies that they are familiar with and are fans of the company's product or service. I used Lynch's principles to build a portfolio for my parents by purchasing common household names like Proctor & Gamble (PG), Dollarama (DOL), Wal-Mart (WMT) and Tim Hortons (THI). 


Fundamental Investing 
  • Security Analysis by Benjamin Graham and David Dodd. The best textbook for security analysis. Despite the original edition was written in 1934 and the examples in this book are outdated, readers will be surprised that the underlying security analysis principles advocated in this book is still the same. Graham and Dodd walks the readers through financial statement analysis, common stock valuation, fixed-income selection and shareholder management issues. To get the most out of this book, I suggest readers to have some knowledge of financial accounting and finance. It is a challenging read but readers will learn a lot from this investing classic. I suggest readers to pick the 1940 or 1951 edition. I read the 1934, 1940 and 1951 editions
  • Essays of Warren Buffett: Lesson for Corporate America by Warren Buffett. A very good collection of Buffett's annual letter to shareholders. It may sound silly to buy a collection of annual letters but the author (Lawrence Cunningham) did a job of compiling Buffet's work into a book sorted by various topics such as corporate governance, investing, corporate finance, common stocks, mergers, accounting and valuation. Buffett is very clear at explaining sound financial concepts to his readers and readers can enjoy some of his humor, i.e. he translated Aseop's phase "a bird in the hand is worth two in the bush" phase  to  "a girl in convertible is worth five in a phonebook". My favorite one is his point on patience in investing: "No matter how great the talent or effort, some things just take time: you can't produce a baby in one month by getting nine women pregnant."
  • Value Investing: From Graham to Buffett and Beyond by Bruce Greenwald. A modern value investing book. Greenwald explains how to best value a security using a asset reproduction approach or earnings power value approach, which is similar to methods presented in the Security Analysis. 
  • Margin of Safety by Seth Klarman. Another excellent modern value investing book. Klarman discusses why most investors fail to succeed and the important of having a margin of safety to mitigate the potential risks. The book also discusses business valuation and opportunity for value investors in special situations like a spin-off or liquidation event.

Mutual Funds:



  • Common Sense on Mutual Funds by John Bogle. For do-it-yourself investors. Bogle provides useful advice of how to lower your costs and enhance your returns by investing index funds



  • Others: 
    • Berkshire Annual Letter to Shareholder by Warren Buffett (http://www.berkshirehathaway.com/letters/letters.html). Usually Buffett includes a section near the end of the annual shareholder letter to educate his readers on a financial topic. The 2012 letter contains a discussion of returning capital to shareholders via dividends or buybacks. 
    • Client Memos by Howard Marks (http://www.oaktreecapital.com/memo.aspx). Howard Marks, a famous distress debt investor, provides very useful memos on various investment topics. Readers will thoroughly enjoy reading Mark's take on market cycles, investing psychology, value investing etc.  He also wrote a book that is one of my favourate books of all time titled "The Most Important Thing" 
    • Poor Charlie's Almanack by Charlie Munger, edited by Peter Kaufman. Best book on Munger given he contributed a lot of content to the book. His checklists provided in the book and the use of mental models can greatly improve an investor's results. 
    • There's Always Something to Do by Chris Risso-Gill  This is a great value investing book about the famous Canadian value investor Peter Cundill.
    • The Rediscovered Benjamin Graham by Janet Lowe  A Great compilation of Graham's writings for those Graham fans out there. 
    • The Einstein of Money: The Life and Timeless Financial Wisdom of Benjamin Graham by Joe Carlen. A great book on Graham. Half of the content is on his life but the reader can actually match his milestones as investors with his life events. Really good read for a Graham fan. 
    • The Art of Value Investing by Whitney Tilson  Hedge fund manager Tilson compiled tons of great advice from many modern value investors into one great book. 
    • You Can Be A Stock Market Genius by Joel Greenblatt Despite the cheesy title,  this is a great book for value investor to learn about spin-offs, restructurings, merger securities and other special situations investing. Mr.Greenblatt's report card includes an average 50% return from 1985-1995. 
    • Financial Shenanigans by Howard Schilit. The best book explains accounting frauds conducted by companies like Enron, Worldcom, Tyco etc. Learn all the tricks companies can play on the income statement, balance sheet and cash flow statement to manipulate their financial conditions. Schilit explains the concepts in a way readers with little accounting knowledge can understand.  
    • The Outsider by William N. Thorndike: Best book explaining how to evaluate management with 8 example of `great capital allocator like Henry Singleton. In the long run, great capital allocator will add considerable value over those managers who know how to achieve operational excellence.  
    • Competitive Strategy by Michael Porter.  A good book on analyzing competitive advantages of companies and industries. An understanding of the Porter's 5 forces may help investors evaluate the attractiveness of an industry.
    There are many other books I read but the best ones in my opinion are listed here. Feel free to e-mail me at kennyyang865@gmail.com  if you need any more book suggestion for a specific topic. 

    5 comments:

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