I’ll be the first to admit that I don’t read as much as I should. However, it’s something I’ve been trying to reverse. Reading is a great way to improve your life because it allows you to pick someone else’s brain. A good $10 – $15 book will often have $1,000+ worth of good advice. In college, I became enamored with investing after reading the Intelligent Investor. Since then I’ve read countless investing books (yes, I’m that boring haha). Here are three great investing books you need to read from the best in the industry.

The Intelligent Investor

Ben Graham is considered by many to be the father of value investing. He taught at Columbia Business School and acted as Warren Buffett’s mentor for many decades. This is absolutely the value investor’s bible that sparked the careers of many well-known businessmen/businesswomen.

Graham first wrote the book in 1949, but its core principles have not changed over the past 70 years.

While the book discusses a lot about investing, there are several personal finance subjects that Graham touches on. He even discusses the importance (and dangers) of inflation and the long debate of portfolio composition between stocks and fixed income.

The great thing about the revised version of the book is that it has commentary from Wall Street Journal writer Jason Zweig who breaks down the concepts into easier to consume bites. Plus, Jason includes a nifty “investment owner’s contract” to help you get started on your financial journey:

The two biggest concepts I took away from the book were margin of safety and the difference between price and value.

Margin Of Safety

This is one of the most well-known terms used by value investors. The phrase Graham coined refers to the difference between what a company is actually worth and its market price. Graham loved the concept of margin of safety because it represented a “cushion” for errors, miscalculations, or just bad luck.

The bigger the discount you purchase a stock relative to its actual value (AKA intrinsic value), then the less risky it is. Graham wanted to purchase stocks that were “on sale” instead of those that were full/fairly valued.

The Difference Between Value And Price

In the Intelligent Investor, Graham introduces the analogy of Mr. Market. It goes something like this: You have a partner who tells you what he thinks your asset is worth every single day. Sometimes Mr. Market’s offer for your asset is very fair. Other times, his offers are based on enthusiasm or fear, and the value proposition seems downright silly.

What Graham tried to convey that the underlying worth of a business rarely changes as rapidly and severely as the market prices quoted on stock exchanges.

In the short run, the market is a voting machine, but in the long run it is a weighing machine. That’s why investors should focus on the true value of a security and less on the day to day fluctuation in price.

Remember:

Price is what you pay, value is what you get. 

Here are a few other nuggets of gold from the book:

An investment operation is one which, upon thorough analysis, promises safety of principal and an adequate return. Operations not meeting these requirements are speculative

Invest only if you would be comfortable owning a stock even if you had no way of knowing its daily share price.

There’s a good reason why Warren Buffett called this book the best investment book he’s ever read!

The only complaint I would have about the book is that it is somewhat dense reading material. Also, it is pretty long. I have the revised edition with commentary from Jason Zweig, which pushes the bad boy past 500 pages!

Nevertheless, the pages in the book are pure gold! This is a MUST read for do it yourself investors or enthusiasts!

Click here to get The Intelligent Investor!

Common Stocks And Uncommon Profits

Ben Graham is often looked to as the father of value investing, while Phil Fisher is considered the father of growth investing. Warren Buffett once famously quipped that he is 85% Graham and 15% Fisher.

Fisher was a legendary investor in the Bay area for many decades and reportedly generated a spectacular return for his few investors. When he published Uncommon Stocks and Uncommon Profits, it became an absolute sensation in the investment community.

Phil Fisher held a very small portfolio of high quality stocks that he believed could grow rapidly for decades. Fisher stressed investing for the long-term (multiple decades). He famously bought Motorola stock in 1950s and held it until he passed away in 2004…meaning he held the stock for longer than I’ve been alive!

Instead of focusing too much on the numbers and getting lost in the trees, Fisher relied more so on the qualitative aspects of running a business. He really stressed the importance of investing with a great management team and supporting organization.

Using “Scuttlebutt”

Fisher introduced the idea of “scuttlebutt”. He defined scuttlebutt as using the grapevine to talk to various levels of people at a company and other organizations in order to assess a worthy investment. 

For example, if Fisher were interested in investing in a software business. He would actually go out and talk to the company’s customers, its suppliers, employees on all levels (including former employees), and even the competitors. He would also likely attend trade shows, talk to industry experts, and others knowledgeable in the field.

While he was known to be somewhat reclusive (rarely gave interviews), Fisher was a master networker and used this to his advantage to gain an investing edge.

If there’s one takeaway from this book, it’s that the quality of the management team is very important. Sometimes there are things more important than the numbers.

In the book, Fisher outlined his famous 15 points all investors should look for before investing in a business. He used the simple guidelines to determine if a company could grow sales for many years and keep margins high. Many of the points focused on employee relations, depth to the management team, and also the quality of research and development investments.

Fisher’s 15 points are great tools for investors (even in today’s world) to evaluate opportunities.

Do’s And Don’ts For Investors

Fisher’s book gives an amazing list of several Do’s and Don’ts for investors. Many of these great tips are excellent heuristics and should serve as guidelines for beginning investors.

Here is one of my favorites:

“Don’t quibble over eighths and quarters!”

Basically, Fisher meant that if you’ve done your homework and like a stock you shouldn’t worry too much about the price paid if it’s relatively close to your target price of a fair deal. A lot of people get hung up about a stock hitting their price target before they even purchase anything. Sometimes they may even lose out on a great investment opportunity because of this.

There’s little difference between paying $60.50 for a stock versus $60.00. The 50 cent difference is less than 1% of the stock’s value! Is 50 cents going to matter in the long run? Probably not.

By the way, Fisher shares a funny story about this rule in the book (I won’t spoil it).

Other Thoughts

The great thing about the book is that it is applicable outside of investing. I think many management teams and consultants should definitely read the book to get an understanding of how a smooth business should be run.

The biggest complaint I have about Common Stocks and Uncommon Profits is the ideas are very conceptual. Fisher describes them very well and his reasons are absolutely valid. However, he doesn’t lay out a clear strategy or provide very detailed tips on how to conduct scuttlebutt.

In my opinion, another book (The Sleuth Investor) does a much better job outlining strategies to evaluate Fisher’s 15 points.–plus it includes a lot of great stories on how these strategies can be used.

Overall, Common Stocks and Uncommon profits is an excellent complement to The Intelligent Investor. I would highly recommend getting this one on Amazon because it includes two other books by Fisher!

Financial Shenanigans

Ever wonder how WorldCom, Enron, Tyco and so many big Fortune companies deceived investors with fraud?….well Financial Shenanigans is definitely the book for you!

Financial Shenanigans is a must read for just its pure entertainment value, let alone the applications to investing.

Howard Schilit was a pioneer in the art of forensics accounting. Forensics accounting is basically a field where people analyze financial statements and other business documents to determine if a company is committing fraud or negligence.

Many of the world’s greatest investors have followed Schilit’s work including legends Julian Robertson, Jim Chanos, and David Einhorn.

What To Watch Out For

The reason why you want to read Financial Shenanigans is because Schilit tells you EXACTLY what kind of companies you don’t want to invest in. These are companies with poor corporate governance such as those that are devoid of checks and balances and hire family members/friends to deceive the public.

The book provides you with a great laundry list of items to watch out for. This includes poor executive compensation policies, high auditor fees, related party transactions, and so much more! If you can avoid big losers, you’ve already won half the battle of successful investing.

Manipulating The Numbers!

Howard goes into pretty great detail on how companies can use accounting to manipulate revenue, earnings, cash flow, and other key performance indicators to fool investors into thinking business is great.

Some companies go through great lengths to hide bad numbers. This includes strategies such as pulling forward revenue (or even downright recording bogus sales), recognizing one-time income items, shifting expenses between periods, and manipulating cash flow to show better results.

Howard goes into each of these topics and more in great detail. This is a must read if you don’t want to invest in a lemon and lose money.

Click here to get Financial Shenanigans and protect yourself from bad companies!

And no, you DO NOT need to have any accounting knowledge to benefit from this book! Howard really breaks things down easy and simple. However, if you ever do want to learn more about accounting, click here to check out my Financial Accounting For Beginners course on Udemy. Be sure to use my link as it contains a coupon to get the course for just $10!

Final Thoughts

Readers, what do you think about my recommended investing books? Do you have any other great investing books you think everyone should read?