If you're only going to read one book about investing, you can't go wrong with the investor's classic "A Random Walk Down Wall Street" by Princeton University Professor Burton G. Malkiel. The book is an entertaining and well written analysis of investing theory and practice. Malkiel begins by presenting the random walk and other investing theories and offers his analysis of some well known investing events including the infamous tulip-bulb craze, the market crashes of 1929 and 1987 and others. Malkiel addresses the major investing theories including intrinsic value, technical and fundamental analysis, growth versus value investing, modern portfolio theory, and the capital asset pricing model as well as other asset classes including bonds and real estate. The book then appropriately addresses how each investor's portfolio should be structured depending on their own individual characteristics including risk tolerance and time horizon. It is the combination of addressing stocks, other major asset classes, as well as the characteristics of each individual investor that make A Random Walk Down Wall Street an outstanding all-around investment book in addition to a being a hotly debated analysis of whether stock prices move in a random manner. Whether you believe markets are or are not efficient (even Malkiel admits there are anomalies in the stock market) and whether you're a novice or a professional investor, you're likely find the book enlightening, educational and entertaining and come away feeling your time and money were well spent. Malkiel's other books include Global Bargain Hunting: The Investor's Guide to Profits in Emerging Markets (1999), From Wall Street to the Great Wall (2008), and The Elements of Investing with Charles Ellis (December 2009). You can read more about Malkiel and his work on the Efficient Market Hypothesis page.Stocks for the Long Run Jeremy J.Siegel (2007 edition)
Stocks For The Long Run is frequently referred to in the investment business. The second edition of Wharton Professor Jeremy Siegel's book (originally published in 1994) is a terrific read filled with straight-forward information and commentary. Siegel documents returns for stocks and other asset classes from 1802 through 1997. His primary argument is that stocks (which earned 7.0 per year after inflation) outperform other assets (bonds, cash, and gold) over the long run and the intelligent move for investors is to simply buy stocks and hold them. Siegel also offers rational and documented advice on related topics such as recommended asset allocations based on risk tolerance and time horizon. The book includes excellent discussions on international investing, investing in small stocks, the infamous "nifty fifty," stock market anomalies, and the effect of taxes. It's filled with fascinating statistics, charts, graphics, and commentary about common wall steet beliefs and misconceptions. For instance, did you know that since 1885 there have been 123 days when the DJIA moved more than 5%. But only 28 of those days can be identified with a specific world political or economic event, such as war, political changes, or governmental policy shifts. While the strategies recommended in the book are simple in principle, Siegel points out that they are difficult in practice because it is so easy to believe stories of easy wealth and the natural hindsight bias investors have in remembering their successful ideas and investments and forgetting their failures. And Siegel is careful to warn investors that money invested according to strategies that have worked in the past could erode any advantage in the future. Overall, Stocks For The Long Run is simply one of the best reviews of the stock market ever written and should be a staple in the library of every serious investor. Click here to order Stocks for the Long Run.Against the Gods: The Remarkable Story of Risk and Capital Ideas: The Improbable Origins of Modern Wall Street by Peter L. Bernstein (2005 edition)
Against the Gods is an outstanding book about the evolution of risk and man's attempt to understand it. Bernstein begins with ancient times and traces the history of numbers and probability leading eventually to today's seemingly complex financial world of portfolio theory, derivatives, and risk management techniques. Readers will learn about revolutionary thinkers including John von Neumann (inventor of game theory), Isaac Newton, Harry Markowitz (grandfather of portfolio theory), and the late Fischer Black (Black Scholes option formula) among others. Readers will also find enlightening stories about game theory, fibonacci numbers, chaos theory, the bell curve, regression to the mean, and more. Yet despite all the intelligence, computer power, and sophisticated techniques, Bernstein presents us with the growing body of evidence discovered by researchers including the late Amos Tversky (See Psychology) and others that "reveals repeated patterns of irrationality, inconsistency, and incompetence in the ways human beings arrive at decisions and choices when faced with uncertainty." Against the Gods was chosen as one of Business Week's top 10 books of the year for 1996. In 1992, Bernstein had released Capital Ideas: The Improbable Origins of Modern Wall Street. Similar to Against The Gods, Capital Ideas is a combined history lesson and educational book but focuses on the individuals that revolutionized Wall Street and is even more focused on investment theory and practice. The book profiles Fischer Black, Eugene Fama, William Fouse, Hayne Leland, Harry Markowitz, John McQuown, Robert C. Merton, Merton H. Miller, Franco Modigliani, Barr Rosenberg, Mark Rubinstein, Paul A. Samuelson, Myron S. Scholes, William Sharpe, James Tobin, Jack Treynor, James Vertin and others. There is an interview with Bernstein and an article titled What is wealth? via PBS. Bernstein was the Founding Editor of The Journal of Portfolio Management and also authored Capital Ideas Evolving among others. He passed away in 2009 (NY Times. Click here to order Against the Gods and/or click here for Capital Ideas.Innumeracy: Mathematical Illiteracy and Its Consequences John Allen Paulos
Innumeracy is an educational and entertaining book written for those individuals who have a hard time comprehending and calculating numbers, statistics and probabilities and understanding how they impact our lives (quants and others well versed in mathematics will enjoy the book as well). Paulos examines everyday situations like the probability of dying in a car crash or contracting the AIDS virus and how to calculate questions like how many people you need in one room for there to be a 50% chance of two people having the same birthday (the answer is 23, not 183). He also discusses problems with polling under certain circumstances, and how to interpret intriguing occurrences (like how people can walk across burning wood and the fact that President Kennedy's secretary was named Lincoln and President Lincoln's secretary was named Kennedy) in a world where " a significant portion of the adult population still believes in tarot cards, channeling mediums, and crystal power." The following passage is one example of how the book relates directly to investing. "There is a strong general tendency to filter out the bad and the failed and to focus on the good and the successful. Casinos encourage this tendency by making sure that every quarter that's won in a slot machine causes lights to blink and makes its own little tinkle in the metal tray. Seeing all the lights and hearing all the tinkles, it's not hard to get the impression that everyone's winning. Losses or failures are silent. The same applies to well-publicized stock market killings vs. relatively invisible stock market ruinations, and to the faith healer who takes credit for an accidental improvement but will deny responsibility if, for example, he ministers to a blind man who then becomes lame." Paulos is also the author of Mathematics and Humor, A Mathematician Reads the Newspaper, and Beyond Numeracy: Ruminations of a Numbers Man. See also A Stock-Market Scam as well as Book Descriptions and Press Comment of Paulos' Books. Click here to order Innumeracy.
Sidney Cottle, Roger F. Murray, and Frank E. Block, 6th Edition ( original 1934 edition) This is the book that many consider the classic book on fundamental analysis. See also Coin-Flipping & Graham-and-Doddsville. Click here to order Security AnalysisThe Intelligent Investor: A Book of Practical Counsel (Jason Zweig's revised edition - 2003)
Benjamin Graham More people probably recognize this book as a classic than any other investment book. It has never gone out of print since its first appearance and is less technical than Security Analysis. Graham mentored (among others) Warren Buffett. See also Coin-Flipping & Graham-and-Doddsville. Click here to order The Intelligent Investor.The Richest Man in Babylon
George Clason,Extraordinary Popular Delusions & the Madness of Crowds and Confusion De Confusiones
The Richest Man in Babylon is a terrific collection of stories written in the early part of the century by George Clason. The book has become an inspirational classic to millions of readers over the years and despite being set thousands of years ago in the historical city of Babylon, the stories and principles seem just as applicable today as they did in ancient times. There are tales of how Arkad, the richest man of Babylon, achieved his wealth as well as tales of slaves buying their freedom and achieving their own wealth. The primary principles of paying yourself first and living within your means are described so well that its hard to imagine anyone reading the book and having difficulty understanding what they need to do to improve their finances. The book is an excellent read for anyone who has trouble saving or who spends more than they earn. Click here to order Richest Man in Babylon.
Charles Mackay, L.L.D. and Josef De LA Vega There are two versions of this classic originally published in 1841. The first is a short version and includes Confusion De Confusiones along with an excellent forward by Martin Fridson. A much larger version of EPD (without Confusion De Confusiones) includes a forward written by Andrew Tobias in 1979. History students will be pleased to find 718 pages (in the long version) of short and long stories of fascinating and many unbelievable recollections from many centuries. Chapters included are the Mississippi Scheme, the South-Sea Bubble, Tulipmania, the Alchymists, Modern Prophecies, Fortune-Telling, the Magnetisers, Influence of Politics and Religion on the Hair and Beard, the Crusades, the Witch Mania, the Slow Poisoners, Haunted Houses, Popular Follies of Great Cities, Popular Admiration of Great Thieves, Duels and Ordeals, and Relics. Click here to order Extraordinary Popular Delusions.Where Are The Customerís Yachts? Or, A Good Hard Look At Wall Street.
Fred Schwed Jr., Illustrated by Peter Arno. Where Are The Customerís Yachts? is a reprint of a very humorous and sharp investment classic originally published in 1940. Schwed saw through much of Wall Street's nonsense and conflicts of interest, many of which still exist, although he points out that in some cases it is the customers own foolishness that is to blame. This book is a quick and entertaining read, that ironically seems as if it could have been written years ago rather than decades ago. It also includes some real gems likeThe Only Investment Guide You'll Ever Need (2005 edition)
Perhaps the best description of the book comes from the last chapter which includes "This book has chiefly tried to paint a picture of thousands of erring humans, of varying degrees of good will, solemnly engaged in the business of predicting the unpredictable." Click here to order Where Are The Customerís Yachts?.
- "The sad thing is that there can be no legislation against stupidity."
- "He who sells what isn't his'n
Must buy it back or go to prison."
- "Speculation is an effort, probably unsuccessful, to turn a little money into a lot.
Investment is an effort, which should be successful, to prevent a lot of money from becoming a little."
Andrew Tobias This is a well-written and entertaining book about investing that has sold over 1,000,000 copies (originally published in 1978). Tobias who writes a daily on-line column in his web site (AndrewTobias.com), takes some shots at full service brokers, summarizes the major investments to consider (and those to avoid), and advises investors to be frugal in investing and life in general. This book is well worth the time and money, whether its your first book about investing or whether your an experienced and well educated investor. Click here to order The Only Investment Guide You'll Ever NeedA History of Interest Rates
Sidney Homer and Richard Eugene Sylla Paperback (Hardcover) The late Sidney Homer was a key executive at Salomon Brothers and author of this classic on interest rates and economics. He literally traced interest rates thousands of years into the past from ancient and medieval times into the current era. The book includes scores of tables and charts of virtually every time period and major geographic region. Homer also coathored Inside the Yield Book with Martin L. Leibowitz. Click here to order A History of Interest Rates.The Art of War
Sun Tzu (Search for other versions) A timeless classic on war and strategy. The book was revitalized a few years ago thanks to "Gordon Gekko" and the movie "Wall Street". In the movie, Gekko (played by Michael Douglas) comments "The public's out there throwing darts at a board, sport. I don't throw darts at a board. I bet on sure things. Read Sun-Tzu 'The Art of War.' Every battle is won before its ever fought. Think about it." Bud Fox (played by Charlie Sheen) refers to the book later in the movie with the following quote. "All warfare is based on deception - Sun Tzu. If your enemy is superior, evade him. If angry, irritate him. If equally matched fight, and if not, split: reevaluate." Art of War for Traders and Investors is from Dean Lundrell and addresses the book's relevance to investing in particular. You can read more about it at the Art of War web site. Click here to order The Art of War.
Contrary Investment Strategies from money manager and Forbes columnist David Dreman stands apart from other books about stock strategies for some very significant reasons. Dreman's strategies not only work based on back testing, they have worked in actual practice. In fact, this book is a follow-up to two earlier books in 1982 and 1979. Dreman's mutual funds have been excellent performers and Dreman practices what he preaches (he has millions invested in his own funds). According to Jeremy Siegel in Stocks For The Long Run, contrarian strategy was first put forth by Humphrey B. Neill in 1951, but Dreman is the "Dean" of contrarian investing and the person responsible for bringing it into the main stream. Contrarian strategy is based on the belief that "When everyone thinks alike, everyone is likely to be wrong." Over and over again, Dreman offers conclusive proof that contrarian theories have proven to be accurate. Studies show that people are consistently overconfident. Dreman offers scores of studies, facts, and statistics in addressing value versus growth stocks, small versus large stocks, IPOs, and stock market analysts projections. For instance, what are the odds of a company going 20 years without having an earnings surprise of more than 5%? One in 50 Billion according to Dreman. Are you more likely to be killed by a shark or pieces falling from an airplane? You're thirty times more likely to be killed by falling aircraft parts according to Dreman (but shark attacks get a lot more attention). Similarly, glamour stocks get much more attention than other stocks, yet study after study concludes that value stocks outperform the glamour stocks in the long run. Click here to order Contrarian Investment Strategies.What Works on Wall Street James O'Shaughnessy (2005 edition)
This book is a must for anyone interested in historical returns and stock buying strategies. It's a comprehensive, well documented study of comparable fundamental and technical stock buying strategies. The study was based on buying equal amounts of 50 stocks beginning in 1954 and rebalancing annually through 1994. Stocks were selected according to specific criteria from the S&P Compustat database. Some like William Bernstein (see Mined: All Mined) were not impressed. How to Retire Rich: Time-Tested Strategies to Beat the Market and Retire in Style was O'Shaughnessy's followup book and is less technical. Click here to order What Works on Wall Street.
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