Following on from our earlier article, here is the second half of a list of the 12 books that we think are so jam-packed full of interesting, important or damn-right cool investment ideas that you just need to know about them. Period. If you can drag yourself away from the cocktail bar this summer, you could do a lot worse than spend a few hours working your way through at least some of these books...
Of course, there's just so much great investing literature that any cut-off point is going to be somewhat arbitrary. What have we missed? Let us know in the comments below.
Coming in at lucky number 7, we have The Little Book that Builds Wealth (Pat Dorsey - 126 pages). One of the things that investors have long admired about Warren Buffett is his ability to spot a truly great and enduring business franchise and ride its stock for the long term. He likes each business he invests in to display a durable competitive advantage - an 'economic moat' that protects the core business - allowing them the power to raise prices and ward off competitors.
This excellent book, summarised here and written by the Director of Equity Research for Morningstar, provides a simple but comprehensive framework for spotting such companies through both their qualitative aspects (high switching costs, scale advantages and so on) and their quantitative aspects (high sustained margins, free cash-flow and returns on capital).
At barely over 150 pages investors this book is a real gem and highly recommended. Investors who take these principles to heart will end up far better judges of business quality and may just be able to weed out a few of the more suspect stocks from their portfolio in favour of the types of companies that may provide longer term sustainable growth.
8. Smarter Stock Picking: Using Strategies from the Professionals to Improve Your Returns (David Stevenson - 496 pages) - Back on the theme of evidence-based investing, it's worth mentioning this relatively recent book by FT journalist, David Stevenson. The number of really good investment books that have been written for a UK audience could be counted on one hand, and this is one of them. This is a first-class look at the key lessons from the most famous investors in history and a practical examination of how those approaches can be applied through screening to make smarter and more discriminating stock selections.
Like Jack Hough's book, this is more a summary/guide to other people's investment philosophies than a fresh take. Still, it is unique in the rigour & depth with which it analyses those ideas and the way it think about stock selection. If you know your way around a stock screener but are looking to take this to the next level, this is definitely the book to go for.
9. How to Make Money in Stocks (William O'Neill - 464 pages) - Lest this look too much like a value investing only list, we should definitely mention this classic best-seller by an American entrepreneur who founded the business newspaper Investor's Business Daily and the stock brokerage firm William O'Neil + Co. Inc. O'Neill is a growth/momentum investor, who prefers to focus on companies that are still in a stage of earnings acceleration before they make major price advances. In the book, O'Neill set out his renowned CAN-SLIM strategy which is an interesting approach to try to minimise your risk and maximise gains in the stock market.
Again, even if you're not necessarily convinced by the system he's promoting, this book is packed full of good advice on things like chart interpretation techniques for buy points and more importantly, when to sell stocks (a subject not covered enough in the investing literature).
10. The Zulu Principle: Making extraordinary profits from ordinary shares (Jim Slater - 224 pages) - This is a classic GARP investing book, first published in 1990 by Jim Slater, a British investor who originally rose to prominence with a share column, “The Capitalist” in the Sunday Telegraph. This book articulates the strategies and investment criteria that underpinned his success. He called the book The Zulu Principle to illustrate the importance of specialisation - the name was triggered when his wife started to read up on Zulus and quickly became an expert. Jim Slater recommends that you specialise in a certain aspect of investing and concentrate your efforts as that way, you should be able to exploit share opportunities that elude the generalist.
Although there was a new edition in 2008, the book may feel a little dated in parts, but nevertheless, lots of the advice and insight is just timeless so it's highly highly recommended reading, not least because of its UK focus. For more background on Slater, click here.
11. One Up on Wall Street (Peter Lynch - 320 pages) - This is a classic of personal investment literature from arguably the most successful mutual fund investor ever. During the thirteen years that Lynch managed the Fidelity Magellan Fund (1977-1990), he racked up average gains of close to +30% a year (nearly double the S&P 500). This book details his growth-focused strategy and provides numerous guidelines for implementing his approach.
As we discuss elsewhere, his selection approach is strictly a bottom-up "buy what you know" one, suggesting a focus on companies familiar to the investor, applying fundamental analysis which emphasizes a thorough understanding of the company, its prospects, its competitive environment, and valuation.
Although it's available in an updated edition, most of the content dates back to Lynch's investing heydays in the 1980s but many of the lessons are timeless. We model one of Lynch's strategies here.
12. The Intelligent Investor (Benjamin Graham - 640 pages - Last but not least, we have probably the most influential book ever written about investing. Originally published in 1934 by Ben Graham, this work has been heralded by such notable investors as Warren Buffett as "the best investing book ever written". Which is quite an accolade from quite an investor! It's long but much more accessible than Graham's 700 page investing treatise, "Security Analysis".
In it, Graham discusses everything you need to know under the investing sun really - from concepts like margin of safety to NCAV bargain stocks.He also discusses two different investing styles - one for every day people who don't want to think about their portfolios (which he terms "defensive" ) - and the more informed investor who wants to enjoy maximum returns ("enterprising").
Of course, this list of 12 clearly excludes a number of very worthwhile and interesting titles. The "Little Book of Value investing" by Christopher Browne springs to mind, as does Guy Thomas' "Free Capital: How 12 private investors made millions in the stock market", not to mention Jeremy Siegel's "Stocks for the Long Run". Still, we think it's a great starting point. if you manage to polish some or all of the above titles while sipping a cocktail, you'll be doing ok!