I’m often asked by people new to the industry what books they should be reading to prepare for a career fund management. I’ve always struggled with this question, since there are so many great books that I want to recommend, and the list soon becomes unmanageable. However, recognizing that we all have a limited amount of time, I thought it was important to come up with a “priority list” for new investors. After much thought, I’ve now managed to get that list down to just five. If you take the time to read and understand these books I’ve no doubt that you will gain a huge head start over your competition!
1. “The Essays of Warren Buffett” by Lawrence Cunningham. In my opinion, the single greatest book ever written on investing – I would start with this one and keep it within close reach at all times. This is the book that originally inspired me to go into the industry, and even after 15 years I continue to get value from it by going back and re-reading chapters. Excerpts from his letters to shareholders are aggregated according to topic, making it easy to assimilate Buffett’s wisdom and philosophy in a very efficient way. I’m always interested to get the reaction of first-time readers – it seems that people either get it straight away or they never do. Those who do ‘get it’ will suddenly find themselves with an insatiable appetite to put these lessons into practice. Buffett himself recommends the book, congratulating the author on doing a “great job of collating our investment philosophy”
2. “The Intelligent Investor” by Benjamin Graham. I would read this book next. Benjamin Graham was Warren Buffett’s mentor and the ideas explained in this book formed the foundations for Buffett’s philosophy. It’s a longer read and harder-going than the first book, but well worth the effort. It will consolidate your understanding of basic investing concepts and it’s vastly more valuable than any textbook you could ever read. Extra color is provided by Jason Zweig, the Wall Street Journal columnist, who adds his own commentary at the end of each chapter, providing modern-day examples and applications of Graham’s ideas. I would read it now and then I would read it again after you’ve worked for 1-2 years in the industry.
3. “The Most Important Thing” by Howard Marks. When we join the investment industry we are taught all manner of things about diversification and risk, most of which makes little sense. This book explains the idea of risk much more clearly than any other book I’ve read. It’s also full of great practical advice for investors and will drastically improve the return on your time spent analysing a company. One compelling idea Marks keeps coming back to is how top investors need to adopt “second-level thinking” – i.e. going beyond the initial, obvious insights on a stock.
4. Fooled by Randomness by Nassim Nicholas Taleb. This is not strictly an “Investment Book” but, in my opinion, necessary reading for anyone who manages money. Despite its wide readership, most fund managers still fail to grasp its significance and continue do a horrible job of distinguishing between luck and skill. Ego tends to get in the way and dictates that investors will attribute much more of their short-term performance to skill than luck. Managers end up oscillating between thinking they are a genius and a fool, all the time learning the wrong lesson from their experience. When you read this book make sure you’ve fully understood its implications in terms of asset management.
5. “Common Stocks and Uncommon Profits” by Phil Fisher. This is the bible for the growth investor, but you don’t have to be a growth investor to get a huge amount of value from it. This book will help focus your research, make sure you are asking the right questions and enable you to get the most out of management meetings. In an industry where most analysts squander their time with management, this book will separate you from the herd. Pay particular attention to chapter 2, which lays out 15 points to look for before buying any stock – I would even go so far as to recommend memorizing these points! If you’ve run out of time to read this last one, then I’ve summarized these 15 points in a 9 minute video.
Happy reading! I hope you enjoy these five books as much as I did. If there are any books that you strongly feel should be on this list, then feel free to add them in the comments section here!