Every young people should invest their money. That’s the best advice i heard since i was in college. When you are young and in your twenties, the most valuable asset is not money – but time.
When you are young, you not only have the time horizon to ride out market fluctuations, there are plenty of time for the effect of compounding to work in your favour. Investors who start young will have the flexibility to take on risk and recover from any missteps.
Many young investors procrastinate because they think that investment is confusing and trying to comprehend investment jargons is akin to reading the entire encyclopaedia. That’s a common mistake to make by not starting at all.
My favourite way of learning to pick up investment is to start reading books. Books are a good way to increase your knowledge of a particular topic as they were written by people who have had vast amount of experience in the field.
We picked 8 investment books to read for beginners. Unless you have a knack of picking winning lottery numbers or you were born with skills of a perfect investor, make sure you read a couple of these books before you start to ride the bull and bear roller coaster.
In no particular order:
1. The Intelligent Investor by Benjamin Graham
Ever since it was first published in 1949, it has sold more than a million copies worldwide. If you do not know who Benjamin Graham is, you better know who Warren Buffett is – the second richest man in the world. Benjamin Graham is the mentor of Warren Buffett, so it is no doubt that this book is acclaimed as the “bible to investing”. In his book, Graham tries to explain behavioural investing and to develop an intrinsic valuation of a stocks. Despite being a heavy read, i highly recommend reading this before entering the stock market.
2. The Little Book of Common Sense Investing by John C. Bogle
John Bogle is the founder and retired CEO of Vanguard Group which is one of the largest mutual fund provider in the U.S. He is also the person who created the first index mutual fund available to individual investor.
His philosophy of investing in index fund is clearly explained in his books where the stock market is a zero-sum game. For every stock that beats the market, there is a stock that doesn’t beat the market. That is to say for an average investor, half of the stocks picked would beat the market and half will not beat the market. What is left, is the investment less off fees – a net loss. His focus on costs minimisation and low-cost investing is his manifesto to success.
3. A Random Walk Down Wall Street by Burton G. Malkiel
Malkiel explains both technical and fundamental analysis in this book where he thrashes out technical analysis as a “a run of luck or misfortune of the ordinary gambler”. The market is full of randomness and trying to impose any sense of order is spurious at best. He also talks about the bubbles throughout history: Tulipomania, Wall Street Crash of 1929 and the South Sea bubble and addresses market efficiency in his book.
4. Irrational Exuberance by Robert J. Shiller
As per book title, irrational exuberance purports the notion of human emotions as illogical herd mentality. His analysis was spot on and warned about the dot-com bubble before it crashes. He also challenged the efficient-market hypothesis where investors value a stock base on expectation of future dividend discounted to present value. His take? Market volatility was greater than what could be explained by any rational view of investors – taking reference to the performance of the U.S stock market since 1920s. A good read albeit being lengthy and verbose.
5. Why Stocks Go Up (and Down) by William Pike
This should be read before reading any other investment books. You will understand why as this book is packed with many investment fundamentals such as financial statement analysis, stock price valuation and more. Terms such as price/earning ratio, diluted earnings, enterprise value/EBITDA are succinctly explained in his book. Have a go at this first to build up a strong investment basics before loading yourself up with capital market maxims.
6. Bull: A History of the Boom and Bust, 1982-2004 by Maggie Mahar
We know that past prices is not an indicator of future performance – a common mistake every investors make. What’s a better lesson than learning and picking up from a mistake? Mara began by examining the history of the Dow since 1982 which hovered below 1000 before it peaked around 11,000 in 1999. It came to an end when it crashes in 2000. She teaches many valuable lesson in her book and noted that euphoria is self-blinding – a regular feature of every bull market. It is easier to pick trend rather than timing them.
7. One Up On Wall Street: How To Use What You Already Know To Make Money In The Market by Peter Lynch
Peter Lynch is touted as a legendary mutual-fund manager and in his book he advocates two rules which he stands strongly by: “Invest in what you understand” and “Invest in companies you like”. Average investors can beat any professionals and achieve financial success. He also offer guidance on investing for the long-term and how it can reward you. His style is witty and entertaining and offers a good read for anyone who wants to invest on their own.
8. Buffett: “The Making of an American Capitalist” by Roger Lowenstein
Nothing is better than learning more about the most successful investor Warren Buffett. Roger Lowenstein’s prose in his biography of Buffett is well-crafted. Besides knowing deep into Buffett and his family, this book shares insights on Buffett’s investment strategy and how he avoided the dot-com bubble. There were many “how-tos” and noted Buffett’s long-term strategy of focusing on undervalued stocks and holding them to their worth. A rather lengthy read but it pays to know how this man has amassed a fortune from investing where many would envy.
Note that the list is not exhaustive and neither of these books are money-making recipe. They form a bedrock to your future investment journey and there could be no better time to pick up these valuable knowledge when you are still young and intellectually competent.