Here some of my most favorite finance books:
- The first book I would recommend anyone to read about finance and investing is A Random Walk Down Wall Street* by Burton Gordon Malkiel. The book is easy to read and I think understandable for everyone with some interest for financial topics (including lay investors). Good for beginners. Still, it is well well-founded and science-based. It is not one of this “how to get rich fast” books, but rather sound advice for long term investors. He is focused on fundamental analysis. According to Malkiel, the technical analysis approach is used by those who believe in what he calls “castle-in-the air theory” (also known as “greater fool theory” or “survivor investing”). For me it is probably the best investment book I’ve ever read and my top pick for this recommendation list it would be this book.
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- The Intelligent Investor: The Definitive Book on Value Investing* by Benjamin Graham is another outstanding finance book. The focus of this book is value investing (stock picking of shares that appear priced lower than their intrinsic or book value) and long term strategies. The book was first published in 1949 and inspirited generations of investors (including Warren Buffet, one of Graham’s students. Buffet even stated that it is “the best book on investing ever written”). As Graham passed away already in the 70s the book is now edited by Jason Zweig. He updated the book and added some comments. The is probably not as easy to accessible as Random Walk and probably not the best book for total beginners, but still sound advice for investors. Graham also authored Security Analysis* a comprehensive guide on valuation techniques. Some people call it the ‘bible’ of fundamental equity investing. However, if you really want get in comprehensive reference with all the details about security analysis and valuation methods I would refer you to book #3 on my most favorite finance book list.
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- Investment Valuation: Tools and Techniques for Determining the Value of Any Asset* by Aswath Damodaran. This is a book that really is a deep-dive into valuation methods. It describes all tools and techniques about company valuation and corporate finance. It is for sure not an easy read, but it provides all information needed even for (relatively) beginners. Of course this is a book for professionals and not necessarily for armchair investors. However, if you really want to go into the details and understand equity research and corporate finance transactions: this is your book! Btw. the author of this book has also outstanding (free) material online (including aand webcasts).
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- The Dark Side of Valuation: Valuing Young, Distressed, and Complex Businesses* is another book from Aswath Damodaran. While Investment Valuation covers the traditional valuation methods (e.g., CAPM, DCF) is this book focused in companies that can’t be analysed with those techniques. In particular, companies with negative cash flow, distressed situations and start-ups. It can also be helpful for the analysis of companies where you have only limited access to financial data. Both books from Damodaran on this list are probably not for lay people. While graduate students and professional will probably appreciate the profundity of this book. Damodaran also published The Little Book of Valuation* a book for a more general audience, but it lacks the details and richness that I like so much about his other books. For lay investors I would rather recommend the first 2 books on this list Random Walk and Intelligent Investor.
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Manias, Panics and Crashes: A History of Financial Crises* by Charles Kindleberger is an in-depth discussion of financial crises. It covers the big financial bubbles such as the Dutch Tulip Bubble (1636), the South Sea Bubble (1720), but also more recent crashes in the US stock market. There is also some discussion about pyramid schemes and Ponzi finance and alike. While some examples might be a bit anecdotal it is for me a very interesting read. I think investors are well advices if they keep the history of financial crises in mind when they make any decisions. In the latest edition of the book is also a discussion of the causes for the crises 2007-2008 included. This edition was published by Robert Aliber as Charles Kindleberger passed away in 2003). The book is a bit complex and not necessarily an easy read, but it gives a lot of background information and helps the reader to develop a more holistic picture on the way markets (may) operate.
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The Signal and the Noise: Why So Many Predictions Fail-but Some Don’t* by Nate Silver is not a pure finance book as it covers forecasts and predictions in general (including also elections, sports or weather forecasts etc.). However, I would consider as highly relevant for any investor. It introduces big data and the world of forecasts and predictions. Data analysis is a topic that becomes more and more important not only – but very distinct – in financial analysis. While the book introduces a lot of statistical methods and probabilities it is still quite easy to read and even entertaining. Silver introduces several ideas how you can improve your prediction abilities and how to recognize limitations. If you really want to know more about all details of forecasting your may want to read Tetlock’s book Superforecasting: The Art and Science of Prediction.* However, as an introduction to the topic is Silver’s The Signal and the Noise* a really good starting point.
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Sway: The Irresistible Pull of Irrational Behavior* by Ori Brafman and Rom Brafman. While most books in this list focus on investment analysis (like fundamental analysis and valuation methods), which may help to answer the question what to buy is this book focused behavioural aspects of investing. This might be helpful not only for the question when you should buy or sell. Even if you follow a ‘buy and hold’ strategy it might be good to have some background information about the behavioural pitfalls and cognitive biases. The techniques discussed in this book can help to overcome or at least to be aware of these effects. While the book is not a comprehensive disquisition on the topic it still contains easy to read stories, covers the basics and is a pretty good introduction to this interesting subject. (I plan another blog posting to suggest a few more interesting books about in this field).
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credit for the images: Amazon
What are your favorite finance books? Drop me a note or leave a comment below!
Disclosure: The links marked with an asterisk (*) are so-called affiliate links. As an Amazon Associate I earn from qualifying purchases. If you click on such an affiliate link and make a purchase via this link, I will receive a commission from the respective online shop or provider. For you the price does not change.
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