The most important thing an investor has to do is to learn about the markets. Knowledge is the fundamental key to smart investing. Reading investment books, digesting their lessons, and then applying them is how all good investors get their start. But with so many books on the market, where do you begin?
We looked at investment information websites like Investopedia and Forbes among others for their recommendations and boiled them down to the essentials for beginner investors. Here are our recommendations to get your investment education off to a good start.
Market Psychology: A Random Walk Down Wall Street and Irrational Exuberance
Time writer Pat Regnier wrote a very good piece on why these two books are essential reading for investors. The markets are, at their heart, a mind game that everyone is playing. Learning about the psychology of the market, how different forces balance each other out, and where things can go wrong is important so you don’t make mistakes. Read his full article to learn more about why these two books are so important.
Risk: Against the Gods: The Remarkable Story of Risk
Risk is another force at the heart of the market. Understanding risk, your appetite for it, and how to deal with it is important so you don’t lose your shirt or give yourself an ulcer. The book is a history of risk and how people have tried to quantify it over time.
Value Investing: The Intelligent Investor
This book is dense, old, and still one of the best books you’ll find about the subject of value investing. Value investing is a math-intensive form of investing that tries to find stocks that are undervalued by looking at business fundamentals. The key is to find companies that have a good chance of becoming more profitable despite what their stocks suggest Probably the most famous value investor is Warren Buffett and his company Berkshire-Hathaway. Value investing is one of many investment paradigms. Getting to know the math and the fundamentals of value investing can help you understand other investment paradigms and why they differ.
Growth Investing: Common Stocks and Uncommon Profits
Part of being a good investor is seeing both sides of an argument. Growth investing is the flip-side of value investing. Value investing looks at the fundamentals as they stand right now. Growth investors try to predict a company’s chances for improvement into the far future. They look for companies trading higher than their intrinsic worth, but which have ideas or fundamentals that suggest the company will boom in the future. Reading this book along with The Intelligent Investor will help you understand the qualitative vs. quantitative debate and how to balance it for your own personal investment strategy.
Bond Investing: Strategic Bond Investor
Finally, we’ll round out the list with a solid and dense book on bond investing. Bond investment is decidedly unsexy, but every investor will at some point pivot their holdings toward bonds and other conservative investments. Gaining an understanding of the bond markets can help you hedge risk and give you the information you need to build a foundation for retirement wealth. Once a foundation is built, that opens the door to riskier investments and potentially higher profits without losing your fundamentals.