Getting started with investing in the stock market can be daunting for new investors. But if you truly want to grow your net worth then investing in the stock market is a crucial part of this.
Harnessing the true power of compound returns over long periods of time is the easiest way to grow your long-term wealth. Unfortunately, most people don’t participate in the stock market often scared of investing in shares as they’re “too risky”.
I only really took the plunge about 5 years ago. Yes, I had a pension, but I had no idea where it was invested or what kind of returns it generated. I simply had it because my employer put in 6.5% of my salary without any contribution from me – FREE money in effect…
When I started looking into investing, I wasn’t sure where to start. So, I wanted to get an idea about how the stock market worked and how to make above average returns. This list is 7 of my favourite books about investing and the stock market.
This was one of the very first books I read, and I absolutely loved it. Each chapter gives you an overview of the investment career of one of the world’s greatest investors. You’re walked through each investors approach to investing and their process. It also gives you examples of shrewd investment decisions they made in their career. Each chapter is summarised with the main points that you can learn from each master investor.
- Benjamin Graham – widely known as the father of value investing and was Warren Buffet’s mentor. Graham produced annual returns of 20% vs 12.6% for the market between 1936 and 1956
- Philip Fisher – An American Growth Investor most well known as the author of Common Stocks and Uncommon Profits. Fisher was one of the formative proponents of growth investing.
- Warren Buffett and Charles Munger – Probably the most famous of all, Buffet is widely regarded as the greatest investor of all time. Over a career spanning 50 years, he’s produced a staggering 20% compound annual return vs 10% for the S&P500.
- John Templeton – the ultimate contrarian investor, Templeton was an early innovator in Global value investing.
- George Soros – known as “The Man Who Broke the Bank of England” when he famously shorted the pound in 1992 during the Black Wednesday UK currency crisis. Between 1969 and 1995 his Quantum Fund made a staggering compound return of nearly 35%.
- Peter Lynch – Peter Lynch is widely considered as one of the greatest investors who ever lived. A growth investor focussing on small companies Lynch ran the Fidelity Magellan fund. During his tenure, he produced an incredible 29.2% Annual return between 1977 and 1990, nearly twice the 15.8% return for the S&P500
- John Neff – John Neff was a value investor who ran Vanguard’s Windsor fund from 1964-1995. During this period he returned 13.7% per annum vs 10.6% for the S&P500.
- Anthony Bolton – a legend in the UK fund management industry and the only Brit featured in the book. Bolton was a contrarian value investor who ran the Fidelity Special Situations fund from 1979 to 2007. Over his tenure, he produced a 19.5% compound annual return compared to the 13.5% return for the FTSE All-share.
With numbers like these who wouldn’t want to learn from these guys?!
I love this book as it gave me a real insight into the minds of the greatest investors who’ve ever lived. This introduction to the world’s greatest also led me to read more about some of my favourites from the list.
I flew through this book in a couple of days I enjoyed it that much. The Little Book of Stock Market Cycles gives you an overview of the history of the US stock market dating back to before the Great Depression. It shows how the stock market has scarily followed a fairly regular pattern over its lifetime. The book details all the various long, medium and short-term market cycles such as
- Secular bull and bear markets,
- The presidential cycle and the
- 6-month stock market cycle
I absolutely loved this book when I read it. So much so, I devoured all 400 pages of it in less than a week. Bull by Maggie Mahar is a hugely entertaining account of the greatest bull market in the history of the US stock market. The bull market ran from 1982 through to 1999 ending in the dot com crash. Bull provides an incredible account of how secular market cycles work. It really shows how utterly bonkers financial markets can get when irrational exuberance takes over in a raging bull market. It’s a must read for any new investor who wants to understand how the stock market works and the psychology behind markets.
4. One Up on Wall Street: How to Use What You Already Know to Make Money in the Market – Peter Lynch with John Rothchild
Written by one of the greatest investors ever – Peter Lynch. This book will give you an insight into how he picked his winners to produce the incredible annualised returns of 29% he returned between 1977 and 1990. In his first 10 years running the Fidelity Magellan Fund, he turned $10,000 into $190,000 for his investors.
This book shows you the criteria Lynch used for selecting which shares to buy so it’s ideal for anyone who wants to pick their own shares. I personally don’t pick individual shares I prefer to pick funds. But I do try and pick fund managers who have a similar investment approach to some of the greats like Peter Lynch.
5. The Little Book of Behavioural Investing: How Not to be Your Own Worst Enemy by James Montier
I bought this book to learn more about the psychology of being a successful investor. Usually, your worst enemy as an investor is yourself. Retail investors, unfortunately, have a habit of doing everything the wrong way around. The buy-in at the top of the market when everything seems rosy and sell at the bottom after a crash. How many investors sold out just before the turnaround after the 2008 financial crash only to miss the rebound? This book helps you recognise the behaviours that you need to avoid and recognise in yourself as an investor to be successful.
Anatomy of the Bear examines the four biggest market bottoms in stock market history 1921, 1932, 1949 and 1982. At all these points US equities were incredibly cheap. But nobody wanted to buy as the market had suffered a recent mauling by the bear.
In this incredible book, Russell Napier analysed every article from the Wall Street Journal (70,000 of them!) from either side of the market bottom. This gives you an incredible insight into how markets worked at these points. This helps you to understand the features to look for if you want to spot a great buying opportunity.
One of the things that really stood out to me is that one of the phrases you often here is “Buy when all the news is bad”. But this book reveals that at all four bottoms good news had started to appear before the market recovered. The thing was, nobody believed the good news or wanted to buy into it due to the negative sentiment in the market.
7. This Time Is Different: Eight Centuries of Financial Folly by Carmen M. Reinhart and Kenneth S. Rogoff.
This book studies 66 countries across 5 continents over 8 centuries. It gives you an overview of the many booms, busts and financial crises that have occurred in history. It includes currency crashes, hyperinflation, government defaults, real estate and equity market crashes along with asset bubbles. One of my favourites in this book is the account of Tulip Mania and the subsequent crash that followed in 1637. This section’s hugely entertaining – if you haven’t heard of Tulip Mania before, this was the first recorded speculative asset bubble. At the peak a single tulip bulb was reportedly worth about 10 times a craftsman’s annual income – I mean REALLY?!
With hindsight, anyone can see how ludicrous this was, but that’s the nature of asset bubbles! Anyone who invested in Bitcoin when it was nearly $20,000 a coin will be wishing they’re read this book – there are a lot of similarities in my opinion!
So, there you have it- 7 of my favourite books about investing and the financial markets. Hopefully a nice mix of specific investment books as well as some real gems covering economic cycles. Have you got any books about financial markets that you love? I’d love to hear about them in the comments below plus any thoughts you have about the books in this list.
Until next time, thanks for reading.