Let’s talk about books that provide insights on investing.
It’s no surprise that this is a popular topic. After all, we all want to invest and accumulate wealth, and it’s easy to go online and search for recommended books. Here are some typical entries in the “top picks for investing books.”
- The Intelligent Investor by Benjamin Graham
- A Random Walk Down Wall Street by Burton Malkiel
- Security Analysis by Graham and Dodd
Investing books that are easy to read for the lay person
- One Up on Wall Street by Peter Lynch
- Rich Dad, Poor Dad by Robert Kiyosaki
- The Wealthy Barber by David Chilton
Books about life as a trader
- Liar’s Poker by Michael Lewis
- Market Wizards (Interviews with Top Traders) by Jack Schwager
Books about how financial markets go crazy from time to time
- Extraordinary Popular Delusions and the Madness of Crowds by Charles Mackay
- Irrational Exuberance by Robert Shiller
But sometimes you may want to read a book that’s just a good read— that tells a good story or pushes you to think in a different way. That’s how we came up with the recommendations below. They’re a starting point based on the idea that you can take investment insights from places other than the traditional textbook or best-selling finance book. They’re also fun to read.
Moneyball (read the book or watch the movie)
by Michael Lewis
Moneyball is about the Oakland A’s baseball team and their struggles to put together a winning team on a very limited budget. Since the team couldn’t compete with bigger teams in the league to attract successful players, they had to be smarter with the dollars they had to spend.
What’s the connection to investing? Value investing is about systematically identifying assets that are temporarily mispriced in the marketplace. In Moneyball, author Michael Lewis describes how Oakland used statistical analysis to identify baseball players with capabilities that were underappreciated by the traditional scouting system (who therefore received lower compensation and were “affordable”). If you read the book and replace the word ‘player’ with ‘company’ or ‘stock’ you can see a strategy that is analogous to value investing.
Sour Grapes (documentary film, available on Netflix)
You can watch this fascinating film about wine counterfeiting and learn something about investing in fine wine—but lessons learned here also apply to other investments, including real estate and stocks. The biggest takeaways (aside from buyer beware) include the need to do your own homework, question all “expert opinions,” stay skeptical and understand how the mere superficial appearance of value can skew your judgment when evaluating an asset. The story is particularly relevant to popular stocks that everyone is buzzing about, where everyone wants a piece of the action and price can seemingly become irrelevant.
The Tipping Point
by Malcolm Gladwell
Have you ever had an investing idea that seemed terrific but went nowhere? Two years later, you’ve forgotten all about it and you see it on the CNBC market ticker, climbing by leaps and bounds without any apparent catalyst. This is the kind of phenomenon Malcolm Gladwell describes in The Tipping Point. Just like certain videos will go viral and some celebrities (or stocks) will gain incredible popularity for no apparent reason, sometimes the moment is just right for certain events to occur. Call it “animal spirits” or “the stars aligning,” this phenomenon is notoriously difficult to capture. However, spend any time observing the financial markets and you can see it in action. This book looks at some of the mysterious forces that can lead to a Tipping Point.
Nudge: Improving Decisions about Health, Wealth, and Happiness
by Richard Thaler and Cass Sunstein
To round out your library on the psychology of investing decisions, Nudge is a great book to better understand biases around decision making. This book could be considered a painless introduction to behavioural finance, a very hot topic in the investing world.
Published in 2008, this book currently sits on the New York Times bestsellers list (business book category), thanks in part to recent publicity surrounding its 2017 Nobel Prize-winning author, Richard Thaler. Nudge discusses the human biases that distort judgment and sometimes prevent people from making the most rationale choice. The authors connect their findings to real-life situations, such as saving for retirement. After laying out the irrationality of many human choices, the authors suggest “nudges” that might push people towards acting more often in their own self interest, without forcing such behaviour.
Reminiscences of a Stock Operator
Although this book is actually about stock market investing, it has little to do with the analysis of company fundamentals. Written in the early years of the 1900s and first published in 1923, this book makes the “favourites” list of many Wall Street professionals. If you read our last blog about emotional investing and found it struck a chord, you’ll enjoy this book.
Reminiscences is a fictionalized account of the life story of a real trader (Jesse Livermore), that talks at length about the many ways that trading the markets can be a battle with yourself and your own psychology. The book is also fascinating from an historical perspective, filled with anecdotes about market manipulation and a surprising story about the questionable value of insider information. Those interested in the connection between fiction and reality can buy the annotated version, which connects the book’s stories to real-life people and events. This book was written almost 100 years ago, but the author himself lets us know why it’s still such a “must read”:
“There is nothing new in Wall Street. There can’t be because speculation is as old as the hills. Whatever happens in the stock market today has happened before and will happen again.”
Colum McKinley, CFA with contributions from colleagues
Portfolio Manager, CIBC Asset Management