The Ultimate Investment Reading List

You can't be a good investor without reading a lot (trust me--I've met people who've tried). Buying stocks that outperform the market is an intensively competitive endeavor, and you're handicapping yourself unnecessarily by not arming yourself with insight from the investment literature. Unfortunately, there's a lot of heavily promoted, page-filling fluff out there masquerading as useful material.

So, with some help from my colleagues, I've compiled the ultimate investment reading list. Any one of these books will help you become a better investor, and you'll be way ahead of the pack if you make your way through the whole list. I can personally vouch for almost all of them, and I've noted those that come from my colleagues' recommendations.

Starting Out
People new to investing need a grounding in the basics before learning from the great investors. Even though it's somewhat skeptical about the value of fundamental analysis, A Random Walk Down Wall Street by Burton Malkiel is a solid and wide-ranging survey of finance that's as good a place to start as any. Jeremy Siegel's Stocks for the Long Run, though often criticized as a product of the bull market, is also a good general overview of stocks as an asset class.

Analysis for Financial Management, by Robert Higgins, is one of the best (read: least painful) introductions to accounting that I've found, and you simply have to be able to understand how cash flows through a company if you plan on picking stocks. Accounting isn't exciting, but it is the language of business, and investors need to talk the talk before walking the walk. Though I'm a bit biased, I'd also recommend The Five Rules for Successful Stock Investing by yours truly--it's an accessible overview of fundamental analysis, and covers some topics that aren't always emphasized elsewhere, such as economic moats.

Finally, the unfortunately named Why Smart People Make Dumb Money Mistakes by Gary Belsky and Thomas Gilovich is the best entry-level book I've found on the fascinating topic of behavioral finance. People are wired in odd ways that cause us to make decisions that are out of whack with what we rationally "should" do. If people don't know what those flaws are, they can't consciously avoid them while investing.

Great Managers
There's no better place to learn about investing than at the feet of those who've practiced it with resounding success, and readers could do much worse than starting with Warren Buffett. My favorite of the many Buffett biographies is Roger Lowenstein's Making of an American Capitalist, after which you should read the pithy and insightful annual letters written by Buffett to shareholders of  Berkshire Hathaway (BRK.B). Since the letters are available for free on Berkshire's Web site, I'm comfortable stating categorically that they're the best deal available in investment education.

Benjamin Graham's The Intelligent Investor is a must-read, and the recent edition edited by Jason Zweig has copious--and excellent--footnotes that bring Graham's classic ideas into the modern age. Just as Graham is often thought of as the father of value investing, Phil Fisher is in many ways the original growth investor, and his Common Stocks and Uncommon Profits should also be high on any investor's reading list. It's the perfect complement to Graham.

Moving to the more recent stars of the investment firmament, Peter Lynch's Beating the Street is essentially the journal of a very successful money manager, which is what makes it so readable and informative. The thing I love about this book is the passion for investing that jumps off every page--if this book doesn't get you excited about picking stocks, nothing will. And proving the point that you can't judge a book by its cover (or title), You Can Be a Stock Market Genius by Joel Greenblatt is a largely unsung book that ranks in my all-time top 10. Greenblatt is the founder of Gotham Capital, and has achieved simply astounding returns by simply poking around the market's oft-forgotten corners, such as spin-offs, rights offerings, recapitalizations, and the like. You won't regret reading this one--it's relatively short, full of case studies, and engagingly written.

I'd also highly recommend John Train's Money Masters of Our Time, which profiles about a dozen successful investors of wildly varying styles, as well as Seth Klarman's Margin of Safety, which is a great read by a modern value master. A warning: The latter is out of print--if you can find a copy, snap it up.

Finally, colleagues of mine have good things to say about Marty Whitman's The Aggressive Conservative Investor, and David Dreman's Contrarian Investment Strategies. I've not read either, but the folks who've endorsed them have good taste in books, so I don't think you'll go too far wrong. I also have not yet read Poor Charlie's Almanack, which collects Buffett partner Charlie Munger's major speeches and writings over the past couple of decades, but Munger's biography--Damn Right! by Janet Lowe--was good, so I imagine a collection of thoughts from Munger himself should be even better.

Histories and Narratives
Knowing where the market has been--and becoming familiar with its more interesting characters and episodes--is second only in value to reading about great investors. History often does repeat itself, and being familiar with the market's past can help you spot bubbles and bottoms when they reappear.

John Kenneth Galbraith's A Short History of Financial Euphoria is a slim volume that's a fine place to start, while Devil Take the Hindmost by Edward Chancellor is a fantastic and in-depth history of manias through the ages. Warning: This one is best suited for history buffs and stock geeks. Though intimidating at over 800 pages, Ron Chernow's The House of Morgan is worth the effort, since the history of the Morgan banking dynasty touches almost every corner of Wall Street over the past century and a half. And one final history book--Peter Bernstein's Capital Ideas--has been often recommended to me as an interesting and accessible history of academic finance.

On the lighter side, two classics by Michael Lewis stand out: Liar's Poker and Moneyball. The former tells the story of the larger-than-life characters who made Salomon Brothers the king of bond trading in the 1980s--with some laugh-out-loud episodes--while the latter chronicles how the Oakland A's parlayed one of baseball's smallest payrolls into a winning track record. I think Moneyball has more applicable lessons about investing, but Liar's Poker is simply a great read and gives an insider's view of life inside an investment bank during a bull market.

However, I think the best book in this genre has to be Roger Lowenstein's When Genius Failed, which chronicles the rise and fall of the Long-Term Capital Management hedge fund in the late 1990s. I can't recommend this one highly enough. The story is good--LTCM really did come close to causing major financial havoc--and the lessons you can learn are even better. If there was ever a more cautionary tale about the danger of hubris in finance, I haven't read it.

In fairness, that may be because I've yet to read any of the many Enron books that have come out since that firm's demise. The two that have been recommended to me most often are Bethany McLean's The Smartest Guys in the Room, and Kurt Eichenwald's Conspiracy of Fools--though I'll note that Charlie Munger mentioned the latter at this year's Berkshire Hathaway meeting.

Make You Think
The final category of books on the ultimate investment reading list are volumes that force you to think more deeply, or in a different way, about investing. Robert Cialdini's Influence is along the same lines (though more sophisticated) of Why Smart People Make Big Money Mistakes, and shows how and why we're susceptible to persuasion by others. If you think this doesn't sound like it has anything to do with investing, think again--following the herd is one of the easiest investment traps to fall into, and Influence will help you realize when you're being led astray by the crowd for irrational reasons.

Fooled by Randomness, by Nassim Taleb, is more directly about finance, but is no less thought-provoking than Influence. Taleb explores how easily we confuse luck with skill, and the importance of knowing which is which. Taleb is more of a quantitative analyst and a trader than the other authors on the reading list, which adds to the book's appeal.

Back in the fundamental-investing camp, Bruce Greenwald's simply titled Value Investing should also be on the list. Greenwald presents a back-to-basics twist on valuation by hammering on the importance of the replacement value of assets, using some in-depth case studies to make his point. Greenwald's approach is somewhat different from the discounted cash-flow approach we use at Morningstar, which makes the book an interesting read.

Finally, I would be remiss if I didn't recommend Michael Porter's Competitive Strategy, which is still the best primer for thinking about competitive advantage. It can be repetitive and dry in parts, but it's still worthwhile. You can't understand economic moats without being familiar with Porter.

Conclusion
Needless to say, this list could have been much longer--in particular, I only mentioned shareholder letters in passing, and they are a great (and free) resource--but it's a starting point for your investment education.