I am often asked for book recommendations for those who are beginning their journey to understand the stock market or those wishing to brush up on their investing fundamentals. Here is a list that is a great place to start. In an effort not to overwhelm you with too much work, I will start with these six titles and publish subsequent updates with additional materials. These additional materials will add further insights on markets and decision-making, as investing without a solid strategy and well-defined decision-making framework is unadvisable. Reading these books will not substitute for actual experience investing in the stock market. But, they should provide you a good, basic understanding of how markets work, how investors think and how humans think. All of these elements factor into long term stock market performance and investing success. Please consult an expert before beginning an investment program. Books are listed in no particular order.
Books for the Beginning Investor
1) One Up on Wall Street - Peter Lynch - Provides insight into analyzing (mainly growth) companies and their stocks. Lynch is famous for managing the Fidelity Magellan Fund in the 1980's and investing in the companies that you know.
2) Winning the Loser's Game - Charles Ellis - Provides insight into how difficult it is to beat the market. Market efficiency means that most mutual funds will underperform their benchmarks (after-fees) and that indexing is a good option for most investors.
3) A Random Walk Down Wall Street - Burton Malkiel - Provides insight into how the stock market works. Lays out the case for market efficiency and the difficulty of picking individual stocks.
4) Thinking Fast and Slow - Daniel Kahneman and/or Misbehaving - Richard Thaler - Provides insight into behavioral biases that affect investor's decisions. As humans and investors we have so many biases that affect our decision-making processes. Loss aversion, prospect theory and other key biases are explained in great detail and every investor should know how they effect every decision we make. And, knowing we have biases sometimes isn't enough to prevent us from falling prey to them.
5) Fooled by Randomness or The Black Swan - Nassim Nicholas Taleb - Provides clear examples of how luck and randomness impact the world, and how we underestimate their importance and overestimate our skill. We could easily substitute in a book or two from Michael Mauboussin that highlight the fact that we are generally much luckier than we are good.
6) The Intelligent Investor - Benjamin Graham - Value investing bible that provides insight into stock analysis. While value has fallen out of fashion as of late, understanding the precepts of the craft are important for understanding the markets. Combined with Peter Lynch's books, this will give a good introduction to value and growth investing.
These books will give you a firm grounding in investing basics and behavioral economics. There are many more books out there and I would suggest that you read anything and everything that you can get your hands on related to the topic. Some will be rubbish, but all will add to your knowledge base. Good luck in your quest to be better educated! I will guarantee that the more you learn, the less you will know. Happy reading!