To make any investment decision, a rational investor shall make a study the propositions of investment and weigh it in terms of strengths, weaknesses, opportunities, and threats.
Making an investment analysis is tough. It takes into account the type of investor, his risk appetite, books of the company, and ultimately the compounding factor that plays massively to build one’s wealth.
Here are five books which are necessary and covers the necessary financial, psychological, and historical analysis of stock markets and investors and would tremendously help any investor:
1) Security analysis by Benjamin Graham
This book is one of the most fundamental books in the history of financial investment analysis. This book directs to teach investors along with readers the analysis behind the investment in securities. It helps investors and readers to analyze the financial position of the company to determine the intrinsic value of the company and make informed decisions.
Despite being published almost 8 decades ago, this book still holds prominence in the field of security analysis and investment management. The book is focused on the careful analysis of the balance sheet as a road to investment success.
This edition gives guidance on analyzing securities that generations have followed and relied on till now. This book provides the principles and techniques of security valuation, asset valuation which can enlighten readers with an insight into the net worth of companies.
You can get tips to take judicious financial decisions irrespective of your knowledge and profession. This book is filled with various illustrations and is aimed at investors to play the investment game.
2) Poor Charlie’s Almanac
Poor Charlie Almanac, compiled by Peter D. Kaufman is basically all the speeches by Charlie Munger. This book focuses on the ‘Multiple Mental Models’ approach to decision making. This book is written with ideas and pictures to assist them which is in sync with Munger’s idea to “make the mind reach out to the idea” thereby increasing retention of ideas in memory.
The “Lollapalooza Effect” is Munger’s term for the confluence of multiple biases; according to Munger, the tendency toward extremism results from such confluences. The 25 Cognitive Biases is also explained in the book. Munger explains why we’re so psychologically flawed, leading to mistakes in our decision.
With Charlie himself as a teacher, you will learn about better investment, decision making, and thinking about the world and life in general. Charlie’s ‘multidisciplinary’ approach, is a self-developed model for clear and simple thinking while being far from simplistic itself. He takes clues from writers of the 18th and 19th centuries to put forward his ideas while simultaneously bringing his own handy experiences and knowledge to the table.
3) One up on Wall Street by Peter Lynch
Peter Lynch, the author has stated the process behind find profitable companies by looking for a few minutes of the financial investor. Peter Lynch is one of the most successful fund managers and in his book, he lays down his ideas on stock classifications, quick drills, famous numbers, and how one should design a portfolio.
This book deals basically in investing in cyclical, turnaround, and fast-growing companies which are akin to startups in the last stages to becoming profitable.
Lynch has tried to simplify the complicated investment methodology and succeeded in doing so. The book helps the average investors over professionals to achieve financial success.
4) The little book that beats the Market by Joel Greenblatt
Joe Greenblatt launched formula investing in around 2009. The site was focused on an online money management firm looking at various investment strategies. The book is derivative of the strategy deployed by Greenblatt in order to beat the market. He provides a “magic formula” that is easy to use and helps in the automatic purchase of shares of good companies at a bargain.
Greenblatt uses simple language and adds slight humor to the content to make the reading more enjoyable. The book provides a low-risk approach on how to beat the market and professional managers by a wide margin.
The author explains clearly how to view the stock market, why most people become unsuccessful in the stock market, and how the techniques devised in the book will work even if the book makes them public. Greenblatt suggests purchasing 30 good companies with a high earnings yield and a high return on capital.
He further instigates that the formula explained in the book beats the stock market 96% of the time and generated compounded annual returns of 30.8% over a 17-years record. The book also explores the basic principles of stock market investing and explains why success eludes almost all individual and professional investors.
5) Narrative and Numbers by Aswath Damodaran
Aswath Damodaran is Mr. valuation and synonymous with valuation techniques he applies thoroughly with all investment propositions. In the book, Narrative, and Numbers, Mr. Damodaran describes how storytellers can better incorporate and narrate numbers. He has explained Uber in the stock market and how the narratives have driven the valuations.
He investigates why Twitter and Facebook were valued in huge dollars at their public offerings, and why Twitter has declined while Facebook has grown. Damodaran also looks at more established business models such as Apple and Amazon to demonstrate how a company’s history can both enrich and constrain its narrative.
The author is of the notion that stories create good connections with readers and helps them understand the complicated financial and psychological theories. However, humans for a long time connect success with precise numbers. Imprecise stories do drive the valuations, that’s what the book is about.
The author has begun the book by studying the history of numbers, tracing the origins of financial models applied today using quantitative data. Damodaran explains the techniques to use such data and how development has taken over in the last three decades making it easier to collect and analyze such data.