If you are a do-it-yourself investor trying your hand in direct equities, below is a list of must read stock market books.
The Little Book that Beats the Market
About the Author:
Joel Greenblatt is the founder and managing partner of Gotham Capital, a private investment partnership that has a phenomenal record of achieving 40% annualized returns for over 20 years since its inception (in 1985).
Joel is also a professor at Columbia Business School.
About the Book:
This is the most entertaining and funny stock market book I have ever read! It’s a skinny 150 pages book filled with profound wisdom written in a language that even a child can understand.
This book is more than guide to successful stock market investing – it provides a “magic formula”. This formula is not only simple, but it has also been extensively tested and found to beat the market by a wide margin.
Contrarian investment strategies
About the Book: If you believe that markets are efficient, and index-funds are the way to go, then you should read this book. Dreman dissects efficient market arguments to shreds in this book. He states that the market is not efficient because investors are many times not rational. In fact, they are predictably irrational. And then Dreman gives data to prove this. He presents research to show that investing in a certain way allows you to beat the market.
And he gives more research and data. Some people might find this to be overwhelming, but he does so to prove the validity of his methods. The wealth of research convinces that Dreman’s methods were not data-mining and were not limited to certain market environments.
You can be a stock market genius
About the Book: Yet another gem from Greenblatt. This is probably the only easy to understand book I have ever read on special situation investing.
Joel has been beating the market, with returns in excess of 40% for more than two decades. With this book, he shows you how he does it.
This book brings to light unchartered areas of the market where individual investors have a huge edge over the professionals – the special situations.
Book covers multiple special situation scenarios such as spin offs, mergers, bankruptcies, risk arbitrage, rights offerings, etc. and explains how individuals should analyse and invest in these situations to reap abnormal returns.
About the Author: Mary Buffett is an internationally acclaimed author & lecturer on Warren Buffett’s investment techniques. She is also the CEO of a commercial film and editing company with clientele ranging from Coca-Cola to Madonna.
Mary happens to be the ex-daughter-in-law of Warren Buffett.
About the Book: In Buffettology, Mary Buffett details Warren’s approach to investing – a style based on the principles of Benjamin Graham and perfected by a quality that most investors lack–discipline. Mary Buffett writes, “As you read through this book you will come to see that having a business perspective on investing is more about discipline than philosophy”.
Buffettology examines Buffett’s methods for valuing companies and selecting stocks and concludes by providing a list of 54 “Buffet Companies”. These are companies in which Buffett had invested in past and which the authors believe Buffet continues to follow today.
The book not only serves as a useful guide to understanding how Buffett invests, it’s an excellent primer to investing in stocks, whether you plan to become a Buffettologist or not.
One Up on Wall Street
About the Author: Peter Lynch is one of the greatest money managers of our time with a record of achieving 29% returns between 1977 & 1990 as the portfolio manager of Fidelity Magellan Fund. Over this period, Lynch beat S&P500 11 out of 13 years making Magellan the best performing fund during his tenure.
About the Book: This is a seminal book on investing in which Peter Lynch explains the advantages that average investors have over professionals and how they can leverage these advantages to achieve financial success.
According to Lynch, investment opportunities are everywhere. From the supermarket to the workplace, we encounter products and services all day long. By paying attention to the best ones, we can find investment opportunities before the professional analysts discover them.
When investors get in early, they can find the “tenbaggers,” the stocks that appreciate tenfold from the initial investment. A few tenbaggers will turn an average stock portfolio into a star performer.
Lynch offers easy-to-follow advice for sorting out the long shots from the no-shots by reviewing a company’s financial statements and knowing which numbers really count. He divides companies into groups such as cyclical, turnaround, and fast-growing companies, and offers guidelines for investing in each of them.
Beating the Street
About the Book: Yet another wonderful “invest in what you know” book from Peter Lynch. In this book Lynch shows how you can become an expert in a company and how you can build a profitable investment portfolio, based on your own experience, insights and on straightforward how to do it yourself research.
Lynch believes there’s no reason why individual investor can’t match the experts, and this book shows you how.
Buffett, the making of an American capitalist
About the Book: This book has been written with the intent of showing readers how Warren Buffett was able to amass the phenomenal wealth that he generated throughout his life, starting from scratch and by investing in stocks.
It also portrays the evolution of Buffett as an investor – from a Grahamian cigar butt value- picker, to a buy and hold strategist, investing in profitable and high cash generating companies with a durable moat.
According to Bill Gates, “Other books have been written about Warren Buffett and his investment strategy, but…this is the one to read”.
John Neff on investing
About the Author: John Neff is a legendary money manager and a life–long contrarian. During his illustrious career spanning 31 years as portfolio manager for Vanguard′s Windsor and Gemini II Funds, he beat the market 22 times, through every imaginable stock market climate, while posting a 57–fold increase in an initial stake. When Windsor closed its doors to new investors in 1986, it was the largest mutual fund in the United States.
About the Book: In this book, Neff lays out the principles of his phenomenally successful low PE approach to investing. He describes the strategies, techniques, and investment decisions that earned him a place alongside Warren Buffett and Peter Lynch.
Most of the book provides historical record of the authors experience managing the Windsor Fund. In the context of history, the book shows how disciplined value investing strategy of consistently buying low P/E stocks, pays off in the long run.
What works on Wall Street
About the Author: James P. O’Shaughnessy is one of the most renowned ‘quants’ who specialises in quantitative equity analysis and investment models. He holds several U.S. patents for his investment strategies and was recognized as a legendary investor by Forbes.com.
James is also the founder of O’Shaughnessy Asset Management, LLC (OSAM).
About the Book: Using S&P’s Compustat database, this book offers extensive quantitative data on market performance spanning almost 90 years.
• Stocks ranked by market capitalization
• Price-to-earnings ratios
• EBITDA to enterprise value
• Price-to-cash flow, -sales, and -book ratios
• Dividend, buyback, and shareholder yields
• One-year earnings-per-share percentage changes
It’s a classic book on quantitative equity analysis which provides amazing insights into factors that affect stock performance over time.
The Zulu Principle
About the Book: The main point of the book is to have an edge over competition by focussing on a niche that suits investors’ temperament and then perfect execution within the circle of competence.
According to Jim, large well-known companies are generally well analysed which puts smaller companies at an advantage. To help the reader choose among niches that have potential to be profitable, Slater categorises companies into groups and discusses each of them separately: 1) small dynamic growth companies, 2) turnaround situations and cyclicals, 3) shells, 4) asset situations and 5) leading stocks.
After choosing a strategy, Slater suggests that an investor should hold a portfolio of 10 to 12 stocks and never have less than 50 percent of his investment assets in stocks.
How to make money in stocks
About the Book: In this book, the author discusses his trademark CAN SLIM method of investing. The CAN SLIM method combines technical analysis with fundamental, and consists of 7 steps which are aimed at maximising profits.
At the beginning of the book author lists out winning stocks from the past century to illustrate the cup with handle pattern formulated by the author after analysing stock market patterns over the last 100 years.
This book imparts valuable practical insights, including times when one needs to cut a loss and when one needs to invest and make a profit.
The Intelligent Investor
About the Author: Ben Graham needs no introduction. A professional investor and economist, Benjamin Graham is believed to be the father of value investing. He first taught his investment approach at Columbia Business School.
About the Book: This book is perhaps the most important and insightful book on investing, and an eternal classic. It teaches three powerful lessons of how one can:
• Minimize the odds of suffering irreversible losses
• Maximize the chance of achieving sustainable gains
• Practise emotional control and behaviour to help the investor achieve full potential.
Graham lists two types of intelligent investors. The ‘active’ or ‘enterprising’ who does continuous researching, selecting and monitoring a dynamic mix of stocks, bonds and mutual funds. The ‘passive’ or ‘defensive’ investor on the other hand, creates a permanent portfolio that runs on autopilot and requires no further effort (but generates very little excitement) argues the author so elegantly. Quoting the investment thinker Charles Ellis, ‘’the enterprising approach is physically and intellectually taxing, while the defensive approach is emotionally demanding’’.
Around 300 pages of pure distilled investing wisdom. Highly recommend if you want to learn value investing.