Investment education is a lifelong endeavor. No matter how much you know and understand about the financial markets, there is always more to learn. Not even the world famous, masters of investing know everything.
Successful investing demands constant study and self-education. The problem is that there is so much information and data right now, how do investors weed through the garbage to discover true wisdom?
The best way to accomplish this critical filtering is to make certain to study the same books that the world’s most successful investors read and recommend.
Makes perfect sense, right? Well, unless you are personal friends with a successful, world-class investor, how do you know what the world’s best investors are reading?
The good news is the most successful investor on earth has a mission to help every investor succeed. I know this sounds too good to be true in the investing jungle, but it is 100% accurate.
This ultra successful investor bought his first share of stock at age 11. He has since parlayed this modest investment into a personal fortune of over $72 billion, making one of the wealthiest men on earth. Not only that, but he is consistently named as the most successful investor on the 20th century, as well as, one of the most influential people who have ever lived. Talk about some serious accolades!
I am not talking about some secretive Saudi prince or a loud, boisterous in-your-face kind of guy like Donald Trump. The investor I am referencing is amazingly humble, transparent and wants to help other investor’s succeed.
In case you have not guessed it yet, I am talking about the Oracle of Omaha, Warren Buffett.
Not only has Warren Buffett shared his hard-earned knowledge with everyone, he updates his teachings on a yearly basis. You see, every year, Buffett writes an investor letter to his investors. He publishes this letter on his site, so every investor can know his thoughts, ideas, and investment philosophy for the current year. Warren has these letters published since 1977 on this website. It is extremely interesting and educational to take the time to read every one of these letters. Watching what investment themes have stayed the same over the years and what ones what evolved is the key to learning how he has grown as an investor.
While these annual investor letters contain a wealth of knowledge and wisdom, it is another nugget of Buffett’s educational repertoire that I find most educational.
This nugget of investment wisdom is his favorite books. You see, Warren is not arrogant enough to believe that he knows everything about life and investing. In fact, this ultra successful man reads voraciously and credits others for his triumph. It is extremely rare to see others, at Warren’s level, being so incredibly humble. We all can learn an extremely valuable lesson from this behavior.
When Buffett started his investing career, he would devour up to 1000 pages per day of a variety of books. In fact, he still spends the majority of each day reading books.
He once stated, “Look, my job is essentially just corralling more and more and more facts and information, and occasionally seeing whether that leads to some action. We don’t read other people’s opinions, we want to get the facts, and then think.”
Here Are Warren Buffett’s 5 Favorite Books
- The Intelligent Investor by Benjamin Graham
Warren was just 19 years old when fate led him to this investment classic. He calls reading this book one of the luckiest moments of his life as it provided a solid intellectual framework for approaching the stock market.
Buffett makes clear that successful investing does not require a high IQ or inside information. All it takes is a framework for decision making and the emotion ability to stick to the plan to be a successful investor. This wisdom is absolutely priceless for anyone who invests in the stock market. He credits this book for providing the framework for his success. In addition to calling it, “the best investment book ever written.”
Let’s take a brief look into the ideas presented in this billionaire making book.
Graham teaches that avoiding losses is far more important than maximizing profits. This makes The Intelligent Investor best suited for long term investors rather than speculators or day traders. Graham explains that speculators and traders follow market trends but truly successful investors use discipline, research, and analysis to find success.
- Security Analysis by Benjamin Graham and David Dodd
Buffett calls his second favorite book, “another groundbreaking work of Benjamin Graham which provided me a road map for investing that I have followed for 57 years.”
Warren has gone as far as to call Ben Graham the second most influential person in his life, second only to his own father. Talk about a serious endorsement!
Security Analysis teaches that by properly analyzing a company’s fundamentals, the proper value can be determined. Once this value is determined, the investor can make a wise decision regarding the price of the stock. Is the stock undervalued or overvalued based on its fundamental value? This book provides the method to conduct proper analysis, and is considered to be the bible of value investing.
3. Common Stocks and Uncommon Profits by Philip Fisher
Clearly Warren Buffett does not hold the same reverence for Phil Fisher as he does for Ben Graham, but he does hold him in high regard. Warren stated, “I am an eager reader of whatever Phil has to day, and I recommend him to you.”
The primary wisdom from this tome is Fishers fervent belief that financial statements are not enough to properly analysis a company. He stresses that studying management is a critical piece of the analysis puzzle.
Buffett considers himself 85% Ben Graham and 15% Phil Fisher. The funny thing about this is that Buffett has stated that his investing partner Charles Munger leans much greater toward Fisher. This means that Berkshire Hathaway is much more than just 15% influenced by Fisher.
4. Stress Test: Reflections on Financial Crises by Tim Geitner
This book by the former Secretary-Treasurer is recommended strongly by Buffett. He calls it a “must read” for any manager. Warren likes this book since it is an eyewitness account of managing the government through the financial crisis. This is applicable to every manager and investor whether or not in the financial business. Knowing how to handle stress and issues is the mark of a successful investor and manager. Taking cues on the way the United States was maneuvered through the financial crisis will help you manage issues as they arise in your own investing and life.
5. The Clash of Cultures by John Bogle
Warren Buffett recommended this book by the chief of Vanguard Group back in 2012. Bogle is credited with inventing the index fund and his company manages $2 trillion in assets. John Bogle teaches much investment wisdom in this book. He believes that true long term investing is often overlooked in exchange for short term trading and financial speculation. He urges readers to stick to the concept of long term investing to reap the benefits of the financial markets.
The Key Takeaways
There is always something new to learn in the investing game. Warren Buffett, with all his wealth and knowledge, stays humble by realizing that even he has to keep learning to stay one step ahead of the market. Buffett, like many top investors, are voracious readers and always curious about the markets and world. Buffett publishes his thoughts in an annual investor’s letter that is available at no charge from the Berkshire Hathaway website. In this letter, he often recommends books that investors should be reading. His five favorite books are listed in the article.