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The Top Five Investment Books That I Recommend

     Any list of best investment books of the last few generations should include a discussion of the classic The Intellient Investor, which was originally published in 1949 by the legendary investment professional Benjamin Graham. Graham also wrote the finance industry classic Security Analysis along with David Dodd, he was known as the "Dean of Wall Street," and Graham also taught and employed Warren Buffett.

     The Intelligent Investor is an appropriate start, in part because Warren Buffett called The Intelligent Investor "the best book about investing ever written" in several editions of the book including the fourth edition published in 2003. For the updated revised edition, Jason Zweig was chosen as Editor and he added significant commentary to Graham's text. Zweig has written several of his own books, writes the Wall Street Journal's Intelligent Investor column, and also helped Nobel Laureate Daniel Kahneman write his best seller Thinking Fast and Slow.

     Shortly after I first published InvestorHome in 1996 I signed up for Amazon's new Associates program and I started writing book reviews on my site hoping to generate referral commissions. Nowadays the bulk of my Amazon commissions come from other Amazon purchases, so if you do purchase any of these books or even if you plan on making other Amazon purchases, I would appreciate it if you link through one of my web sites since as an Amazon Associate I earn from qualifying purchases. It doesn't cost you anything extra if you are buying anyways - I just get a commission for referring you to Amazon.

     During my career publishing, working with individual investors, and working for a consulting firm advising many of largest money managers, I set out to interact with many of these authors because they are the best at what they do. Regarding The Intelligent Investor I had read the fourth revised edition, but I was in my old boss Wayne Wagner's office one day probably about 15 years ago and he had a copy of the 2003 edition. I was very pleasantly surprised as I browsed it when I discovered that Zweig included two footnotes citing my web site investorhome.com, regarding mutual fund performance and my critique of the Motley Fool's Foolish Four. The Gardner brothers are entertaining and seem like good people, but I was a skeptic of their Foolish Four strategy and I also decided to investigate the historical performance of their real money portfolios. I also mentioned it to Stephen Thorley and Grant McQueen (who had just published an article about the Dogs of The Dow) and they then published a paper titled "Mining Fool's Gold." William Bernstein (author of several excellent books including The Investor's Manifesto) also wrote an article for Morningstar with some color on the history of that paper. To their credit, the Motley Fool did later stop recommending the strategy. By the way, Graham also originated the idea of a certification process for financial analysts, which would later manifest in the CFA credential.

     The Intelligent Investor has reportedly sold over a million copies and it is an excellent guide to value investing and fundamental analysis. I especially appreciate that it begins with a discussion of investment versus speculation, which I also write about extensively and I think is one of the most misinterpreted and misunderstood distinctions among investors and in the investment business. Summing up, The Intelligent Investor is a must read if you work in the investment industry, but it is also readable for novices and those early in their investment education.

     Downshifting a bit, for the second investment book I recommend is a book that is geared specifically for beginners and novices, and it is Investing for Dummies. The Dummies brand has been extremely successful, and for those that aren't familiar with Eric Tyson, he is one of the best selling financial authors of our time with five national best sellers and an unprecedented four of his books simultaneously on BusinessWeek's business book bestseller list. He has literally sold millions of books, including over two million of Personal Finance for Dummies. He has also been a widely read and distributed syndicated columnist. I've known Eric for decades and he has cited me and my web site, and he has often tasked me with doing technical edits of several of his for Dummies books, included that 6th edition of Investing For Dummies. Investing for Dummies is now on its 8th edition and I continue to recommend it because Tyson is an excellent writer with an engaging style and he summarizes even complex topics in a way that makes them more understandable. So for beginners, Investing For Dummies is a great option.

     The third investing book I recommend is Common Sense on Mutual funds from the late John C. Bogle. The 10th Anniversary edition was published in 2009 and Bogle also wrote many other excellent books including Enough, and The Little Book of Common Sense Investing, but Common Sense on Mutual Funds is his best known (I met Bogle and he signed my copy about 20 years ago). The book is deep and useful, in addition to being a great resource. I have written fairly extensively about Bogle's Legacy and the remarkable impact that Bogle had on the investment industry both in The Peaceful Investor on my web site, including a page I posted where I link to over 100 tributes to Bogle from early 2019. In an industry rife with conflicts of interest, Bogle and Vanguard have succeeded by putting their customers first.

     My fourth recommendation is Stocks for the Long Run by Jeremy Siegel. I had initially read the second version and Professor Siegel personally signed my fifth edition copy when I met him at a presentation a few years ago. Siegel's book is a cross over between a text book and a mass market investing guide. His focus is the advantages of stocks and the historical data. I summarize in The Peaceful Investor the precedents including work done at the University of Chicago starting in the 1960s, and from Ibbotson Associates (which was bought by Morningstar). Siegel built of the data and summarizes how US stock returns have been superior to other investments like bonds and gold. Siegel also cites other researchers including Elroy Dimson, Paul Marsh, and Mike Staunton (DMS), who wrote an often referenced book called Triumph of the optimists (published in 2002) which documented international stock returns. DMS publish updates annually through Credit Suisse, providing a more global and timely reference.

     Their are many debates about the data and their implications, for instance some suggest the long term US data over several centuries isn't as relevant today. The international data shows that the United States experience is relatively unique and the so-called equity risk premium, or extra return you expect from taking the risk of being in stocks rather than bonds, has been lower for a global investor than for a US investor. I also personally think the book lacks a more in depth discussion about real estate and REITs in particular, as another contender for the best long term investment, which I also discuss in more depth in The Peaceful Investor. Regardless, Stocks for the Long Run is an outstanding resource and an excellent reference on a broad range of topics in finance.

     My personal choice for the best investment book is A Random Walk down Wall Street by Burton Malkiel. Random Walk Down Wall Street is a classic investment guide, with over 1.5 million copies sold and 12 editions, the latest in 2019. Shortly after I became a licensed stockbroker during my junior year in college I read an earlier edition and it lead me to question a lot of what I was seeing in the industry. The focus is the Random Walk theory and the Efficient Market Hypothesis, which are foreign concepts to some novices, but Malkiel explains them and their implications in a very readable and understandable style. In the first edition of Random Walk published in 1973 Malkiel effectively called for an index fund and the first was introduced by Bogle and Vanguard in 1976. Tim Ranzetta recently did a podcast with Malkiel that is well worth listening to, in particular when they discuss the first edition of the book and its history. Although I credit Bogle with being the most important investment professional of all time (given the remarkable impact that Vanguard has had and the number of customers it has), Malkiel and his book have has also had an enormous impact. Malkiel was on Vanguard's board for 28 years and he inspired the Wall Street Journal's Dartboard contest, based on his suggestion that monkeys throwing darts at the WSJ could pick stocks just as well as so-called professions. Malkiel, Bogle and others were way ahead of their time, and time has proven them to be right in many ways, given the evolution of the industry (which I also discuss in more depth in another video/blog about why passive funds are killing active funds).

     I haven't met Professor Malkiel in person, but I started emailing him decades ago about the WSJ dartboard contest, and other topics since then. By the way, later in that podcast Malkiel, who is now affiliated with the robo-advisor firm, Wealthfront, suggests the next revolution will be in financial advice because he argues it's too expensive and often conflicted, which I agree with, and that is another focus of my book. So, Random Walk Down Wall Street is still my first choice for the best all around investment. Malkiel updates it regularly, he discusses the full investment process, asset allocation, the major asset classes, portfolio theory and many other topics, making it a through and complete guide to overall investing.

     So those are my top five recommended investment books, but I also recommend many other books that are not completely focused on investing. For lifestyle and savings I recommend The Millionaire Next Door and The Richest Man in Babylon, while one of my favorite finance books is Against The Gods, by the late Peter Bernstein (who I was fortunate to meet and interact with in the late 1990s).

     It is an understatement to say that a lot has happened in the investment world since Ben Graham first wrote The Intelligent Investor. When Graham wrote The Intelligent Investor there were no index funds, reits, or etfs, and the idea of the internet, investing directly on a computer with a few clicks, getting advice via video conferencing, and robo-advisors would have probably been hard to imagine or foreign for most. A lot of what Graham and others wrote is actually more relevant today, but it is a different world and I've been fortunate to be an observer and sometimes active participant in the evolution of investing theory and practice over the last 30 years. My book The Peaceful Investor is my humble attempt to summarize the critical lessons of the best investing books and academic research, and integrate the new investment services and tools that have evolved, along with the lessons of behavioral finance from recent decades.

     Graham's focus on value investing has proven to be so fitting to the empirical data that the industry has been debating whether value strategies have outperformed because value is a risk factor, or whether it results from the mistakes of investors. Yet, perhaps so much money and effort has been directed toward value strategies that it may not be reasonable to assume the future will be like the past. Similarly, while the random walk and efficient market hypothesis have the backing of a tremendous amount of evidence, there is some evidence that a few specific cases (like value investing, some forms of technical analysis like momentum) might be useful. And while Siegel's recommendation of stocks as a long term investment option has been profitable, evidence has been building that REITs in the US and buying and renting single homes in many countries (which is now a publicly accessible investment option in the US and some countries) have offered competitive returns that investors should also consider for an increasing percentage of their long term portfolios.

     It is a remarkable time to be an investor because we now have low cost access to simplifying, yet often sophisticated tools to invest efficiently and appropriately. Asset classes that historically have only been available to high net worth and institutional investors (some that make sense, and other that don't) have also become more accessible to individual investors (or they can be effectively replicated). Those that haven't even begun to plan for their future now have access to information and tools that can help them start and implement a plan. Those that plan ahead, save, invest appropriately, minimize their costs and taxes, and avoid shooting themselves in the foot can strive to meet their goals and live a peaceful financial life. I hope this article and my work can help some people in that process.

Gary Karz, CFA
Author of The Peaceful Investor and Publisher of InvestorHome.com
twitter.com/GKarz (email)


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