Best investment books
Many beginner investors ask “What’s the best book about investment?” There are lots of books out there, but not all of them are good. Some are 90% motivational chit chat and anecdotes, and some are dangerously wide of the mark. For instance, some books advocate “betting the bank” on a single investment. Just about every good investor and financial advisor would tell you exactly the opposite – and they’d be right!
The Intelligent Investor
One of the best of all investment books was written back in 1949 and it’s still good. Benjamin Graham is known as the father of value investing; in The Intelligent Investor he shows how to value stocks and buy them cheap. His approach is to look at the fundamental value of the business. If you buy shares at cheap valuations, he argues, you’ve built in a margin of error. And if other investors recognize that value, pushing the share price up, you’ll get your profit. You might have to wait a while, though.
Peter Lynch, who managed the huge Fidelity Magellan fund for years, follows in Graham’s footsteps. His One up on Wall Street is a highly readable account of how to analyze stocks. Lynch points out ways that individual investors can look at the world around them for stock ideas. There’s loads of detail about how he did his own analysis – he was an analyst before becoming a fund manager.
Asset allocation – smarter than stock-picking?
William Bernstein’s Intelligent Asset Allocator takes a slightly different tack. Instead of looking at how to analyze individual stocks, Bernstein looks at how to create a portfolio. Where should you deploy your assets? How can you diversify your investments to avoid excessive exposure to a single asset class? He talks a lot about risk and reward, and the relationship between the two. Asset allocation is often overlooked by investors, but it has a huge impact on portfolio performance.
But all three of these books concentrate on the financial markets. They don’t have much to say about real estate. Finding good books on real estate as a general class is actually pretty difficult; most writers have a specific sweet spot. For instance, some only write about multi family residential properties; some only address single family houses; others – the minority – are about types of commercial real estate.
Real estate – complex and intriguing
Still, there are a couple of books that will show you the principles of valuing and dealing in real estate, and at an amazing level of detail. Both of them are aimed at major commercial real estate, but many of the lessons can be applied to any property transaction. James Randel’s Confessions of a Real Estate Entrepreneur sounds as if it’s going to be a racy story with a bit of ‘adult’ interest. In fact, it’s a no holds barred account of the real world of real estate. There are plenty of anecdotes, but if you read through, you’ll find an in depth coverage of valuations, deal structuring, and financing.
Brian Hennessy’s The Due Diligence Handbook for Commercial Real Estate, on the other hand, sounds as dry as dust. You’d expect it to be about as readable as any legal contract. But it’s actually very well worth reading, and while it’s detailed, it’s also based on real examples. There’s plenty of actionable information. Hennessy shows how to check out properties; is the rental potential what the seller claims? Does the financing structure work in your favor? This kind of expertise divides the professional investor from the amateur and the also-ran.
The Big Short – you won’t be able to put it down
And when you’ve finished these books, award yourself a little financial light reading – a really great book about the beginning of the credit crunch. Michael Lewis’s The Big Short shows you the guys who predicted the sub-prime mortgage crash. Would you have seen it coming?