“In the chronicles of American financial history,” writes David Clark in The Tao of Charlie Munger: A Compilation of Quotes from Berkshire Hathaway’s Vice Chairman on Life, Business, and the Pursuit of Wealth, “Charlie Munger will be seen as the proverbial enigma wrapped in a paradox—he is both a mystery and a contradiction at the same time.”
On one hand, Munger received an elite education and it shows: He went to Cal Tech to train as a meteorologist for the Second World War and then attended Harvard Law School and eventually opened his own law firm. That part of his success makes sense.
Yet here’s a man who never took a single course in economics, business, marketing, finance, psychology, or accounting, and managed to become one of the greatest, most admired, and most honorable businessmen of our age. He was noted by essentially all observers for the originality of his thoughts, especially about business and human behavior. You don’t learn that in law school, at Harvard or anywhere else.
Bill Gates said of him: “He is truly the broadest thinker I have ever encountered.” His business partner Warren Buffett put it another way: “He comes equipped for rationality… I would say that to try and typecast Charlie in terms of any other human that I can think of, no one would fit. He’s got his own mold.”
How does such an extreme result happen? How is such an original and unduly capable mind formed? In the case of Munger, it’s clearly a combination of unusual genetics and an unusual approach to learning and life.
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Generally, the most successful people in the world are also voracious readers. This is also true of the most successful value investors.
Both Warren Buffett (who used to read 1,000 pages a day when he was starting out) and Charlie Munger (who often advises young investors to “develop into a lifelong self-learners through voracious reading”) credit their habit of reading as a major contributor to their success. Ben Graham was an even more prolific reader than his successors – he would often quote the Latin and Greek classics and once translated a Spanish novel into English.
I also come across a lot of queries from many of our blog readers about books to read to understand investing better. So, here is an effort to collate a list of 10 such books which I feel is a must read for all investors.
If you only ever read one investment book, then let it be The Intelligent Investor by Benjamin Graham. There’s a reason why Graham is called the “Godfather of Value Investing.” Benjamin Graham was probably the most influential investing figure of the 20th century, and The Intelligent Investor is probably the most influential investment book of all time. The Intelligent Investor is the value investor’s bible… keep this one on you always.
If The Intelligent Investor is the value investor’s bible, then The Essays of Warren Buffett are the value investor’s New Testament. Warren Buffett has been writing essays about investing and business for 50 years, and his genius – combined with his down-to-earth charm and clear prose – makes him perhaps one of the greatest educators as well as one of the greatest investors to have ever lived. Many of these essays can be found for free online, but The Essays of Warren Buffett by Lawrence Cunningham brings them all together under one roof.
Bruce Greenwald is the Robert Heilbrunn Professor of Finance and Asset Management at Columbia University and is one of the leading authorities on value investing. This book gives the most comprehensive overview of value investing of any investment book I’ve read, covering general techniques of value investing as well as profiles of successful value investors such as Warren Buffett and Mario Gabelli.
Jeremy Siegel‘s nickname is the “Wizard of Wharton” (he’s been teaching there for 45 years). His investment book Stocks for the Long Run is sometimes called “the buy and hold Bible.” The book makes the convincing argument that – after you account for inflation – equities are actually the safest investment in the long run, proving the point that most people should be long-term, passive investors in the stock market.
Investing is all about common sense. Owning a diversified portfolio of stocks and holding it for the long term is a winner’s game. Trying to beat the stock market is theoretically a zero-sum game (for every winner, there must be a loser), but after the substantial costs of investing are deducted, it becomes a loser’s game. John C. (“Jack”) Bogle is the founder of the Vanguard Group and creator of the world’s first index fund, and The Little Book of Common Sense Investing is a top recommendation of Warren Buffett’s. There’s actually a funny story that when Jack Bogle first met Warren Buffett, Jack recognized Warren, went up and introduced himself, and he said to Warren, “you know the thing I really like about you is you have rumpled suits just the same as I do” – and Jack and Warren have been good friends ever since.
Mary Buffett is Warren Buffett’s former daughter-in-law and her book Buffettology provides a good introduction to Warren Buffett’s investment approach. The book offers profiles and analysis of 54 “Buffett companies.” Read it for the qualitative discussion of Buffett’s investment style, and skim the mathematical chapters (which I didn’t find to be as useful).
Peter Lynch is one of the most successful investors ever – from 1997 to 1990, his Magellan Fund averaged a 29.2% compound annual return. In One Up on Wall Street, Peter Lynch explains how average investors can beat the pros by using what they know. 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 companies in which to invest before the professional analysts discover them.
Studying Michael Porter is one of the first things you do in business school. Competitive Strategy by Michael Porter has transformed the theory, practice, and teaching of business strategy throughout the world. This book introduces Porter’s 5 Forces to help investors analyse industry attractiveness, as well as the 3 forms of a company’s strategy – low cost, differentiation, and focus.
Niall Ferguson follows the money to tell the human story behind the evolution of our financial system, from its genesis in ancient Mesopotamia to the latest upheavals on what he calls Planet Finance. What’s more, Ferguson reveals financial history as the essential backstory behind all history, arguing that the evolution of credit and debt was as important as any technological innovation in the rise of civilisation. This is a great overview of all things money and a nice introduction to the world of finance.
Daniel Kahneman is a professor of behavioural & cognitive psychology at Princeton, winner of the 2002 Nobel Prize for economics, and author of the best-selling book on cognitive biases and heuristics: Thinking Fast & Slow. This book explains the natural biases that affect our judgment in everyday life, as well as in investing. If you want to be a great investor, then it’s critical to be aware of the biases and tendencies. This is a fascinating book, and Kahneman himself is actually the subject of Michael Lewis’s next book The Undoing Project.
The original article is written by Mastermind, Megabaggers and appears here.
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