3 Books every Investor Should Read

There is a lot of buzz around investment and everyone wants to know the right stocks to buy. Considering the volatility of stock market, many people are skeptical and look for the advice rather than trusting their own intelligence. Honestly, there is a lot of advice out there, but it is difficult to get a friendly advice from those people who have vested interest. So, why not turn to a friend and as they say a good book is like a good friend. So, I turned to not just one but three good friends to get the best of the investment advice.

Common Stocks and Uncommon Profits by Philip A. Fisher

This is a classic book on investment advice written by Philip A. Fisher, who was touted as a growth investor, investing in companies with above-average growth regardless of the price. This book epitomizes the investment strategy of Philip A Fisher, a very successful investor. He suggests a 15-point prescription to improve your financial health. The book is a must read for all those people who want to make money from stocks and feel that they do not know enough.  Here are 3 important questions to ask before buying a stock.

  1. Does the company have products or services with sufficient market potential and chances of increased sales? (In other words, companies like Amazon and Netflix that have market potential)
  2. Is the company committed to develop new products or services to increase total sales potentials when the growth potentials of currently attractive product lines have largely been exploited? (Companies like Apple fall under this category).
  3. How effective are the company’s research and development efforts in relation to its size? (Google is the perfect example).

The Little Book of Common Sense Investing by John C. Bogle

John C. Bogle, the founder of Vanguard Mutual Fund, gives a common sense advice to all the newbie investors.  His investment strategy which is focused on low cost index funds as opposed to the actively managed mutual funds is summarized in the entire book with the help of examples and parables. The book is an ocean of investment ideas, but here are three pearls that can be picked

  1. Index funds eliminate the risks of individual stocks, market sectors and manager selection. Only stock market risks remain.
  2. Investing in equities is a winner’s game. However, after deducting the cost of investing (brokerage, portfolio transaction costs, investment management fees etc.) beating the stock market is a loser’s game.
  3. Don’t do something. Just stand there. The higher the investment activity, higher the costs and taxes and lesser the net returns. So, just stick to the best picks.

The Intelligent Investor by Benjamin Graham

Benjamin Graham is considered father of value investing, where the focus is on looking at the intrinsic value of the company and buying stocks at the lower price than the basic price and this helps an investor to get higher returns. Benjamin Graham developed the core principles of investing by utilizing his experience and intelligence in the area of value investing. This book is special for another reason because Warren Buffett, the successful investor, is the student of Benjamin Graham. Here are three takeaways of this book.

  1. A stock is not just a ticker symbol or an electronic blip; it is an ownership interest in actual business and its underlying value does not depend on its share price.
  2. The market is a pendulum that forever swings between unsustainable optimism (making stocks very expensive) and unjustified pessimism (making stocks very cheap). An intelligent investor is a realist who sells to optimists while buying from pessimists.
  3. The future value of every investment is a function of its present price. The higher the price you pay, the lower your returns will be.

 

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