A Value Investor’s Reading List
A value investing reading list to help you cut straight to the good stuff!
Finding needles in a stack of needles
Searching investment books in the books department on Amazon yields over 50,000 results. At the time of my search, one of the top results seems to suggest you can become a professional investor in two weeks… I can’t comment on whether that’s true as I haven’t read it, but I have read and highly recommend each of the books below!
Given that most of the titles of these 50,000+ books are fairly similar (involving some combination of beating the market or being a great investor), the search for useful investing books is more like finding a specific needle in a stack of needles than finding a needle in a haystack.
In addition, a lot of the books that can help you in value investing aren’t technically value investing books- consider that you also need to have a thorough understanding of corporate strategy and how the stock market actually works to understand value investing.
Below are the most important books that helped me to understand value investing. I’ve ordered the list, not by the order I read the books, but by the order I recommend they be read in, generally because they increase in complexity as you work through it.
Please note that these are amazon affiliate links, so I’ll earn a small commission if you buy a book through any of the links, but I think they’re great books that everyone could benefit from regardless, so if you don’t feel comfortable using the amazon affiliate links just make a note of the book titles and check them out without using these links.
Why Stocks Go Up and Down
Firstly, this isn’t a value investing book, it’s a book that explains how financial statements work, which metrics are commonly used in investing (e.g. PE and EV/EBITDA ratios), and covers broadly how the stock market works. We can’t try to be contrarian value investors if we don’t know what we’re acting in contrast to and this book gives a great overview of the standard approach!
I found this book when reading about Michael Burry’s (of Big Short fame) investment style and finding out that he highly recommends it for beginner investors.
One Up on Wall Street
Peter Lynch is the most successful mutual fund manager of all time (“between 1977 and 1990, Lynch averaged a 29.2% annual return, consistently more than double the S&P 500 stock market index and making it the best-performing mutual fund in the world.” — Wikipedia).
Not only is he one of the most successful investors of all time, he’s also a brilliant speaker and teacher of investment strategy. In One Up on Wall Street, Lynch explains how different types of companies behave in the markets (say, well-established but slow growing firms, smaller but faster growing companies, and highly cyclical businesses) and what you should expect from them over time.
The main theme of the book is to buy what you know. It’s a great book and an easy read. Similar to Why Stocks Go Up and Down, this isn’t technically a value investing book, but it provides a lot of useful information that can act as a foundation for potential value investors, especially around the circle of competence theme as Warren Buffett would call it.
The Dhandho Investor
This is an incredibly original book and is the best resource I’ve read about minimising risk in investing (using the Buffett definition of risk as a permanent loss of capital, and not the modern portfolio theory definition of risk). The Dhandho Investor focuses on Pabrai’s low-risk investing approach by giving us examples of wonderful companies and the entrepreneurs who built them in the Dhandho way. As with One Up on Wall Street, the book reads very easily and it helps to instill the most important rule in value investing: don’t lose money!
Common Stocks and Uncommon Profit
Warren Buffett refers to his investment approach as “15% Graham, 85% Fisher”. Philip Fisher, born in 1907 and beginning his investing career in 1928, was certainly ahead of his time. He specialised in finding high-growth companies with well-managed Research & Development departments and a high likelihood of continued growth that aren’t selling at an excessively high price.
Graham (whose magnum opus, The Intelligent Investor, we’ll cover later) was the father of value investing and focused exclusively on companies selling at a big discount to their intrinsic value. Warren Buffett used to follow this strategy until he met Charlie Munger in 1959, at which time Charlie introduced him to the idea of having a preference for ‘wonderful companies’ that are likely to continue growing- such as companies that Fisher would be happy to buy.
Common Stocks and Uncommon Profit is Fisher’s most successful book, in which he highlights the importance of gaining an understanding of the company as a living, breathing entity, as opposed to valuing based on a DCF model informed by GAAP accounting numbers from the most recent financial statement. It explains how the vast majority of wealth in the stock market comes from picking the few companies that grow and grow and grow year after year, and also includes his checklist and research methodology for finding these.
Although this is an old book, and a lot of the content is written in relation to manufacturing companies, the checklist and concepts apply equally well to today’s service-based companies. This is the kind of book that could potentially have helped you invest in Apple or Amazon before they became the trillion dollar companies they are today.
Competition Demystified: A Radically Simplified Approach to Business Strategy
Philip Fisher wrote his books before the ideas of moats in business had been established. Fisher sought out companies that had great managers, strong balance sheets and a healthy attitude towards investors. His favourite question to ask managers of prospective companies was “what do you do that your competitors aren’t doing yet?”
Competition Demystified takes the Buffett and Munger approach and rephrases Fisher’s question to “what do you do that your competitors can’t?” The problem with Fisher’s question is that if a competitor has a good enough management team, they should be able to emulate your prospect company’s success, which has the potential to erode any high profit margins the company previously had.
Whilst it’s technically a book about competitive strategy, and not investing, this book covers all the ways in which a company may be able to do something that no other company can copy. In other words, it helps you find companies with, as Warren Buffett would say, moats.
Value Investing: From Graham to Buffett and Beyond
Competition Demystified is actually Bruce Greenwald’s second book. Value Investing is his first one. It’s a fairly technical book that also discusses the nature of competitive advantages, but it goes into a lot more depth on how businesses with or without moats should be valued, giving you a framework for approaching both the type of “cigar butt” investing that Benjamin Graham and Warren Buffett used to do, and the type of investing that Buffett and Munger do today.
Whilst this article, and modern value investing in general, leans heavily towards the Phil Fisher style of investing, Charlie Munger still advocates for being able to analyse mispriced assets in micro-cap companies for small retail investors due to the inefficiencies in those markets. Understanding how to properly value companies with and without moats adds a crucial tool to your belt.
Berkshire Hathaway Shareholder Letters
Buffett considers it his duty to educate his shareholders, especially as the majority of Berkshire Hathaway shareholders are very long-term holders. Since he became chairman of Berkshire Hathaway in 1965, he has taken the time to explain his philosophy on investing, and evaluate the current investing landscape every year in his annual letters.
Simply put, these letters are an unmatchable source of investing wisdom. You can read them for free from 1977 onwards on the Berkshire Hathaway site or you can purchase the Berkshire Hathaway Shareholder Letters eBook containing all of them (back to 1965) in a more readable Kindle-friendly format.
The Intelligent Investor
The original layman’s guide to value investing, written by the father of value investing, and Warren Buffett’s mentor, Benjamin Graham. Almost all of the ideas pertaining to the stock market in this book have since been revamped by the investors that came after Graham, and it is quite a hard read (although the modern commentary in the 2003 release helps with its more up-to-date examples).
I definitely would not recommend this as a first book for investors- I don’t think I’d have finished it if this was my introduction to value investing. But if you’ve read the rest of the books on this list and you’re still hungry to learn more, going back to the original source of value investing wisdom can help provide even more useful context.
In particular, there are two pieces of investment advice given in The Intelligent Investor, that despite the countless books that have been written since, have never been better explained… more on that below.
(the version for established investors is Security Analysis).
What to read when waiting for your new books to arrive?
In a 2013 interview with Forbes, when asked about the best advice he had ever received, Warren Buffett, referring to The Intelligent Investor, said “Chapters 8 and 20 have been the bedrock of my investing activities for more than 60 years. I suggest that all investors read those chapters and reread them every time the market has been especially strong or weak.”
Here you can find an article I wrote in 2020 discussing these two chapters. If you’re waiting to sink your teeth into some of the books in this list, I highly recommend (although it’s my article so I’m clearly biased) reading this in the meantime! If that’s not enough to keep you going, please read on for another shameless plug…
Mental Model Lollapalooza
Charlie Munger is the business partner of Warren Buffett and is in his own right one of the most successful investors of all-time. He is a huge believer in gathering a ‘latticework’ of elementary mental models from a variety of disciplines in order to improve your decision-making in business, academic research, and virtually all aspects of life. Through my new series, the Mental Model Lollapalooza, we will explore around 100 mental models (the number Munger himself uses) to arm us with a multi-disciplinary toolkit to understand the world around us.
Click here for a link to the main Mental Model Lollapalooza article!
