This is a question that many new-age investors ask, especially when they see veteran investors insist on reading regularly and learning more from books than from the experience of losing money in the stock market.
Take, for example, American hedge fund billionaire Bill Ackman, whom the investing fraternity refers to as the "learning machine." This impressive fund manager, who has beefed up investors' earnings via Pershing Square Capital Management for more than 20 years, has shared the names of some of his favourite investing books for everyone to read and learn from.
Ackman is known for his aggressive investment style and his willingness to take on large positions in companies that he believes are undervalued. He has also been involved in a number of high-profile corporate battles, advocating for changes in management or board composition. He is also a voracious reader and has often said that he has learned more about investing from books than from any other source. As of June 2023, Ackman's net worth was estimated at $3.5 billion by Forbes.
Here are some of Bill Ackman's favourite investing books:
The book “Security Analysis”, co-authored by Benjamin Graham and David Dodd from Columbia Business School, was initially published in 1934. Widely regarded as one of the most influential texts on investment, this timeless work has guided countless successful investors, including the likes of Warren Buffett.
Within its pages, the book offers a comprehensive framework for conducting fundamental analysis—a methodical process involving the evaluation of a company's financial statements and related data to ascertain its intrinsic worth. Graham and Dodd advocated the strategy of acquiring stocks when they trade below their intrinsic value and divesting when they exceed it. This investment philosophy is commonly referred to as 'value investing.'
While this book is undeniably a dense and intellectually demanding read, it remains an indispensable resource for those seeking to grasp the fundamental principles of value investing. For any serious investor, it stands as essential reading, a definitive guide to the world of investing.
The crux of the book can be best summarized as “The stock market is a voting machine in the short run and a weighing machine in the long run”.
Quality of Earnings
“Quality of Earnings”, authored by Thornton L O’glove, serves as a crucial reference for investors seeking to gauge a company's genuine profit levels. This invaluable resource equips investors with the insights needed to make informed decisions when buying and selling stocks, helping them avoid costly mistakes.
Published in 1987, this book serves as a manual for comprehending and appraising a company's financial statements. O'Glove contends that investors should refrain from merely accepting a company's reported earnings figures at face value. Instead, they should meticulously scrutinize the financial statements, searching for accounting adjustments or other variables that could potentially impact the company's earnings.
The book encompasses a diverse array of subjects, encompassing:
- The art of recognizing and rectifying non-recurring and non-operational items.
- The methodology for gauging the calibre of a company's revenue and expenditure.
- The process of appraising a company's cash flow.
- The application of financial statement analysis in detecting warning signs and potential instances of fraud.
This book proves to be a priceless asset for investors at every stage of expertise. It stands as essential reading for anyone aiming to grasp the art of dissecting financial statements and thereby making well-informed investment choices.
Beating the Street
Peter Lynch, the celebrated investor from Fidelity, has achieved remarkable success. To uncover the core principles of the Peter Lynch investment strategy, one need not look further than his writings. Among the excellent choices available, Lynch's own book, “Beating the Street,” stands out.
Contained within this bestselling investment classic are what Lynch referred to as his “25 Golden Rules.” These rules serve as a distilled compendium of the pivotal lessons and profound insights he garnered during his illustrious 13-year tenure as the manager of Magellan.
Key takeaways from the book include:
- Before investing your money, it's imperative to conduct thorough research on the company.
- Selecting a stock should not be arbitrary; instead, diligent research is essential.
- In the long run, it's advisable to invest in stocks of smaller companies.
- Don't base your stock purchases on price alone; instead, invest in stocks you have in-depth knowledge about.
- Make consistent investments.
- Purchase or refrain from purchasing the stock based on whether its growth aligns with your goals and if the price is reasonable.
- Acquire the skill to recognize the factors influencing fluctuations in earnings, enabling you to pose pertinent questions.
The Intelligent Investor: The Definitive Book on Value Investing. A Book of Practical Counsel
Benjamin Graham, widely regarded as the preeminent investment advisor of the 20th century, left an enduring legacy that continues to educate and motivate individuals globally. His “value investing” philosophy, designed to safeguard investors against significant mistakes while instilling the principles of long-term strategies, has firmly established “The Intelligent Investor” as the definitive guide to navigating the stock market since its inaugural publication in 1949.
In this book about value investing, investors gain insights into purchasing stocks that are trading below their inherent worth. Graham posits that investors can achieve exceptional returns by acquiring stocks at a markdown relative to their intrinsic value and divesting them when they surpass this threshold.
The book has been partitioned into two segments:
Part I: The investor and the market: Within this section of the book, the various investor profiles and diverse investment ideologies are explored by Graham. He also emphasizes the significance of comprehending the stock market and the multifaceted influences that can sway stock prices.
Part II: Defensive investment: In this segment of the book, Graham delves into his value investing methodology. He offers several techniques for computing a stock's intrinsic value while underscoring the significance of investing in companies characterized by robust fundamentals and a safety buffer.
The Essays of Warren Buffett: Lessons for Corporate America
“The Essays of Warren Buffett: Lessons for Corporate America” is a collaborative work by Warren Buffett and Lawrence Cunningham, initially released in 1997. This book compiles Buffett's correspondence with Berkshire Hathaway shareholders, arranged thematically. Encompassing a broad spectrum of subjects, it touches upon investing, management, and corporate governance.
Buffett's shareholder letters are celebrated for their profound insights into the realms of investment and business philosophy. Written with clarity and conciseness, these letters are a treasure trove of wisdom and practical counsel.
This book is an essential read for individuals seeking to glean wisdom from one of the most accomplished investors in history. Furthermore, it serves as a valuable reference for business leaders and corporate executives.
Below are some of the pivotal insights extracted from this book.
- Commit to long-term investing. According to Buffett, investors should prioritize a company's enduring potential rather than attempting market timing.
- Allocate investments to companies boasting robust fundamentals. Buffett's strategy involves seeking out entities with sound financial records, sturdy balance sheets, and enduring competitive edges.
- Acquire stocks when they are priced below their intrinsic worth. Buffett contends that investors can attain exceptional returns by purchasing stocks at a discount relative to their intrinsic value.
- Maintain a margin of safety. Buffett exclusively acquires stocks when they are available at a substantial markdown compared to their intrinsic value. This safety cushion serves as a shield, safeguarding investors from potential losses during market downturns.
- Exercise patience. Buffett asserts that accumulating wealth via investments is a gradual process. He harbours no apprehension about retaining stocks for extended periods, sometimes spanning decades.
Margin of Safety: Risk-Averse Value Investing Strategies for the Thoughtful Investor
The paramount objective for every investor should be the prevention of losses. Achieving this is contingent upon investing with a substantial margin of safety. Such a margin is imperative due to the inherent imprecision in valuation, the unpredictability of the future, and the inevitability of human errors among investors.
“Margin of Safety: Risk-Averse Value Investing Strategies for the Thoughtful Investor” is a book authored by Seth Klarman, initially released in 1991. It stands as a timeless masterpiece on value investing, a methodology designed to acquire stocks priced below their inherent value. Klarman posits that investors can attain exceptional returns by procuring stocks at a markdown relative to their intrinsic worth and subsequently divesting them when their value surpasses this threshold.
The book has been partitioned into two sections:
Part I: The Value Investing Approach: Within this section of the book, Klarman delves into the foundations of value investing. He expounds on the rationale behind value investing as a prudent investment approach, offering various techniques for assessing a stock's intrinsic value. Additionally, Klarman emphasizes the significance of investing in companies characterized by robust fundamentals and a margin of safety.
Part II: Risk-Averse Value Investing: In this segment of the book, Klarman explores the prudent execution of a risk-averse value investing strategy. He underscores the significance of diversification, asset allocation, and position sizing in this context. Furthermore, Klarman emphasizes the importance of comprehending one's own risk tolerance and investment objectives.
For any investor seeking a grasp of value investing principles, this book is an essential read. It holds the status of a timeless classic, having been employed by successive generations of prosperous investors, including the renowned Warren Buffett.