Tuesday, February 26, 2008

Stock Market Investing Books For Beginners

What are the best books about stock market investing for beginners?

In my recent article on stock market investing basics, I mentioned that stock market education was very important first step towards investing for beginners. In this article I want to take a look at some of the books I have found helpful in understanding investment principles and strategy. I've read a lot of investment books over the years and while they're all contributed to my knowledge to some degree, the following tomes are the ones that have stood out for me.

Having said that, I'm always on the lookout for new ideas so if you have any ideas - something you've read which stands out in your mind - then let me know. I would love to add a few more books onto my "to read" list.

The first investing book I'd like to discuss is The Intelligent Investor by Benjamin Graham. For those that haven't heard of Benjamin Graham, I will give you a short background summary (I will write a more in depth piece in the near future).

Benjamin Graham is considered the father of value investing. He is credited with bringing discipline to the activity of security analysis. Before Graham, there was little structure in security analysis and through his writings and teachings he brought stock market investing into modern times. Although a successful investor in his own right, he is perhaps more famous for playing the part of mentor to a man who many consider to be the greatest investor of all time - Warren Buffett.

When I first read the Intelligent Investor, it was a revelation. Graham did such a great job of focusing your mind on what's important. He advocates stepping away from all of the noise in the stock market and instead concentrate on investment fundamentals. He concedes that over the short term, the market is a popularity contest. But over the long term, if you buy stocks at a significant discount to their intrinsic value, you should beat the market average.

What I like about Graham's writing is that he puts forward his ideas in a clear, concise and logical manner. He develops his arguments slowly but surely then counters any potential counter-arguments which may arise. He's also very strong in his research. He provides empirical evidence to support all of his main arguments. Although this book was first published over 50 years ago, I was astounded how relevant it is to today's market conditions. I highly recommend "The Intelligent Investor" by Benjamin Graham.

The next most influential investment book I have read is called Common Stocks and Uncommon Profits, by Phillip Fisher. Although Fisher's teachings differ somewhat from Graham's, I find between them they give a good broad introduction to stock market investing. Fisher advocates a very strong research driven approach, like Graham, but with a focus more on qualitative measures rather than quantitative ones.

Fisher thought the best results could be had by identifying the very best companies but studying the structure of the industry it operated in, management, commitment to research and so on. Price was less important as over time these companies would expand to many multiples of what you paid for them. What would it matter whether you paid $50 or $100 for a stock when in the future it will trade at the equivalent of $10,000 or more. Fisher's idea of having a small number of very high quality "growth stocks" was in contrast to Graham's theories of having a large number of heavily discounted stocks, but by reading both points of view, I think you will become a much better investor.

The last book I'm going to discuss in this article is One Up On Wall Street by Peter Lynch. Peter Lynch was a very successful fund manager at Fidelity Investments with a performance record which I think remains unbeaten.

One Up On Wall Street is a great read. It covers Lynch's first steps in the stock market, then takes you through his philosophy for choosing stocks. Lynch advocates sticking with what you know. He believes that we all comes across great investment opportunities everyday. We just need to keep our eyes open and be aware of the companies which operate around us in our daily lives. Lynch says that we have the opportunity the uncover these hidden gems and profit from them by buying in before the market at large becomes aware of the stock.

Lynch also categorizes the purchases he makes into one of 6 types. These are Slow Growers, Medium Growers, Fast Growers, Cyclical Stocks, Turnarounds - Special Situations and Hidden Assets. But I think what is more important than remembering the categories, is to understand why you are buying a stock. What do you expect from it? Do you expect to hold it for the long term? Will you hold it until some hidden value is realized. Or are you expecting a short-term reversal of fortune. I think this a very important concept. Understand why you are buying a company and know under what circumstance you would be willing to sell.

I decided to limit the list to only 3 books, partly because this article was long enough already, but also I didn't want to dilute the quality of the list. Don't get me wrong - there are a lot of other great investment books out there. Other books which just failed to make the cut include The Little Book That Beats The Market by Joel Greenblatt, The Warren Buffett Way by Robert G Hagstrom and The Money Masters by John Train.

There are also some great online resources which I'll cover in an upcoming article. But for now the above list should be more than enough information about investing in the stock market for beginners - and everyone else who hasn't read these books.


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share tips said...

Always work with 3 calls plan on that stock .
the first call is your investment .
the 2nnd call , when it comes half from your investment , then put same money on it .
the 3rd call when it will half from your 2nd call then put same money in it .
For eg if some body buy 1000 shares @ 1.50 . and this stock come at .75 , then take 1000 more share on .75 , and if this stock comes .30 then buy 1000 more shares , and this is your last call .
Now when this stock comes on your first call , your 3 rd call make your money multiply by 3 , and 2 nd call make your money 2x , so that’s the way to do work in these types of share .
There is no stoploss in those shares , and don`t panic .
But the target for this shares in one year is 12 to 20 , and I can bet on it .
Amar Investments.

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