First: hurry up and wait. A little knowledge goes a long way, as they say – in this case, a few dollars and hours worth of insight today could compound for decades in ways you have no yet imagined, paying you back many times over. Divided into three sections, these ten books cover history, theory and psychology, but most importantly: they show an ordinary investor, starting from scratch, how to invest as well as where, when and why from a rational, long-term perspective.
1) All-in-One Guides to Simple & Smart Long-Term Investing:
The New Coffeehouse Investor: How to Build Wealth, Ignore Wall Street, and Get on with Your Life: First on the list for a reason, you could easily read this book, build a portfolio around it, and go out and play golf – end of story (by Bill Schultheis). For those not so easily convinced, or needing more work on the details, read on for broader treatments and topical treatises.
The Boglehead’s Guide to Investing: Co-written by multiple fans and followers of the father of modern indexing, Jack Bogle, this all-in-one guide is a one-stop shop for understanding essentially everything you need to know about tax-efficient, low-cost, risk-appropriate investing. It is well-organized for readers of all ages and experience levels with the market.
All About Asset Allocation: Rick Ferri presents a step-by-step, no-nonsense guide to establishing a long-term asset allocation and suggests a series of applicable funds for the execution of such. If you need little (or no) convincing that buying, holding and rebalancing is the long-term strategy best suited to your needs, this book will help you fill in the details.
2) Broad, Detailed & Comprehensive Books from Theory to Practice
The Four Pillars of Investing: Lessons for Building a Winning Portfolio: William Bernstein is no armchair philosopher but rather a renaissance man of modern investing. His Four Pillars takes the reader through core sections on the history, theory, psychology and business of investing, tackling everything from the mathematics of expected returns to the behavioral risks of emotional decision-making.
Unconventional Success: A Fundamental Approach to Personal Investment: Chief Investment Officer at Yale University (and famed manager of their endowment fund), David Swensen tells it how it is, breaking asset classes down into ‘dos’ and ‘don’ts’ from the start, and emphasizing the importance of avoiding Wall Street misguidance and active-management myths in the construction of a globally-diversified portfolio.
Common Sense on Mutual Funds: 10th Anniversary Edition: Last, though anything but least, a book by Jack Bogle belongs on the bookshelf of any investor. Founder of Vanguard and endless proponent of the hard-working American and long-term viability of equity markets, he is often nearly the only voice of reason in turbulent times via timeless wisdom every individual should reflect upon and internalize.
3) Investment History, Market Theory, Famous & Classic Volumes:
The Intelligent Investor: A Book of Practical Counsel: Benjamin Graham is a kind of closet indexer before his time – a value investor who always saw the wisdom of broad diversification within stocks, and diversification to bonds, way before index mutual funds became investable alternatives to individual assets. For the history-minded reader who wishes to know how smart modern investing ‘started’ this is a great place to begin.
A Random Walk Down Wall Street: Burton Malkiel made invaluable contributions to the Efficient Market Hypothesis within and beyond this opus, having realized that markets incorporate all information available and underscoring one of the most common fallacies of behavioral investing: the idea that you know more than everyone else, when everyone else has access to the same information you do.
Investors and Markets: Portfolio Choices, Asset Prices, and Investment Advice (Princeton Lectures in Finance): An originator of Capital Asset Pricing Model, Sharpe Ratio and winner of a Nobel Prize in Economics, William Sharpe is one of the most influential academic figures of the modern era. Whether you read this book, or go back and read one of his classics or textbooks based on his work, he is an individual to be understood.
The Black Swan: The Impact of the Highly Improbable: The most important takeaways from this controversial modern classic involve not return but risk and the preservation of capital. Nassim Taleb’s thesis is essential one concerning history and psychology: surprises happen, both good and bad, and we try to make sense of them in retrospect … thus convincing ourselves they were never surprises at all. What does this mean for investors? Bottoms and tops and crises and bulls and bears … none of these is easy to see at the time, so timing the market based on bets, guesses or gut instincts, well, you get the idea.
Take it from someone who made mistakes picking stocks and mutual funds based on whims and guesses: stock and bond markets are best entered into carefully, slowly and intelligently … and after reading at least one or two good books on the matter!