5 Must Read Books On Stock Investing

Written on October 16, 2007 by Tezza

Tuesday’s weekly guide to Personal Finance from 4EvaYoung.com

There is a growing trend towards looking after your own financial well-being. It is most evident in the younger generations who have taken heed of all the doom and gloom espoused by self proclaimed financial guru’s suggesting that the government will no longer be able to look after us in retirement. I have always believed that the surest way to a good night sleep is by taking control of your own financial future and taking an active interest in how it is working for you. If you leave it in someone else’s hands, chances are they are not going to care as much about your financial well-being as you do.

While there are many investment options out there more and more people are becoming comfortable at the thought of investing in the stock market. The number of people owning stock through their pension fund, managed funds or directly is steadily growing with more than 50% of the population of 1st world countries now having a stake in one form or another in stocks.

However, for most the stock market is still seen as this gyrating, unpredictable gambling house where fortunes are won and lost in the wink of an eye. The apparent difficulty of making money on the stock market without professional help is often touted by commissioned based sales orientated brokers so that you would hand over your hard earned money and put it into their often times dubious care.

A better solution is to get yourself educated about investing so that you can make better decisions with how it is managed whether it be in the hands of a professional or with yourself. Information after all enables you to ask better questions and make more informed decisions.

So here are my five must read books for anyone who is thinking about or currently investing in the stock market.

Market Wizards: Interviews with Top Traders by Jack D. Schwager
“I think investment psychology is by far the more important element, followed by risk control, with the least important consideration being the question of where you buy and sell.” - Tom Basso (Market Wizards)

This is essential reading for anyone who is interested in trading stocks. Jack interviews some of America’s top traders and attempts to deduce what are the characteristics that make an outstanding trader. What he found was that their was no one secret or methodology that accounts for all their success, rather each trader had their own unique style and approach to trading which matched their temperament and personality.

Instead of focusing on methods and systems, it is evident through the book that an aspiring trader needs to work more on their inner self, emotions, fears, thought processes which has more bearing on your success or failure than trying to find the ultimate trading system.

Ironically this is what most novice traders do, they are sold on this idea that someone out there has a magic formula and thus spend considerable time and money looking for it in expensive softwares, seminars and investment newsletters. “You cannot get ahead listening to other people’s opinions, even if the people you’re listening to are world-class traders…it’s just an opinion,” says Schwager.

Reminiscences of a Stock Operator by Edwin Lefèvre
“It sounds very easy to say that all you have to do is to watch the tape, establish your resistance points and be ready to trade along the line of least resistance as soon as you have determined it. But in actual practice a man has to guard against many things, and most of all against himself – that is, against human nature.” - Edwin Lefèvre

This classic was first published in 1923 and many regard it as a loosely based account of Jesse Livermore’s life. Livermore for those who don’t know him is widely considered to have been one of the greatest stock speculators of the 20th century. Winning and losing several fortunes over his lifetime.

Reminiscences of a Stock Operator is not a how to book, rather it’s a book that is filled with timeless trading wisdom that is both practical and useful for any trader no matter their level of trading proficiency. It loosely retraces Livermore’s trading life through Edwin’s character Larry Livingston from the very early beginnings of him in bucket shops through to his time spent in Wall Street.

For the beginning traders this book will give you a solid foundation on trading principles which will be vitally important to your trading career. For everyone else this book will give you a refresher course on the important principles to operate your trading by. I have thoroughly enjoyed reading this book and have read it several times over the years. I still keep it in a prominent place on my bookshelf for those days where a I have a few lazy hours to kill.

How I Made $2,000,000 In The Stock Market by Nicolas Darvas
“I have no ego in the stock market. If I make a mistake I admit it immediately and get out fast…If you could play roulette with the assurance that whenever you bet $100 you could get out for $98 if you lost your bet, wouldn’t you call that good odds?” - Nicolas Darvas

While this book title might sound a little cheesy you have to forgive the author considering he wrote it back before most of the get rick quick sales sharks started trying to drum up business. This is another one of my favorite books because it gives the reader a rare insight into the mind and thought processes of a successful trader. You can read all the technical books on trading as you want but if you don’t understand the nuances that make up a great trader then you’ll just be a novice trader with good technical knowledge.

Darvas was a professional dancer by trade and had no knowledge of the stock market when he started. By the end of his first 18 months trading he had managed to make $2 million dollars starting with just $10,000. Darvas chronicles his journey and how he managed to balance his job and trading.

This feat was accomplished back in the days when there was no Internet so when he traveled he was left to rely on telegrams to keep him updated on the current situation of his stocks from Wall Street. While his trading methodology is somewhat hazy, this is not a book that is trying to convey trading methodology. There are many other very well written books out there that will teach you to do that. A very enjoyable read and worth your while.

How to Trade In Stocks by Jesse Livermore
“A man must believe in himself and his judgement if he expects to make a living at this game.” - Jesse Livermore

From Amazon - “Jesse Livermore was a loner, an individualist-and the most successful stock trader who ever lived. Written shortly before his death in 1940, How to Trade Stocks offered traders their first account of that famously tight-lipped operator’s trading system. Written in Livermore’s inimitable, no-nonsense style, it interweaves fascinating autobiographical and historical details with step-by-step guidance on” all aspects for trading success.

Written by Jesse himself towards the end of his days, it recounts the timeless lessons of trading success that served him well throughout his career. Jesse’s fascinating tales of highs and lows made him the legendary character that he is remembered today. This book is littered throughout practical timeless wisdom that makes it a keepsake.

The Intelligent Investor: The Definitive Book on Value Investing by Benjamin Graham
“The individual investor should act consistently as an investor and not as a speculator. This means.. that he should be able to justify every purchase he makes and each price he pays by impersonal, objective reasoning that satisfies him that he is getting more than his money’s worth for his purchase.” - Benjamin Graham

If you have ever wondered who was the mastermind behind the phenomenal success of Warren Buffett then you have to look no further than Benjamin Graham. Graham was the professor that shaped Buffetts early thinking on value investing and investment. Graham first published this classic in 1949 and has gone on to sell over a million copies. Any astute investor should have this book on their must reads and Buffett himself has been quoted as saying that it is “the best book on investing ever written.”

While some of the mathematical computations are no longer practical for our current market conditions, it is none the less jam packed with analytical information for sound investment thinking and portfolio management. Benjamin, like Buffett are true investors and see risk management at the core of everything they do. If you are thinking that you are more suited to trading then this is not the book for you. While this is not an easy read compared to some of the other recommendations above, it is well worth your while to set aside time to really digest the market wisdom from one of the greats of the industry.

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Posted in Must Have Books, Personal Finance