Warren Buffett said it best: “Read 500 pages like this every day. That’s how knowledge works. It builds up, like compound interest. All of you can do it, but I guarantee not many of you will do it.”
Investing is not a thing that can be learnt in a day. When it comes to investment terms, even finding a starting spot can prove intimidating. If you search for an investment term on the Internet, you often end with an alphabet soup of complex financial terms.
The good news is, you don’t need to be an investing expert to make smart decisions about investing your money. There are numerous books by experts that thoughtfully and sequentially explain financial concepts and investing topics. Here, in this article, we will be covering 2 must-read investment books of all time that can guide you through the fundamentals of how the market works, different investing styles and what you need to understand about individual securities.
2 Best Investment Books For Beginners and Their Takeaways
1. The Intelligent Investor
The Intelligent Investor is one of the best work of Benjamin Graham, an American economist, who is widely known as the “father of value investing”. The Intelligent Investor, the definitive book on Value Investing is one of the most important books on this subject. Graham pointed out irrationality and group-think that was often rampant in the stock market. According to Graham, investors should try to gain profits from the whim of the stock market instead of participating in it. The principles of investing safely that he has explained in the book continue to influence investors even today. This is the reason why this book is one of the best investment books for beginners.
The Journey Behind Intelligent Investor
Graham worked on Wall Street for 15 long years, where he was able to cultivate a sizable personal nest egg. However, like many other investors, Graham lost his money in the stock market crash of 1929, and the following Great Depression. Through those experiences, Graham learnt how to minimize risk by investing in companies whose shares traded far below the liquidation value.
The period of financial distress, along with the concepts like margin of safety that Graham has covered in his work “Security Analysis” lay the groundwork for The Intelligent Investor, the best investing book of all time.
Key Takeaways from The Intelligent Investor:
Graham, along with David Dodd, has taught value investing as an investment approach at Columbia Business School in 1928. In 1949, both published “The Intelligent Investor”. Here are some of the major learning points that are covered in this best investing book of all time:
1. Concentrate on the real-life performance of companies:
Graham’s favourite allegory in the book was that of Mr. Market. Mr. Market is an imaginary person who turns up to the stockholder’s office every day asking them to buy or sell his shares at a different price. Sometimes, the proposed value makes sense, and sometimes the proposed prices are off the mark, depending on the current economic realities.
According to Graham, investors should concentrate on the real-life performance of the companies and the dividends they receive instead of paying attention to the changing sentiments of Mr.Market.
2. Value Investing:
Value Investing means deriving the intrinsic value of a common stock which is independent of its market value. Analyzing a company’s assets, dividend payouts and earnings can help in identifying the intrinsic value of a stock. If the intrinsic value of the stock is more than the market value, the investor should buy and hold it until the mean reversion occurs.
When an investor buys a stock at a price which is less than the intrinsic value of the stock, he or she is purchasing the stock at a discounted price. Once the stock is trading at its intrinsic value, the investor can sell it.
3. Margin of Safety
There are a couple of ways through which you can achieve a margin of safety and create a room for human error. Buying undervalued stocks or out-of-favour stocks is the most common and effective way to accomplish this. The irrationality of investors, the fluctuations of the stock market and the inability to predict the future – all this can provide a margin of safety for investors. Investors can also achieve a margin of safety by diversifying the portfolio or purchasing stocks in companies that have low debt-to-equity ratios and high dividend yields.
4. Dividend Stocks
Many of Graham’s investment principles are timeless, they are as relevant today as they were when Graham penned them. Graham criticized corporates for their irregular method of reporting that made it difficult for investors to understand the health of a company. He also advocated that companies should pay dividends to their shareholders rather than keeping all the profits in the name of retained earnings.
Graham’s method of buying low-risk stocks which have high return potential has established him as a true pioneer in the financial analysis space. Many other successful value investors adopted his methodology to generate profits.
2. Rich Dad Poor Dad
Rich Dad Poor Dad has been one of the most influential books since the time it was first published. This book by Robert Kiyosaki and Sharon Lechter elaborates the journey about money management and path to financial freedom.
It is a simple story of a Poor dad (biological father) and rich dad (friend’s father) that the author, Robert Kiyosaki narrates. The thought-provoking will make you question yourself,
Should I continue running the rate-race?
Am I afraid to take risks?
Have I built assets or liabilities?
The story includes examples that will help you understand how to build assets, the concepts of cash flows and learning from failures. Let’s now see what makes Rich Dad Poor Dad, one of the best investment book for beginners.
Key Takeaways from Rich Dad Poor Dad
1. Keep a check on your thoughts
If you think that “I can’t afford it”, then you restrict yourself from the chances that can help you grow. So, instead of saying “I can’t afford it”, ask yourself “How can I afford it”? This will act as a feeder for your subconscious mind to churn up possibilities. Practising every negative “can’t do” thought into positive “can do” healthy attitude.
2. Fear and Greed
There are two emotions that we have around money, which causes us to make poor financial decisions. For instance, suppose you get a hike in salary. At first, you plan to invest those hiked percentages in stocks or shares, however, the fear of losing money restricts you from making such investments. Meanwhile, greed takes over and has you buying a new car or new gadget with that extra money because it appears to be a more tangible and safer option. However, if you would have invested money in profitable stocks, it could have doubled or tripled your investments.
To overcome this fear and greed, increase your financial knowledge. The book teaches you to become financially literate and to learn how to save, how to invest, how to secure your future with pension found and more.
3. Taking Risks:
Rich Dad Poor Dad is a must-read investment book of all time that teaches you to take risks if you want to multiply your money. Parents, elderly people and even many movies teach that it is bad to take risks wherever the money is concerned. However, to grow your money you can’t play it safe and keep a check in your savings account. You have to take a risk and invest in stocks if you want to grow your income substantially or you simply want to take a calculated risk.
4. Invent Money:
The author suggests that “a trained mind is a rich mind”. The more you will train your mind to take bold steps. The more you train your mind to take bold steps, there are more chances that you will move ahead. The book teaches us that the rich create their own obstacles and they invent money by taking risks.
Kiyosaki reiterates the importance of financial education, he says “hire intelligent people to capitalize on their knowledge”. This will help you get familiar with the different forms of investment avenues, strategies and choose independent research services.
5. Control Emotions:
The author highlights that human beings always give in to following emotions: fear, laziness, bad habits, cynicism and arrogance. How you handle these traits makes a lot of difference. You should not either worry too much about the failure and simply be pessimistic, or you should worry too much about exuberance.
Instead, you should learn to channelize your emotional balance and focus on achieving your financial goals. A well-trained mind is sure to achieve more than an unsteady and impulsive mind.
The lessons from Robert Kiyosaki’s Rich Dad Poor Dad aren’t to make you feel that you are in a hopeless situation if you are handling your finances just like the majority of people do. Rather, this book provides you with insight into how rich people become rich. The process of becoming financially wealthy involves making many behavioural changes. However, if you can embrace those changes as a part of your financial routine, then you can learn to invest your money wisely and gain profits from the assets you have.
Investing can seem really scary if you have not done it before, however, it is in fact, fairly straightforward. However, a good library on your bookshelf is the most powerful investment tool that beginners can accumulate. The right books can answer all of your questions. In the above article, we have covered must-read investing books of all time that will make you equipped with the fundamentals of investing, and will also help develop a mindset to take a risk to achieve your financial goals. All in all, more money can just make you rich, it is your investments that make you wealthy in true sense.
Do you have any other book in mind that you think beginners must-read? Drop your comments.