May 1, 2015

Best Investment Books for Beginners

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When you need a dose of investing know-how, books are a great option, but you can get overwhelmed by the volume of investment books out there. We have sifted through the best investment books to give you a list of the five that will help you whip your financial knowledge into shape and find success as an investor.

You don’t have to read these books word for word before you kick off your investing activities, but the information here is worth getting acquainted with and for having on hand as you become more sophisticated with where you put your funds.

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1. Rich Dad, Poor Dad by Robert Kiyosaki

If you’re not already a seasoned investor, this book and the one we have listed beneath it are required reading before you open any other book on this list. They don’t fall into the category of “heavy investing” books, and both will provide that base of knowledge you need to continue on your investing path. Without this knowledge, what you learn from the rest of the books on this list will not be as fruitful.

Kiyosaki had two fatherly influences growing up. His real father, whom he refers to as his “poor dad,” embodies the typical employee who works extremely hard but has little to show for it in terms of wealth and always finds himself in tough financial predicaments. His best friend’s father, whom he refers to as his “rich dad,” is a business owner who takes his son and Kiyosaki under his wing, teaching them financial principles that had a strong impact on Kiyosaki’s later financial and investing success. Most of those principles contradicted the “poor” views of his father. Rich dad’s son also found great success after taking over his business later in life. Not everyone agrees with Kiyosaki’s beliefs, but it’s a perspective worth considering.

2. The Richest Man in Babylon by George S. Clason

Written in 1926, The Richest Man in Babylon is a timeless book that dispenses valuable knowledge that has been around for thousands of years. The book lays out several stories taking place during the Babylonian era which center on investing principles that are still invaluable today. Principles discussed include paying yourself 10 percent of your income to start building your savings and investing to get your money working for you. Although it may seem simplistic, if you do not understand these basic investment principles and use them to your advantage, what you learn in the remaining books on this list will not matter.

3. Reminiscences of a Stock Operator by Edwin Lefevre

Another timeless investment book from the 1920s, Reminiscences of a Stock Operator is a fictionalized biography that’s loosely based on the life of Jesse Livermore, one of the most famous stock traders of the early 20th century. This book gives you a foundation for understanding the stock market. Lefevre, a journalist who covered Wall Street for almost 30 years before writing the book, interviewed Livermore to gain insights on how he became so successful at investing. Decades later, the thoughts shared here still ring true: “Whatever happens in the stock market today has happened before and will happen again” and “If a stock doesn't act right don't touch it; because being unable to tell precisely what is wrong; you cannot tell which way it is going.”

4. One Up on Wall Street by Peter Lynch

When you get a grip on the gist of investing, it’s time to really delve in and take on more of the nitty-gritty, such as having a basic understanding of financial statements (don’t worry, you don’t have to turn into an accountant!) and how businesses truly work. Even if you think you’ll rely mostly on indexes and not invest in particular companies, you want to have an understanding of why your money is either working for you or it isn’t — and it all stems from how corporate America is performing.

Lynch reached legendary status as a fund manager when he ran Fidelity’s Magellan fund from 1977 to 1990. He grew the fund from $18 million in assets when he took over to $14 billion when he retired. He details how he became so successful at identifying good investments by sorting through a company’s financial statements and telling you which numbers really matter. Lynch discusses strategies for investing in different types of companies, such as those in cyclical businesses, those primed for a turnaround, and those that are fast-growing. This is generally considered the best of Lynch’s three books on investing. You can also check out Learn to Earn for a more basic introduction to Lynch’s investment principles.

5. The Essays of Warren Buffett: Lessons for Corporate America

Warren Buffett has been called the “Oracle of Omaha” and for good reason. He rarely misses, and he always seems to be making a ton of money. In fact, he’s the third-richest person in the world, with a net worth of $67.3 billion, according to Forbes.

This book is a collection of Buffett’s letters written to shareholders of his firm, Berkshire Hathaway, and it’s trimmed down to a digestible length. Such letters are coveted every year by investors of all abilities for hints on Buffett’s views. The letters also provide a moment for investors to assess if they are putting their money in the right places. His letters discuss many ideas, but his central theme is the difference between price and value (always a potentially confusing area when you see that companies that earn no revenue can be very highly valued on the stock exchanges). You may not become the third-richest person in the world, but understanding how Buffett approaches his investments certainly doesn't hurt.

Knowledge is power, as they say, and knowledge can also lead to wealth. You need to know not only the terminology but the fine-tuned philosophies of smart investors as well as the company histories to get a sense of what the future holds. No one can predict the market, but the more you know, the more you’ll be able to wisely navigate the market, do your best to make smart decisions, and hopefully be strong enough financially to withstand when the inevitable challenging times occur. These books will give you a starting point toward that goal.

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