Book Reviews: 4 Best Value Investing Books You Must Read

4 Best Value Investing Books You Must Read

The following 4 books are the holy grails to value investing. These books chart how the philosophy of value investing has evolved since its establishment as a separate investing style by Benjamin Graham. If you read these books thoroughly in the order set out below, you will have all you need to know to practice value investing competently and confidently.

1) The Intelligent Investor, by Benjamin Graham.

The undisputed father of value investing, Graham wrote this book as a guide for the lay investor. In it, Graham argues that stocks should make up a large percentage of an intelligent investor’s portfolio, while bonds are a particularly bad choice, as the yield is low while the risks are high. He then sets about teaching readers what kinds of stocks to choose, and how to discern value. Graham argues that market timing is unreliable, and that the proper way to minimize risk is to carefully examine the financial statements of a stock. The aim is to acquire a stock at a steep discount below its intrinsic value, leading to a margin of safety and an adequate return over time. Graham’s style of value investing shies away from growth stocks, and tends to concentrate on balance sheet analysis, as well as on “hidden” sources of value, such as unconsolidated earnings or appreciated assets carried at book. Reading this book is a must if you want to understand why holding stocks are better than bonds and real assets most of the time, and why one should not simply hold the most popular and most publicized stocks.

2) Common Stocks and Uncommon Profits, by Philip Fisher

Fisher is a proponent of buying stocks which has growing streams of earnings, in other words, growth stocks. He sets out the various business processes that are vital for a growth company (primarily research and marketing), and how to ascertain management integrity and company competitiveness. His claim to value investing lies in the fact that he proposes acquiring such stocks at times of distress. Fisher reveals that there are predictable times during the course of growth that a company’s stock tends to stumble; occasional failure is an unavoidable aspect of the experimentation and research needed to sustain earnings growth. If you manage to pick up stock cheaply during one of these times of distress, Fisher argues that the proper course is to continue to hold these stocks over many decades, provided that one has done the legwork and ascertained that they are true growth stocks. This book carefully examines the mindset of the buy-and-hold investor, and why patience is a virtue in investing when the stock has been carefully chosen.

3) Buffettology, by Mary Buffett and David Clark

Describes the investment philosophy of Warren Buffett, and how he has adopted certain aspects of both the Graham and the Fisher schools of value investing, but also introduced his own innovations. Buffett is credited with bringing a true businessman’s perspective to investing. While Graham, being a security analyst, shied away from intangible assets, Buffett realized that intangible assets such as powerful brand names and monopolistic market shares are often more valuable than tangible assets such as land or factories. Buffett also adopted Fisher’s penchant for never selling his investments unless their value has become obviously impaired. A must-read for understanding how a company can be valuable due to its brand or business position.

4) Why Stocks Go Up (And Down), by William Pike

This is a book on basic accounting, but aimed at the non-CPA layman who wishes to acquire a bare minimum of accounting knowledge for use in analyzing stocks. While there certainly are more comprehensive accounting tomes, this slender volume concisely introduces all the major accounting concepts a stock investor should know, including ways to classify earnings, the difference between a cash flow and earnings statements, the major forms of debt etc. After reading this book, you would have acquired the know-how to intelligently read financialstatements, and be in a position to put all the value investing knowledge you have acquired to use.