Carlton Lutts, Cabot’s founder, once said of reading books on investing: “All I’m looking for is one good idea.” Today, I’m going to share with you our editors’ favorite investing books so you can find one good idea of your own. Cabot is housed in an old library, so we’re reminded of great books every day. And while the shelves are mostly gone, the walls of our office are still lined with many hundreds of investing books.
Enjoy!
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Recommended by Michael Cintolo, Editor of Cabot Market Letter and Cabot Top Ten Report
“Reminiscences of a Stock Operator” by Edwin Lefevre
If you consider yourself a student of the market, there is no better book than “Reminiscences of a Stock Operator.” This conversational biography of the exploits of Jesse Livermore contains more market lessons than any “how to” book available today … or ever. Divided into reasonably sized chapters, the book allows you to follow one of Wall Street’s all-time great speculators through his winnings and his many mistakes. I’ve read it many times and plan on another re-read this summer!
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The next three are all recommended by Timothy Lutts, Cabot’s Publisher and Editor of Cabot Stock of the Month Report:
“One Up on Wall Street” by Peter Lynch
The legendary manager of Fidelity’s Magellan fund wrote this book for the average American investor. It’s full of down-to-earth advice on how you can use what you already know to find stocks that outperform both the market and the average mutual fund. The key is that you, as a small investor, are nimble. You can buy young growth companies with great business concepts, and unlike the pros, you can buy and sell at any time without disrupting the market. An empowering book full of sensible advice.
“The Crowd: A Study of the Popular Mind” by Gustave LeBon
Gustave LeBon was a French psychologist/sociologist and this book, written in 1895 and translated into English a year later, is a classic today, well worth reading for the serious student of any social science. Beware, though, that the book is not about investing; instead, it’s about the psychology of crowds, by the pioneer in the field. To my mind, though, an understanding of the average man, and the crowd that he is part of, is a great advantage on Wall Street. Substantially more accessible than “The Crowd,” and aimed at serious investors, is this:
“Beware the Crowd at Extremes: The Importance of Contrary Opinion in the Stock Market” by Ned Davis
Published in 2003, 108 years after LeBon’s seminal work, this is an easy read, full of modern references, charts and tables, and aimed directly at the moderately experienced investor who needs a little more guidance in learning to separate his own thoughts from those of the masses. Independent thinking is critical for successful investing, and this book will help you develop your own.
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Recommended by Brendan Coffey, Editor of Cabot Green Investor
“Against the Gods: The Remarkable Story of Risk” by Peter L. Bernstein
Around 1470, the monk Luca Paccioli posed a question: How would one divide the stakes of an unfinished game of chance when one player was ahead of the other? The answer confounded mathematicians for 200 years, until Blaise Pascal came up with a solution and with it, gave birth of the modern concept of risk, leading ultimately to Wall Street. I first read Peter L. Bernstein’s book when it came out in 1996, plucking it off the pile of review copies at the magazine where I worked to read on my train commute one evening. What I thought would be a dry treatise turned out to captivating tale of history, free will and rational and irrational investing.
An economist who died this June, Bernstein’s book focuses on how people make choices and how the notion of controlling what one can and minimizing exposure to what one has no control over liberated finance and tells us how to be better investors. It was also ahead of its time: before the derivative-related crises of Long-Term Capital Management in 1998 and the investment banks in 2008, Bernstein was warning that the fundamental law of investing can’t be broken: the greater the reward, the greater the risk. Derivatives, he noted, were squeezing out that common sense by treating uncommon occurrences as impossible events and offering “sleigh-rides for payoffs.” He continues: “Those who live only by the numbers may find that the computer has simply replaced the oracles to whom people resorted in ancient times for guidance in risk-taking and decision-making.”
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The next two books are both recommended by J. Royden Ward, Editor of Cabot Benjamin Graham Value Letter:
“Security Analysis” by Benjamin Graham
Benjamin Graham’s classic book, “Security Analysis,” laid the framework for the value investing system. Individuals and Wall Street professionals consider the timeless book, published in 1934, an investing bible. “Security Analysis” thoroughly explains Graham’s value investing methods, including how to identify value stocks, the margin of safety and guidelines for successful investing.
“The Intelligent Investor” by Benjamin Graham
Benjamin Graham penned “The Intelligent Investor” in 1949, and the book has since been called “by far the best book on investing ever written,” by Warren Buffet, one of Graham’s students and followers. As the editor of Cabot Benjamin Graham Value Letter, I use the criteria outlined in the book to select the stocks for the Classic Benjamin Graham Model found in the Letter.
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Two of our editors picked the same book (likely a testament to its importance), so it’s listed here twice, you’re eyes aren’t playing tricks on you:
Recommended by Paul Goodwin, Editor of Cabot China & Emerging Markets Report
“How I Made $2,000,000 in the Stock Market” by Nicolas Darvas
Nicolas Darvas is a champion ballroom dancer who decides to get into the market. He develops his own system for growth investing and fine-tunes it to achieve the result in the title. It’s a fun read, full of his personality and with enough reversals, eccentricities and breakthroughs to keep you interested while you’re learning more than you realize about technical analysis and portfolio management. It’s a great story.
Recommended by Thomas Garrity, Editor of Cabot Small-Cap Confidential
“How I Made $2,000,000 in the Stock Market” by Nicolas Darvas
In his book, Nicholas Darvas relates how he combined both fundamental and technical analysis to select the best stocks. Darvas realized early on the power of investment themes and knew the importance of finding the next big thing. Darvas knew that having the right idea would attract the most investors to a stock and subsequently boost share price, but he also knew that it was important to leave emotions at the door. Darvas knew the importance of this investing maxim: Don’t fall in love with your stocks!
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We get a lot of requests for investing book recommendations, so if you’d like more, go to our Web site. You can also write in with your own book recommendations by commenting below.
There are many outstanding books not mentioned in the above list. Any book which does not stress the importance of cutting losses quickly is not a must-read book ( see 2008 ). Bear markets do not respect fine income statements and balance sheets. A loss of 50% requires a gain of 100% !!
[...] Last weekend, I wrote about some of our editors’ favorite investing books. You can read the post here. [...]