The billionaire icon’s must-reads will make you deeply skeptical about Wall Street, and more confident of your own investment abilities.
BY GEOFFREY JAMES Contributing editor, Inc.com
Not surprisingly, Buffett’s recommendations are almost entirely about investing
. Read between the lines, though, and you can sense the avuncular, knowing smile hiding behind his wry choices.
Unlike the “how to get rich” tomes typical of the investment genre, Buffett’s must-reads are subversively critical of Wall Street and its culture. He advises the would-be millionaire to become, when investing, an entrepreneur rather than a mere customer.
1. BUSINESS ADVENTURES
Subtitle: Twelve Classic Tales From the World of Wall Street
Summary: The New Yorker‘s coverage of business has always gone far beyond reportage and raised business writing to the level of fine art. Of the many talented authors who’ve written for the magazine over the decades, John Brooks stands out asa master of the well-told tale that both informs and entertains. These are some of his best stories, told with insight and a sharp understanding of human foibles.
Best Quote: “The stock market — the daytime adventure serial of the well-to-do –would not be the stock market if it did not have its ups and downs. Any boardroom sitter with a taste for Wall Street lore has heard the retort that J.P. Morgan the Elder is supposed to have made to a naive acquaintance who had ventured to ask the great man what the market was going to do. ‘It will fluctuate,’ replied Morgan dryly. And it has many other distinctive characteristics. Apart from the economic advantages and disadvantages of stock exchanges — the advantage that they provide a free flow of capital to finance industrial expansion, for instance, and the disadvantage that they provide an all too convenient way for the unlucky, the imprudent, and the gullible to lose their money — their development has created a whole pattern of social behavior, complete with customs, language, and predictable responses to given events.”
2. COMMON STOCKS AND UNCOMMON PROFITS
Author: Philip A. Fisher
Summary: The classic guide to picking stocks based upon informed research. More than any other, this book seems to encapsulate Buffett’s overall investment philosophy. It’s also one of the few books written before the invention of the internet that actually has become more relevant since.
Best Quote: “Most people, particularly if they feel sure there is no danger of their being quoted, like to talk about the field of work in which they are engaged and will talk rather freely about their competitors. Go to five companies in an industry, ask each of them intelligent questions about the points of strength and weakness of the other four, and nine times out of ten a surprisingly detailed and accurate picture of all five will emerge. However, competitors are only one and not necessarily the best source of informed opinion. It is equally astounding how much can be learned from both vendors and customers about the real nature of the people with whom they deal.”
3. DREAM BIG
Author: Cristiane Correa
Summary: In the United States there are about dozen business icons — Jobs, Welch, Gates, and so forth — whose personal stories continue to inspire entrepreneurs. The rest of the world, however, looks to other mythmakers and inspirations. In South America there are no entrepreneurs more iconic than Jorge Paulo Lemann, Marcel Telles, and Beto Sicupira. Together they built the biggest business empire in Brazilian history, making themselves into billionaires while making at least a thousand of their employees into millionaires.
Best Quote: “In less than two decades, they had transformed a regional brewer with a strong name and feeble results, Brahma, into the biggest company in the sector at a global level. All this had been achieved by repeating ad nausea the mantras of the corporate culture Lemann had adopted at the beginning and then spread to all the company in which they invested: meritocracy, relentless cost control, hard work, and a lot of pressure that not everyone could endure. There were no perks or status symbols. However, for the best — people like Brito, Thompson, and Dutra — the opportunities gave them the chance to become business partners.”
4. THE LITTLE BOOK OF COMMON SENSE INVESTING
Subtitle: The Only Way to Guarantee Your Fair Share of Stock Market Return
Author: Jack Bogle
Summary: Essentially a detailed argument for diversification, especially in the form of index funds, hopefully with low management fees.
Best Quote: “[There is] a profound conflict of interest between those who work in the investment business and those who invest in stocks and bonds. The way to wealth for those in the business is to persuade their clients, ‘Don’t just stand there. Do something.’ But the way to wealth for their clients in the aggregate is to follow the opposite maxim: ‘Don’t do something. Just stand there.’ For that is the only way to avoid playing the loser’s game of trying to beat the market.”
5. THE MOST IMPORTANT THING
Subtitle: Uncommon Sense for the Thoughtful Investor
Author: Howard Marks
Summary: This book is the counterargument to the “common sense” theory of investing. Rather than trying to simplify investing, the author successfully does the opposite, showing how high-level investing requires the balancing of many complex factors. Fortunately, the author lays out these complexities in a methodical manner, thereby making them as easy to understand as possible.
Best Quote: “What, exactly, is ‘the most important thing’? In July 2003, I wrote a memo with that title that pulled together the elements I felt were essential for investment success. Here’s how it began: ‘The most important thing is X.’ And then ten minutes later it’s ‘The most important thing is Y.’ And then Z, and so on. All told, the memo ended up discussing eighteen ‘most important things.’ Since that original memo, I’ve made a few adjustments in the things I consider ‘the most important,’ but the fundamental notion is unchanged: they’re all important. Successful investing requires thoughtful attention to many separate aspects, all at the same time. Omit any one and the result is likely to be less than satisfactory.”
6. THE INTELLIGENT INVESTOR
Author: Benjamin Graham
Summary: Attentive readers have no doubt noticed that The Little Book of Common Sense Investing and The Most Important Thing espouse diametrically opposed investment philosophies. If you imagine those two books as the two sides of an archway, The Intelligent Investor is the keystone that holds them both aloft. This book explains that while effort is necessary to get better results than one could from an index fund, the subject is not so arcane that only experts need attempt it.
Best Quote: “The art of investment has one characteristic that is not generally appreciated. A creditable, if unspectacular, result can be achieved by the lay investor with a minimum of effort and capability; but to improve this easily attainable standard requires much application and more than a trace of wisdom. If you merely try to bring just a little extra knowledge and cleverness to bear upon your investment program, instead of realizing a little better than normal results, you may well find that you have done worse.”
7. THE OUTSIDERS
Author: William Thorndike Jr.
Summary: In this coming-of-age classic, the teenaged Ponyboy learns the true meaning of friendship when… Whoops! Wrong “Outsiders.” Rewind. In this getting-of-wealth classic, the middle-aged William learns the true meaning of leadership by studying eight CEOs who succeeded despite flouting conventional wisdom.
Best Quote: “CEOs, like professional athletes, compete in a highly quantitative field, and yet there is no single, accepted metric for measuring their performance, no equivalent or ERA for baseball pitchers, or complication rate for surgeons, or goals against average for hockey goalies. The business press doesn’t attempt to identify the top performers in any rigorous way. Instead, they generally focus on the largest, best-known companies, the Fortune 100, which is why the executives of those companies are so often found on the covers of the top business magazines. The metric that the press usually focuses on is growth in revenues and profits. It’s the increase in a company’s per share value, however, not growth in sales or earning or employees, that offers the ultimate barometer of a CEO’s greatness. It’s as if Sports Illustratedonly put the tallest pitchers and widest goalies on its cover.”
8. WHERE ARE THE CUSTOMERS’ YACHTS?
Author: Fred Schwed
Summary: The title of this vastly entertaining exposé refers to a visitor to a Wall Street firm who, after seeing photos of the brokers’ various yachts, asked “Where are the customer’s yachts?” The point being, of course, that stock brokerages are set up to make brokers rich, often at the expense of their customers. What’s fascinating, and also unsettling, is that this book was originally published six decades ago, thereby making it a perfect illustration of the adage “No one ever went broke underestimating the intelligence of the American public.”
Best Quote: “Customers have an unfortunate habit of asking about the financial future. Now, if you do someone the single honor of asking him a difficult question, you may be assured that you will get a detailed answer. Rarely will it be the most difficult of all answers — ‘I don’t know.'”