Reading for Fun and Profit

 | Mar 23, 2013 | 2:00 PM EDT
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Subscribers frequently ask me what they should be reading to help make them better investors. My stock answer is this: everything.

I agree with Charlie Munger that one of the keys to a successful life is reading often. I read at least two newspapers a day to gain a sense of what is going on in town and around the world. On weekends, I go through daily papers and the weekend Wall Street Journal, Barron's and the Sunday New York Times. I read several magazines relating to banking and real estate since these areas influence so much of what happens in the rest of the financial world. Of course, I am also a voracious reader of fiction and all things baseball as well. I keep up with what's being released in business and finance books, but most of the newer ones seem to be a rehash of the good old stuff.

With that in mind, here is my list of books that should help to make you a better investor and improve your trading.

I do not care how you approach the markets, everyone everywhere should read Benjamin Graham's The Intelligent Investor. In addition to the basics of value investing, Graham teaches you how to differentiate between speculation and investment, something too few recognize today. The book also outlines both the defensive and enterprising approaches to investing and helps you determine your classification. And it introduces the critical concept of margin of safety and the maniac Mr. Market, who can be your worst enemy or your best friend.

Martin Whitman's The Aggressive Conservative Investor is another must-read. The concept of maximizing returns by minimizing risk through security evaluation has been at the heart of my career. This is the first book on investing I ever read and the concepts and techniques have served me well over the decades. Although the book was released in 1979, get the edition released in 2006 as Whitman updated the text to adjust for changes in the financial world. Serious investors adopting the value approach to the markets should also read Whitman's Distress Investing: Principles and Techniques.

The Little Book of Value Investing by Chris Browne is another must-read -- with the disclaimer that I had a hand in the writing of this book. Chris Browne is one of my favorite people in the history of Wall Street -- he was intelligent, witty, articulate and a real gentleman. I learned more from Chris than anyone else in the course of my investing career. The book teaches the basics of the game: how to find cheap stocks, analyze them and manage a portfolio.

As an aside, I have always felt it is critical to understand all approaches to the market, not just the ones you favor. Wiley's Little Book series is a Ph.D. course in market approaches that allows you to learn the various schools of thought quickly from the best practitioners. Serious investors and anyone offering financial services to the public should buy, read and keep the entire series.

This will come as a surprise to many people, but everyone involved in the markets in any fashion should read The Education of a Speculator by Victor Niederhoffer. The book gives insights into a successful speculative mind that cannot be obtained elsewhere. The life lessons derived from sports, gambling and board games can be applied to life and to markets. Investors and traders alike who have not done so should read this sooner rather than later.

James Montier is an articulate insightful writer whose letters and articles have been a must-read for years. So is his book Value Investing: Tools and Techniques for Intelligent Investment. This book gives insights not just into picking stocks, but how to think about stocks and markets to increase your chances of success. Any book recommended by Seth Klarman has to be on your reading list. (Speaking of Klarman, if you can get your hands and on a copy of his Margin of Safety you should do so. The problem is it's out of print and used copies can fetch upwards of $1000. Klarman has refused to republish it, but you can sometimes find a copy by digging around the Internet.)

If you do not understand arbitrage, you will lose a bunch of money at some point to someone who does. Keith Moore and Guy Wyser-Pratte have written fabulous books on risk arbitrage that will give you a deeper understanding of this complex corner of the market.

I rarely suggest new books but I am impressed by the wealth of information in Quantitative Value by Tobias Carlisle and Wesley Gray. They do a great job of testing and explaining various approaches to the market and using the quant model to pick value stocks.

That's my starter list of what you must read to make you a better investor. But my best advice is to read everything.

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