Useful investment books

"I don't think I have any original ideas. Certainly I talk about reading Graham. I've read Phil Fisher. So I've gotten a lot of ideas myself from reading. You can learn a lot from other people. In fact, I think if you learn basically from other people, you don't have to get too many new ideas on your own. You can just apply the best of what you see." - Warren Buffett

The books below are in no particular order, except obviously that I've sorted them roughly by subject. Apart from that they are randomly placed only in the order in which I typed them, at the very bottom of the page I suggest the best books in this list and what order you might want to read them in.

If you read all of the investment books here you will probably have a broader knowledge of investment than any financial planner you will ever meet, I have met few advisors that were even dimly aware of how to invest money properly. (This is a sad statement to make, and reflects the generally low standards of most financial advisors that concentrate more on the sales part of advising than the investment part.)

I've linked to most of the books at Amazon so you can read reviews on them, some don't have links because they are apparently not available in America, most of the books that Amazon do not carry are Australian publications, so you shouldn't have too much trouble finding them in your local book shop (or sometimes your library). Many of the Australian books can be found at http://www.wrightbooks.com.au

Books to get you started

The Millionaire Next Door - Thomas J. Stanley and William D. Danko
The Millionaire Next Door is one of the rarest kinds of investment book, one that is simultaneously very very good and a best seller to the general public. This is rare, because generally investment books that sell well spout get-rich-quick rubbish. This book talks about good old fashioned frugal spending, hard work and long term investment. If you are looking for a book on wealth to give you a kick off, I suggest this would be a good start. I gave this a very brief summary in the Thrift FAQ.

Why Smart People Make Big Money Mistakes - and how to correct them - Gary Belsky and Thomas Gilovich
An excellent book on investor psychology. All the stuff I cover in the Psychology FAQ, in more detail. If you want to start investing you will first need to realise that the biggest obstacle you face is you - not dodgy auditors and company directors, or market manipulators.

This book gives the Hannibal Lecter treatment to investors, picking apart their psyche in a manner that will have you squirming with embarrassment when you realise just how much this sounds like you. After you have read The Millionaire Next Door and Why Smart People Make Big Money Mistakes you will then be ready to go on to reading actual investment books.

Books on asset allocation, returns, market efficiency/inefficiency, index funds and actively managed funds

The Intelligent Asset Allocator - William Bernstein
This is a very nifty book that will change your perspective on portfolio construction. It takes modern portfolio theory and strips it down to a simple and very useful form. It doesn't refer to beta and the capital asset pricing model isn't used, thankfully, but instead shows a very practical way of putting together portfolios to minimise risk. It answers the age old question - should you invest in property, shares, bonds, cash or hedge funds? The answer is all of them, but rebalance the portfolio regularly. This is a surprisingly down to Earth book and it has none of the silly assumptions or overcomplicated mathematics that annoy me so much about most Modern Portfolio Theory books. Definitely on the required reading list, it presents only a mild technical challenge because the author seems to be one of those guys that believes an ounce of common sense is worth more than a tonne of computer power. It lacks mathematical complexity because the author thinks you don't need calculus to put together a diversified portfolio.

Asset Allocation - balancing financial risk - Roger Gibson
This book covers the same subject matter as The Intelligent Asset Allocator but also deals with the psychology of risk profiling and financial planning. His book is pitched more at financial advisers than private investors and is much more technical than The Intelligent Asset Allocator, but don't let that stop you if you are interested, this stuff is important! I know that financial planners read my site from time to time, to these guys I recommend Gibson's book. To anyone who is not an FP, or thinking of becoming one, stick with Bernstein.

Common Sense on Mutual Funds - Jack Bogle
One of the best, and most sensible books ever written on investment. This book parallels almost perfectly my own views on investment and recommends investors use index funds as much as possible, minimise turnover and costs and take a long term view. He says if you are going to buy an actively managed fund you should avoid conservative index hugging ones but instead go for very active managers with unusual portfolios and low fees. Bogle saved me the trouble, I was going to write a book along the same lines and say most of the same things, we think alike in most ways.

A Random Walk Down Wall Street - Burton G. Malkiel
A 500 page doorstop, but hard to put down since it is so fun, in a schadenfreude-ish kind of way. Malkiel slays a variety of Wall Street sacred cows from head-and-shoulders topping patterns through to the hallowed Capital Asset Pricing Model. He gives lurid accounts of manias from the South Seas Bubble to the biotech boom and how even well known fund managers and brokers always seem to get it just as wrong as the most incorrigible punters. He is generally critical of almost all Wall Street lore, systematically bashing practically everything and everyone, so of course it is a fun book. Giving even fundamental analysis a thumping (though O'Shaughnessy has a few words to say about this in What Works on Wall Street), he does come out on the side of the blindfolded-baboon-throwing-darts-at-the-quotes-section-of-the-paper method for stock selection and seems to regard Buffett's success with some scepticism, but this is a must-read book anyway. His criticism of fundamental analysis only really deals with growth stocks, pointing out how unreliable earnings forecasts can be, especially when they optimistically run into the future. He is less critical of value investment, he spends the bulk of the book advocating random stock picks but suddenly changes his tune at the end with a moderate endorsement of value investing. On the other hand he gives technical analysis in all its forms a hiding. While I disagree with many of his conclusions about just how efficient the market really is, he is a worthy sparring partner for anyone wanting to debate the topic. You'll get a lot out of this book, even if it is just to put you off growth/momentum or technical investing.

A Non-Random Walk Down Wall Street - Andrew W. Lo, Archie C. Mackinlay
The enormous success and influence of A Random Walk Down Wall Street prompted many authors to write similar books, or books taking the opposite view! This is an econometrics book, a technical volume on the subject of market inefficiencies. It is an academic research based technical work discussing such things as negative autocorrelation effects (contrarianism), the random walk theory, thrashing the capital asset pricing model etc. If you are interested in market inefficiencies from an intellectual point of view then this is a good book, but contrary to what some have said about it, this is not a book with any practical relevance for day traders.

Winning the Loser's Game : Timeless Strategies for Successful Investing - Charles D. Ellis
This is another book that will appeal to the "buy and hold" type of investor. It has a similar focus to Bogle's Common Sense on Mutual Funds and advocates long term passive investment strategies and minimising costs such as brokerage and taxes.

The New Finance : The Case Against Efficient Markets - Robert A. Haugen
This is an excellent book that advocates value investment. He absolutely tears into the idea of the Efficient Market Hypothesis and everything it stands for. He hates indexing as a strategy, talking about the higher performance value stocks deliver compared to expensive stocks. Despite his anti-indexing stance, his evidence for systematic outperformance of value stocks make a good case for value oriented index funds!

Against the Gods: The Remarkable Story of Risk - Peter Bernstein
I found this to be a fascinating book, it is a historical exploration of the development of the mathematics of economics and risk management, discussing the origins of statistics and probability theory, game theory, regression to the mean and modern economics. It won't teach you how to value a company or recognise an "oversold" stock, but if you read it from cover to cover you will become a more sophisticated investor with a deeper understanding of the way markets and risk function. The mathematics discussed are sophisticated, but the book doesn't go into these concepts in any great depth, it is more a narrative on how we arrived at modern theories and thus you can read it without needing a background in economics or maths (instead, this book is supposed to give you that background).

Fooled by Randomness: The Hidden Role of Chance in the Markets and in Life - Nassim Nicholas Taleb
This is a very interesting book that explores randomness and in particular discusses how traders often mistake dumb luck for skill. He's a bit pompous, but occasionally amusing. He has some interesting ideas on risk and return, and his views on option trading are a little different to most.

Stocks for the Long Run - Jeremy J. Siegel, Peter L. Bernstein
This book looks at the long term return of stocks vs other asset classes, and argues that in a world of inflation stocks are a safer long term investment than cash and bonds.

Global Investing: The Professional's Guide to the World Capital Markets - Roger G. Ibbotson, Gary P. Brinson
This is a book for data junkies. If you are looking for the definitive book on market returns, covering many countries going back many years, with data on taxes, returns, risk, correlations etc, then this is for you.

Global Bargain Hunting - Burton Malkiel, J.P. Mei
From the author of A Random Walk Down Wall Street, this book talks about the opportunities available in Emerging Markets. Focusing on both the risks and returns, with as much backup data and research as you might expect from a Malkiel book, this lays out a compelling case for considering allocating a portion of your portfolio into investments in the Pacific Rim, Eastern Europe, South America and Africa. It documents the fundamental shift in the world over the last 20 years, the cold war ended and democracy is blooming, globalisation is opening up new opportunities socialism is wilting. As a result, economic growth in many economies is significantly higher than that in more developed markets. At the same time, they argue that valuations tend to be much lower and as a result returns of stocks in emerging markets can be much higher. The book not only discusses high profits, it also discusses risks, including lawlessness, nationalisation, bubbles and busts and bad debts. The book also goes into some detail talking about active investing vs passive investing, market timing, buying closed end funds at discounts to net asset backing or selling at a premium and a fair bit of information about value investing.

Global Investing: The Professional's Guide to the World Capital Markets - Roger G. Ibbotson, Gary P. Brinson
This is a book for data junkies. If you are looking for the definitive book on market returns, covering many countries going back many years, with data on taxes, returns, risk, correlations etc, then this is for you.

Books on stock picking

Sensible Share Investing - Austin Donnelly
How the Stock Market Really Works - Martin Roth
Understanding a Prospectus - Des Luplau
Basic information on the stock market. Easy to read but detailed enough not to offend advanced readers. Read these BEFORE you open a brokerage account.

The Intelligent Investor - a book of practical counsel - Benjamin Graham.
An advanced book, definitely not the sort of thing you would plough into straight away, but rightly called "the best investment book ever written". It isn't so much that the material is difficult, on the contrary his approaches are fairly intuitive if you "get" value analysis, but it is dry and pretty foreboding, the sort of book you may have to force yourself to keep reading. Every couple of pages though he makes a statement that is so profound and quote worthy that you'll want to take notes, worth reading but don't say I didn't warn you! Warren Buffett learned investment from this man, and in the later editions an appendix and introduction by Buffett make interesting reading.

Security Analysis - Benjamin Graham and David Dodd
Graham's other book, another milestone in investment writing. This one leans more toward being a textbook than a book. The Intelligent Investor should be read cover to cover, but this one will remind you of your old economics textbooks from school.

There is also a new version out called Graham and Dodd's Security Analysis by Sidney Cottle, Roger Murray and Frank Block. It is supposedly just a new edition but is in fact a radical rewrite. If you feel up to it you can read both, they are similar books, but they aren't quite the same book.

For the record, other than myself I have never met another person that has read this book cover to cover, even professional financial analysts prefer to take this book in small doses! It is a heavy technical book on how to appraise equities and bonds, though if you take the time necessary to get though it you will be as qualified a securities analyst as you'll find anywhere.

If you liked Securities Analysis, you'll probably also like The Interpretation of Financial Statements, which is similar.

The Valuation of Businesses, Shares and Other Equity - Wayne Lonergan
This is an Australian book by a partner in the Corporate Finance Division of PricewaterhouseCoopers in Australia. This is one of the best books I have read on equity valuation and should be a book to seek out if you are a long term investor and take your work seriously. It talks about different methods you would use to value an investment (including property by the way). There are many good books of this type around, but this one is Australian and may be more useful to domestic investors.

The Zulu Principle and Beyond the Zulu Principle - Jim Slater
Two excellent and thorough book on fundamental analysis and how small investors can do very well investing in small growth companies. Beyond- is the newer book, and is essentially a rewrite of the first. You will benefit from both books because they don't completely overlap but the newer one is the better book if you only want to buy one. There are chapters in the first book that aren't repeated in the second, maybe you should buy Beyond- and look for the other one in the library. Another book by the same author, Investment Made Easy is more of a beginner's primer, covering a variety of investment topics but not in such fine detail. The Zulu books are only an intermediate challenge and will not be too difficult for anyone that knows what a price earnings ratio is.

One up on Wall Street and Beating the Street - Peter Lynch
Peter Lynch ran the Fidelity Magellan Fund for many years, and though now retired will be remembered as one of the greats. Some very good general stock investment advice on a number of different types of stocks and the strategies that work with them. His approach to investing is surprisingly simple, and basically revolves around the idea that "if you like the product, you'll probably love the stock, so it is best to buy shares in a company you know is doing well rather than take a flier on some biotech startup". He himself was a fund manager, but generally doesn't have very complementary things to say about the analysis skills of most of his colleagues, in fact he urges investors to think like an "amateur".

How to Pick Stocks Like Warren Buffett - Timothy Vick
The Midas Touch - John Train
Buffett Step-By-Step: an Investor's Workbook - Richard Simmons
The Warren Buffett Way, The Warren Buffett Portfolio and The Essential Buffett- Robert G. Hagstrom
The Essays of Warren Buffett - Lawrence A. Cunningham
Buffettology - Mary Buffett (his former daughter-in-law)
Buffett - The Making of an American Capitalist - John Lowenstein
How to Think Like Benjamin Graham and Invest Like Warren Buffett - Lawrence A. Cunningham
Of Permanent Value : The Story of Warren Buffett - Andrew Kilpatrick
Wall Street on Sale - Timothy P. Vick
A Wonderful Company at a Fair Price - Brian McNiven
Some very good books about Warren Buffett and his methods. You can't call yourself an investor until you can write an off-the-cuff two page essay on Warren Buffett and his methods! I think How to Pick Stocks Like Warren Buffett and The Essential Buffett are probably the best of the lot. A Wonderful Company at a Fair Price is a fairly new book (2002 published) by an Australian author. It gives a lot more attention to the methods of valuing a stock than most, and Aussie readers will appreciate the fact that the book talks about Australian companies rather than talking about Coke and Gillette incessantly as the US Buffett books do,

Common Stocks and Uncommon Profits - Philip A. Fisher
You can save yourself a great deal of reading on Warren Buffett simply by reading the books in this volume. The "other writings" alluded to in the title are several short works that are bundled into the one cover with Common Stocks and Uncommon Profits. These other works are "Conservative Investors Sleep Well", which deals with the subject of how to identify a safe company with powerful competitive advantages, as opposed to a speculative company, and "Developing an Investment Philosophy", which goes at length into such things as being a contrarian, focusing on businesses instead of stock markets, market timing (and why you shouldn't do it) and an argument against the Efficient Markets Hypothesis. When I read the volume for the first time suddenly the penny dropped about Warren Buffett, all of Buffett's talk of "margin of safety" and "value" comes from Graham, but Fisher is the one that promotes the idea of the super business franchise, the buy and hold forever doctrine for quality companies and all of that stuff about competitive advantages. If you study your Ben Graham and Phil Fisher you'll have virtually the entire foundation that Buffett drew on, in fact after a good read of Fisher I came to the conclusion that most books on Buffett are simply Fisher ripoffs with a bit of value investing thrown in.

Super Stocks - Kenneth Fisher (son of Philip Fisher)
One of the best books ever written about investing in technology stocks. Much of what he claims in this book is verified by What Works on Wall Street, namely K. Fisher's strong endorsement of low price-to-sales ratio stocks and other traits.

The Money Masters, The New Money Masters and Money Masters of Our Time- John Train
These books talk about the investment strategies of investment greats such as Soros, Lynch and Rogers - though not in any great detail. Money Masters of Our Time is the newest of the books, and since it covers much the same ground as the previous ones (with updates), I don't think it is necessary to buy all three.

Dean LeBaron's Treasury of Investment Wisdom: 30 Great Investing Minds - Bean LeBaron
Another book in the "Money Masters" genre, this is an excellent book reviewing a wide range of successful approaches to investment and the investors who use them with a bit of discussion about the pros and cons of each method. This is definitely one of the books you ought to read if you are still trying to find your "niche" as an investor, as it will give you exposure to some of the possibilities that are out there.

What Works on Wall Street - James P. O'Shaughnessy
O'Shaughnessy was the first outsider ever to gain access to the Standard and Poors Compustat database, the ultimate resource for investment researchers containing an overwhelming amount of price and fundamental data for many thousands of securities over many decades. Using computer simulations he backtested a variety of trading and investment strategies and made some interesting discoveries on which strategies work the best. This book contains the results of his findings and is essential reading.

Contrarian Investment Strategies: The Next Generation - David Dreman
A cross between What Works on Wall Street and A Random Walk Down Wall Street. He attacks conventional wisdom just like Malkiel does and gives detailed arguments to show Wall Street analysts in a rather ridiculous light but also runs an equity fund and shows a variety of strategies that have worked in the past. His backtesting, based on Compustat just like O'Shaughnessey comes to similar conclusions but does not reveal anything you didn't know after reading O'Shaughnessey's book. He argues just like Malkiel does that a blindfolded monkey, lubricated with sufficient alcoholic beverages could pick stocks as well as any analyst, but takes an interesting approach in that he actually regards this as an exploitable phenomenon to make money! Dreman's systems, which are basically just value investing techniques work on the idea that analysts are far too bullish on growth stocks and far too pessimistic on "dogs", therefore you can do very well by buying stocks that analysts are exceedingly bearish about and have sold down to the point that they trade very cheaply. When earnings recover, as they usually do, the stock will "surprise" Wall Street and rally nicely. Dreman's own investment record is excellent, which indicates to me that he may be onto something. He advises people to buy very oversold stocks, provided that the company is still in one piece and not likely to die completely, so unlike both Malkiel and O'Shaughnessey he does value qualitative factors like management and business prospects.

Blueprint for Investment: A Long Term Contrarian Approach - Richard Fitzherbert
Another good book on contrarian investment, it includes more bashing of the Efficient Market Hypothesis, gives lessons from history (some very recent) about speculative bubbles and how to avoid them and gives a general wrap-up of value and contrarian investment. As a bonus it is an Australian book published by Wrightbooks. I thought this book was excellent.

Contrary Investing for the 90s - Richard Band
I liked this book as well, Fitzherbert's "Blueprint" put me onto it. It contains further lessons in how to be fearful when others are greedy and greedy when others are fearful and contains some very original ideas.

John Neff on Investing- John Neff
This guy is considered to be one of the greatest fund managers of all time, right up there with Buffett, Templeton and Lynch. His Windsor fund beat the market in most of the 30 years of his tenure and his final score was more than 3% higher than the market. This book has three sections. The first is autobiographical, talking about Neff's early life and how he came to be running a fund. The second section, which I more-or-less summarise in the shares section of the FAQ ("Neff's Methods") deals with Neff's value approach and "Measured Participation" portfolio construction strategy. The third section is something of a historical account of what it was like to run Windsor.

Global Investing the Templeton Way - Norman Berryessa and Eric Kirzner
This book is based around a series of interviews with Sir John Marks Templeton. The two authors, a financial writer and a finance academic wrote this book obviously with a deep reverence for the efficient markets hypothesis and modern portfolio theory, and as a result many pages are expended extolling the virtues of these techniques. Interestingly though, in their interviews with Templeton they keep putting forward MPT ideas and Templeton rejects them. Repeatedly Templeton says he doesn't have much use for MPT, ranking it along side technical analysis as something they take a look at from time to time but otherwise have found little use for. This book, which contains plenty of sage advice relating to value investment by Templeton (much of which I assimilated into this web site) would mainly suit investors wanting to learn more about global investing, as it devotes much space to the peculiarities of having to invest across borders and live with foreign investment restrictions, exotic tax systems and the challenges of digging up good financial information in poorly regulated and informed foreign markets.

How to Make Money in Stocks - William J. O'Neil.
A highly regarded book on growth stock trading, the CANSLIM approach explained.

This book will be more suited to medium term traders/investors that like to combine technical analysis with fundamental analysis. He advocates stop-loss techniques such as "always sell a stock if it falls 10%" and has chapter after chapter devoted to charting. His methods are typical of the high-turnover approach used by stock brokers, he is more concerned with trying to find the next big thing and make 100 times your money than long term steady accumulation of profits. If you like Warren Buffett you'll probably hate William O'Neil.

Books on speculative trading

Trading For A Living - Dr. Alexander Elder
This is one of the better trading books, Elder is a trained psychiatrist and professional futures trader. The book stresses that the answer to finding trading success is not in finding a technical buy or sell signal as such, but in recognising your own psychological pitfalls and mastering money management. He gives black box software a thrashing, Gann, Elliott Wave, various other gurus and systems, which he compares with astrology.

Share Trading - an approach to buying and selling - Daryl Guppy
Daryl Guppy is a very well known Australian share trader, who makes a living trading shares from home via the Internet. All of his books are very popular with small Australian traders, because they talk about methods suitable for small home based share traders. Check out his web site at http://www.ozemail.com.au/~guppy/

Technical Analysis Explained - Martin Pring
Technical Analysis of the Financial Markets - John J Murphy
Technical Analysis of Stock Trends - Robert Edwards
The Complete Day Trader: trading systems, strategies, timing indicators, and analytical methods - Jake Bernstein
A Complete Guide to the Futures Markets - Jack D. Schwager
Some of the better regarded trading and technical analysis books.

Futures: Fundamental Analysis - Jack D. Schwager
A really dry book on fundamental analysis of the futures market. Kind of like Securities Analysis except we're talking about commodities.

Market Wizards and The New Market Wizards
These books are from the transcripts of a series of interviews with some of the world's top traders. These guys aren't amateurs doing a bit of trading from home, but mostly guys that run huge trading accounts for institutional clients. They don't tell you a whole lot about the actual techniques used because of commercial secrecy, but if nothing else they will bang into you the importance of money management, discipline, intelligence and an enormous amount of hard work. I am not sure if they are really all that inspirational to new traders, if anything they do more to shatter the "easy money" illusion that people get about trading than encourage you. These books will either put you off trading for good or prompt you to assess your own professionalism in trading.

How I Trade for a Living - Gary Smith
Smith is one of those very rare trading book writers who is able to back up what he says with genuine, authenticated trading statements signed by his broker that show him to in fact be a highly profitable trader. He talks about how he trades for a living, using divergence, momentum and contrarian sentiment studies. He seems to be on some kind of crusade against trading system vendors, he openly challenges vendors who flog their systems over the Internet and through trading magazines to actually put forth some trading statements to show profitability. To date very few vendors have ever taken him up on this, often using some pretty weak excuses. He's my kind of guy! Smith has from time to time sold manuals and trading advice, but generally dislikes doing this, preferring to trade instead. He is sceptical of firm mathematical indicators, he HATES mechanical trading systems, he says he never did better than when he stopped looking at charts (he reads the "ticker tape" on the market channel of cable, doesn't even use a computer normally!) He regards most exotic trading techniques as cons and as a general rule he advises against leveraged trading (like futures and options) and short selling. He mainly trades stock funds, and almost always takes long positions. If you do want to start trading you could certainly do a lot worse than reading this book first, he gives a quite good insight into the sort of lifestyle and the amount of work you have to do in order to become a professional trader. His method is geared more for the continuous, reliable, unspectacular profits style of trading, as opposed to the crash test dummy method (going for broke trying to triple your money every two weeks).

Reminiscences of a Stock Operator - Edwin Lefèvre
This book is the thinly disguised biography of Jesse Livermore, one of the greatest traders of all time. Although he eventually shot himself dead following his umpteenth bankruptcy, his book is still regarded as a trader's classic. This book is probably the "The Intelligent Investor" of trading books.

Trade Your Way to Financial Freedom - Van Tharp
The Mathematics of Money Management: risk analysis techniques for traders - Ralph Vince
Portfolio Management Formulas: mathematical trading methods for the futures, options and stock markets - Ralph Vince
The Irwin Guide To Trading Systems - Bruce Babcock, Jr.
Money Management Strategies for Futures Traders - Nauzer J. Balsara
The Definitive Guide to Futures Trading - Larry Williams
For the serious trader wanting a better understanding of the sort of money management techniques mentioned in the trading FAQ, these are very good reference books. They may on occasion mention technical analysis but they are significantly more advanced than that, going well beyond just being another book on drawing trend lines and watching support and resistance levels. These are hard going, advanced texts that employ a lot of mathematics, but far from being ivory tower academic stuff they are written by professional futures traders (except Tharp, who as far as I know is a psychologist or something). You can scratch around for years and never see the need to do much more than standard charting, but if you want to take your trading to the next level and get really serious these books are well worth looking up. If you trade stocks without leverage you might be able to get away with ignoring this field, but if you intend to use margin, to trade futures or options then you had really better get acquainted with this material as quickly as possible.

Real Estate

Seven Steps to Wealth - John L Fitzgerald
Creating Wealth Through Property Investment - Jan Somers
These are examples of the "it is easy to buy ten houses in ten years and become a millionaire" genre. I rate Fitzgerald above Somers, but would urge you to read much further on the topic before you get yourself all excited about property. They give the impression that real estate is a foolproof way to gain vast wealth, in particular Jan Somers who puts forward a message that property is some sort of investment magic pudding that exhibits every kind of virtue from extremely high returns to negligible risk and easy management. If anyone is wondering where the inspiration for my "buildings are a depreciating asset" article in the real estate FAQ, it comes from Fitzgerald, he recommends investors buy new properties for their depreciation allowances but to avoid overpriced units at all costs, pointing out that capital gain comes from the land and not the building. I like Fitzgerald a lot but like I say, I have doubts about Somers.

Confessions of a Real Estate Agent - Terry Ryder
Real Estate Mistakes and Don't Sign Anything - Neil Jenman
Realistic Real Estate Investing - Austin Donnelly
Good books on real estate. Ryder's book warns about shonky operators in the real estate industry, Neil Jenman is famous for starting Australia's self-proclaimed "most ethical real estate group" and gives the inside scoop on how crooked the real estate industry is with warnings about seminar operators and shonky auctioneers, Donnelly's book is more of a "reality check" book, he shoots down some of the wilder claims about property being extremely profitable with no real risk and focuses on more negatives than the other books do.

How I Turned $1,000 into Five Million in Real Estate - William Nickerson
Long before the present day mania for "zero down" real estate seminars there was a book that showed us all how real estate could work. Although the title of this book seems a bit corny, this book is a genuine real estate classic. The first edition of this book was called "How I turned $1,000 into One Million in Real Estate", the second was "..Three Million.." and now the third edition "..Five Million.." indicating the continued success of his methods. This book doesn't talk about lease options and weird financing arrangements, it doesn't talk about the mythical "motivated seller" and try to tell you you can buy houses for one half or market value by finding these guys. Instead it tells you something far more basic, something far more boring and simple. He tells you to buy slightly run-down properties, renovate them cheaply and sell in a couple of years for a 25% profit, using standard loans provided by lenders, secured against equity in your own house or other properties. If you look at John T. Reed's excellent real estate site and see where other famous real estate authors ended up, Nickerson is one of the few famous real estate gurus that didn't end up broke or jailed. I'd be inclined to follow this guy's advice rather than the more exotic techniques taught at those seminars.

Landlording: A Handy Manual for Scrupulous Landlords and Landladies Who Do It Themselves - Leigh Robinson
Another one of the most revered real estate classics of all time. Unfortunately, its an American book which does limit its utility to Australian investors.

Renton's Understanding Investment Property - Nicholas Renton
Renton is a genuine real estate book by someone with professional qualifications and broad knowledge of many areas of real estate investment. Somers et al are popular books, and I probably couldn't write a book list without including her, but this is more the sort of book you should be reading. Renton has written many other books, including various books on the stock market, so you won't get any of that "shares are highly risky and the returns are so bad you won't even beat inflation but property is a completely fool-proof way to become a gazillionaire" stuff that most real estate authors put out. This book, just shy of 500 pages long goes into far more detail than most about property investment, and covers risk a lot better than most. It goes into the finer points of negative gearing and other topics, and talks about property as an investment class worthy of inclusion in a portfolio - as opposed to extolling its virtues while bashing all others as many real estate books do - and is one of the best real estate books I've ever read. Don't invest in property until you have checked this one out.

Investing in Residential Property - Peter Waxman and Dennis Lenard
Waxman and Lenard is another book that takes a similar "serious" approach to the subject matter. It goes on about economic cycles and tax laws and various things that will bore most real estate fanboys to tears, but I think such a text is important to shake investors out of the get-rich-quick spell cast by Somers and Kiyosaki. (To be fair to Somers, I think she just oversimplifies investment and lacks real understanding of the alternative investments she does so much to denounce, but I think she is honest and reports the facts as she sees them and she has genuinely built considerable wealth from her investments, in particular because most of her books were written at a time of high inflation when the "gear to the hilt and buy property" strategy works quite well. Kiyosaki made his fortune knowingly peddling snake oil and I expect his work will soon be forgotten just like all the other flashy real estate gurus that have come before him, eventually just ending up another sad old guru speaking to shrinking audiences of true believers.)

Bubbles and speculation

The Crowd/Extraordinary Popular Delusions - Gustave le Bon and Charles Mackay
A double volume, not an investment how-to book as such, but talks about manias and booms. From the South Seas Bubble to the French equivalent, Dutch Tulipomania and more recent busts. It talks about how crowd psychology works on prices and feeds an extraordinary lust for ever higher gains, forcing up prices to levels far higher than could ever be sustained. Original editions appeared in the 19th century, but updates have been made in recent editions.

Devil Take the Hindmost: A History of Financial Speculation - Edward Chancellor
You might call this an updated and better version of The Crowd/Extraordinary Popular Delusions.

Seeking financial advice

Where are the Customers' Yachts? - Fred Schwed
An amusing book written by a disgruntled investor using a pen name. It talks about the abuses perpetrated by investment advisers earlier this century, the title itself referring to comments made by someone being shown the luxury yachts owned by stock brokers at the local marina. Although it refers to a bygone era, a lot of it still rings true, and should be required reading anyway.

Liar's Poker: Rising Through the Wreckage on Wall Street - Michael Lewis
A more modern Where are the Customers' Yachts?, the story of a broker who sees Wall Street from the inside as it exploits - and occasionally busts its clients. It is worth reading for two reasons: first it will teach you not to trust stock brokers, and secondly it is very funny!

Good Advice - Austin Donnelly
I just love the way Donnelly sticks it to dodgy advisers. This is another book of his where he suggests ways of finding a good adviser, and if you are an adviser yourself, ways to ensure that you are giving good advice.

I don't absolutely 100% agree with some of the things Donnelly says, for example he says you should get your adviser to provide risk disclosure that includes the worst this investment has performed in the past, (I disagree because past performance is no guarantee of future results, I usually tell my own clients that the worst case scenario could be much worse than the worst result from the last 20 years or so, I do let my clients know about past performance ranges but go much further by pointing out the potential for results to be even worse than that. I fear that disclosure based just on past results would allow salesmen to data mine to find funds with low volatility in their past performance and run around flogging these as low risk investments - for example a mortgage trust with low quality borrowers or a hedge fund could well do much worse than past results might suggest.) On the other hand, Donnelly and I think alike on many things and share the goal of having every (or nearly every) dodgy salesman removed from the financial advice industry. Another book on the subject is Renton's Understanding Stockbrokers and Financial Advisers by Nick Renton.

General

When Genius Failed: The Rise and Fall of Long-Term Capital Management - Roger Lowenstein
The story of the rise and fall of one of the most famous hedge funds in history.

Asian Eclipse - Michael Backman
Considering buying Asian stocks? This book deals with corruption and financial scandals in Asia. If you have heard all this stuff about the need for banking reform in Asia, yet don't know what it all means, read this and be shocked at the manipulation, fraud, cronyism and contempt for minority shareholders that characterise most Asian stock markets. Find out what happens when incompetent real estate speculators are allowed to buy their own banks and judges earn such low salaries that only by accepting money from the accused can they pay their bills.

Suggested books for a self-study course in investment and wealth creation

Level zero, haven't got a clue but want to start somewhere

  1. Anything by Paul Clitheroe
  2. Anything by Austin Donnelly

Level one, getting off to the best possible start

  1. The Millionaire Next Door by Thomas Stanley and William Danko
  2. Why Smart People Make Big Money Mistakes - and how to correct them by Gary Belsky and Thomas Gilovich
  3. Common Sense on Mutual Funds by Jack Bogle
  4. The Intelligent Asset Allocator by William Bernstein

Level two, learning the truth about the way markets work

  1. A Random Walk Down Wall Street by Burton Malkiel
  2. What Works on Wall Street by James O'Shaughnessey
  3. One Up on Wall Street and Beating the Street by Peter Lynch
  4. Contrarian Investment Strategies: The Next Generation by David Dreman

Level three, the stock picker

  1. How to Pick Stocks Like Warren Buffett by Timothy Vick
  2. The Warren Buffett Way and The Essential Warren Buffett by Robert Hagstrom
  3. John Neff on Investment by John Neff
  4. The Zulu Principle and Beyond the Zulu Principle by Jim Slater
  5. - and anything else you can find on Warren Buffett

Level four, the hardcore guru type

  1. The Intelligent Investor by Benjamin Graham
  2. Common Stock and Uncommon Profits by Phillip Fisher
  3. Security Analysis by Benjamin Graham and David Dodd and the newer version Graham and Dodd's Security Analysis by Sidney Cottle, Roger Murray and Frank Block, I count these as two different books.
  4. Against the Gods: The Remarkable Story of Risk by Peter Bernstein

Perhaps others would like to suggest a book list for a self study course in trading, but my suggestions would go along the lines of:

  1. Anything by Daryl Guppy
  2. Trading for a Living by Alexander Elder
  3. How I Trade For a Living by Gary Smith
  4. Market Wizards and the sequels by Jack Schwager
  5. Trade Your Way To Financial Freedom by Dr Van Tharp
  6. Reminiscences of a Stock Operator by Edwin Lefèvre
My personal recommendation on trading would be don't, but if you really want to give it a go I suggest you should take it very seriously. Almost all new traders greatly underestimate the potential for loss and overestimate their own abilities. If you care to do some research into the lives of any of the great traders that have made a big name for themselves you'll find that a surprisingly large number died penniless or had some other major fall from grace. On the other hand it is not unusual for a little old lady to die and leave millions to charity because she did nothing more than hold onto some good stocks for 40 years and resisted any urge to trade in them at all.

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