Learn To Invest like Warren Buffett
Resources for a strong foundation
Like many things in life, starting with the right foundation will greatly increase potential. The right foundation in sports begins with endurance and strength training. In investing it is learning things like what a stock actually is, what metrics are used to measure a company’s health and performance, how to buy stocks, and what to expect after a stock has been purchased.
Books written by successful investors
Reading books written by people who’ve had successful investing careers is an excellent way to shorten the learning curve. Below is a list of books recommend by, or written by successful investors. Many of which I’ve personally read.
These books will build a strong understanding of how the market works, how it fluctuates, and what it means to pick good companies.
-Net worth ~ 70 billion
-Investing style “85% Benjamin Graham and 15% Philip Fisher”
The basic ideas of investing are to look at stocks as business, use the market’s fluctuations to your advantage, and seek a margin of safety. That’s what Ben Graham taught us. A hundred years from now they will still be the cornerstones of investing. – Warren Buffett
Warren Buffet and the Interpretation of Financial Statements.
Why learn how to interpret financial statements anywhere else? Get it from the Oracle himself. At only 202 pages, this book, written by the daughter in law of Warren Buffet is an extremely concise account of Buffets method of analyzing financial statements. A pocket sized must have for those serious about learning to evaluate investments.
The Essays of Warren Buffet
A collection of Warren Buffets letters to shareholders. These letters, written by Buffet over the course of a few decades, contain insights into how Buffet thinks and operates along with business advice and how he thinks businesses should best be run. The material within covers everything from common stock to corporate finance and accounting policy.
-Founder of “Value Investing” (buying stocks when they are undervalued)
-coined “margin of safety”
” Most of the time stocks are subject to irrational and excessive price fluctuations in both directions as the consequence of the ingrained tendency of most people to speculate or gamble … to give way to hope, fear and greed.” – Benjamin Graham
No investors bookshelf should go without a copy of this book. It is probably one of the most important investment books every written. Surely a cornerstone writing for value investors. In this book Graham dives deep into how to value a particular company and what price is the correct purchase price based on the financial data available. A recommended by reading by Warren Buffet.
Written by Benjamin Graham and Co-authored by David Dodd. This book is a more full interpretation of The Intelligent Investor, geared towards those looking for a more in-depth look at stock valuations. More for intermediate investors seeking a deeper understanding into methods of valuation and provides a detailed framework for the value investor. Recommend by and studied by Warren Buffet.
The Interpretation of Financial Statements
For those serious about becoming successful investors, understanding financial statements is critical. Master investor Benjamin Graham provides a guide to understanding these statements in his book, The Interpretation of Financial Statements. Graham suggests that the precise understanding of a company’s current and past financial position is the best indicator of future earnings.
-Pioneer of “Growth Investing”
-Does not worry so much about Stock price, but where it is headed in the future
“If the job has been correctly done when a common stock is purchased, the time to sell it is almost never.” -Philip Fisher
Common Stocks and Uncommon Profits
Another cornerstone writing for Growth Investors and foundational philosophy for Warren Buffet. Fisher lays out his “15 Points” for evaluating a company. He focuses more on information that cannot be found in financial statements. In this book lies an extremely thorough analysis on how to find out every little detail about a company to really get an idea about its health. A recommend reading by investor Warren Buffet.
At the writing of this book, Fisher accurately describes the current market conditions. Anyone who followed his advice would have done extremely well in the years to come. This book is a must read for serious investors. Fisher covers the factors that make a great investments.
-Averaged over 29% annual return from 1977-1990
-Turned 18 million into 14 billion
“All the math you need in the stock market you get in the fourth grade.”– Peter Lynch
“The real key to making money in stocks is not to get scared out of them.” – Peter Lynch
“How to use what you already know to make money in the market.” That pretty much sums up this read. Lynch recommends looking around at the business you already know about, including ones your friends and family frequent to get ideas for stock purchases. Great investments may be right under your nose! Lynch covers many things including cyclicals and turnarounds and offers general investing principals. He also reveals what to look for in a company’s financial statements.
Beating the Street
Another classic handed down by one of the most successful investors of our time. Peter Lynch lays out his golden rules for investing including “Never invest in an idea that you cannot illustrate with a crayon.” In this classic, Lynch shows his step by step strategy for picking stocks.
-Founder of the Vanguard Group
-Launched the first retail Index Fund
“Don’t look for the needle in the haystack. Just buy the haystack.” – John Bogle
“Investing is not nearly as difficult as it looks. Successful investing involves doing a few things right and avoiding serious mistakes.” – John Bogle
The Clash of Cultures
An investor favorite. Bogle discusses some of the common problems and decisions facing investors today. This book not only covers investment philosophy but overall life philosophy and how they might be connected. Bogle is an advocate of investing in funds and presents his arguments in this cornerstone writing. A recommended reading by Buffet.
-Strong advocate of formula investing
-Achieved over 40% yearly return from 1985-2006
“The secret to investing is to figure out the value of something – and then pay a lot less.” – Joel Greenblatt
Greenblatt lays out his “Magic Formula” for investing. For those who are interested he also goes into detail about how he put the Magic Formula together so as to better understand the nuts and bolts of how he selects companys. Greenblatt is a value investor known for taking massive annual gains from “Mr. Market.” This book is a must for anyone learning the basics of investment.
More Accounting Books for Interpreting Financial Statements
It is a good idea to learn as much about accounting as you can. Either take a few classes at the local community college or grab a few books. Here are some good ones related to financial statements:
How to read a financial report: wringing vital signs out of the numbers. By John Tracy
Financial Statements: A Step-by-step Guide to Understanding and Creating Financial Reports by Thomas Ittelson
Investing Websites for further learning
Founded by Joel Greenblatt and John Petry. Membership cannot be purchased but must be earned. All articles 3 months and older can be viewed by anyone. A wealth of information for the value investor.
A forum dedicated to those following John Bogles investment philosophies. A massive depository of posts and articles around the most safe and conservative investment methods.
A great online forum for conversation around those who follow Buffetts teachings. This forum is massive and has hundreds of thousands of threads.
This the SEC’s website. Here all company filings can be pulled and analyzed here through their search function. This is where the rubber meets the road and where serious analysis of company health begins.
Google actually provides a good quick stock analysis. By typing in a company’s ticker symbol, they, along with yahoo.com and msn.com offer a decent quick look at company health.
Track hedges funds using 13F filings. This site follows some of the largest hedge funds and money managers to see what they are up too.
Wrapping it all up
Even though some of these books were written many years ago, it’s interesting to note that they still form the foundation on which most investment is done today. These resources provide a good snapshot of the major investment philosophies prevalent today. The Intelligent Investor and Common Stocks and Uncommon Profits form the foundation of Warren Buffets investing style. The Intelligent Investor is a great book to start off with. It will provide a solid framework for understanding what all the numbers mean and how roughly evaluate a company’s worth.
As always, good luck and happy investing!