Maybe you’re automatically funneling payroll deductions into your 401(k) account. Or you’ve dabbled in crypto or, God forbid, bought a meme stock or two on Robinhood.
But tweets, articles from Google searches and Instagram screenshots of stock charts aren’t enough to make you a good investor; you need to go deeper. And going deeper means reading books.
There are many great books about investing, many fewer about personal finance. But not all are suitable for the novice investor.
I’ve picked four every new investor should read about investing and one must-read on personal finance. They’re all easy to read, too.
‘The Little Book of Common Sense Investing’ by John Bogle
Most of the media and Wall Street call Warren Buffett the most influential investor of the past century. But as Buffett’s star and performance fade, the legacy of John Bogle, pioneer of the index fund and founder of Vanguard (which now manages more than $7 trillion), towers above his. Even Buffett conceded Bogle’s creation had surpassed his own: he recommends investing in index funds and is instructing his heirs to put 90% of their money into them, too.
This compact volume distills Bogle’s decades of investment wisdom into barely more than 200 pages. It sounds the main notes of this investing giant’s philosophy: Choosing winning stocks or actively managed mutual funds is folly; instead, buy the most broadly diversified index funds, keep costs to a minimum and let the twin miracles of steady investing and compounding do the rest.
More on the power of compounding: To get rich investing, the power of time beats a lucky stock pick
‘Winning the Loser’s Game’ by Charles D. Ellis
The eighth edition of this investment classic, originally published in 1985, arrived earlier this year, and its author sat down for a Q&A with MarketWatch. Ellis was a Bogle disciple (he served on Vanguard’s board and co-chaired Yale’s investment committee with the late, great David Swensen) and he makes the argument for low-cost index funds from a different angle: Not only can’t individuals win the loser’s game of beating the market; even professionals can’t.
So-called mediocre index funds beat 75% of all funds. And investors ultimately become winners by not losing.
‘Extraordinary Popular Delusions’ and the Madness of Crowds’ by Charles Mackay and ‘Manias, Panics and Crashes’ by Charles P. Kindleberger
These two investing classics together recount some of the biggest manias in modern market history from Tulipmania to the South Sea Bubble (which almost ruined one of the great minds in human history, Sir Isaac Newton) to the 1929 stock market crash and beyond.
Mackay’s account is historical while Kindleberger, a former professor at MIT, is more analytical, though the book is quite readable. Kindleberger lays out how crises develop, as lending loosens and speculation soars, and the anecdotes in both books should provide ample warning about the current excesses in everything.
But since many investors don’t have the imagination to connect the dots, I suspect they won’t. “Popular delusions begin so early, spread so widely, and have lasted so long,” wrote Mackay, “that…fifty volumes would scarcely suffice to detail their history.”
These two, however, will more than do the job.
‘The Psychology of Money’ by Morgan Housel
When I looked for good personal finance books, however, I felt like Diogenes roaming the streets of Athens with a candle trying to find an honest man. (Spoiler alert: He’s still looking.)
What’s out there is often promotional and poorly written. Whether it’s “get debt free” as in Dave Ramsey’s “Total Money Makeover” or drive used Buicks and keep pinching pennies no matter how rich you get, as in “The Millionaire Next Door,” these books push One Big Idea that will solve your financial problems. They are like articles in the defunct print magazines Money or SmartMoney puffed out to full-length books.
Writers like Terry Savage and Liz Pulliam Weston, whom I know and respect, as well as Jane Bryant Quinn have written some fine broad-based personal finance books. These women pioneered personal finance journalism and you can’t go wrong with anything they’ve written.
But for that one book to read, I’d recommend “The Psychology of Money” by Morgan Housel. Instead of a chore, this book was a joy to read. Housel, a former columnist for The Motley Fool, throws a lot of conventional wisdom out the window and says the way you think about money is just as important as what you do with it.
He also says dumb luck is a big factor in people’s success, the biggest market-moving events are always unpredictable and the goal of financial planning should be survival. “The ability to stick around for a long time, without wiping out or being forced to give up, is what makes the biggest difference,” he writes.
Starting out early is critical, Housel explains, and if you’re a new investor, these books are a great place to begin.
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Howard Gold writes about investing and retirement for MarketWatch.
More from MarketWatch’s ‘How to Invest’ series
This post was originally published on Market Watch
