There are other good sources, but many more wrong-headed ones.  Imagine that you are starting to study modern medicine after a lifetime of superstition.  Science will overlook some valid folk remedies, but it is great advance over treating the patient by bleeding him.  This is a solid and challenging list for building your investment insights.

• Owners -- Investment thinking without much math or any magic.
• Avocation -- For those who crave the excitement of the chase.
• Professional -- Serious research and explanations.

OWNERS

The Only Investment Guide You'll Ever Need -- Andrew Tobias

An easy, well-written read that teaches the importance of saving and common sense in investing.  Uses humorous stories from personal experience.  In this way, it effectively bridges the gap between everyday life and the more arcane world of investing.  Recommended as a first read before others on this list.

 

Liar's Poker -- Michael Lewis

An irreverent, funny book that effectively demonstrates the difference between the outside face an investment firm shows to the world and the human realities that go on inside.

 

The Four Pillars of Investing -- William Bernstein

Takes a big step from the author's earlier interpretations of modern finance to a more readable introduction to four basic ideas.  We paraphrase them here as: 1) there is a science underlying investing, and it favors risk management above stock picking, 2) occasionally the market goes crazy and you need to study a bit of investment history to be ready for it,  3) your evolutionarily-derived behavior patterns are poorly-adapted to the financial markets, and systematically cause mistakes, and 4) the financial service industry operates for profit, and is not necessarily your friend.  The last part of the book shows the basics of how to build an effective investment plan.  A deservedly popular book.

 

The Great Mutual Fund Trap -- Gregory Baer & Gary Gensler

A devastating indictment of the financial services industry, with special emphasis on actively-managed mutual funds.  Baer and Gensler are ex-Treasury officials frustrated by the industry's practices, which they feel waste many ten's of billions of dollars annually of investor's money to produce results inferior to low-cost index funds.  They offer compelling evidence in the form of charts and tables.  All this has been known for decades by academics, but this book makes the methods and causes of waste easily understood by any investor.  One reviewer commented to the effect that the authors give sensible advice but want to take all the fun out of investing.  Exactly so.

 

Take On The Street -- Arthur Levitt & Paula Dwyer

Covers much of the same ground as The Great Mutual Fund Trap, by the former SEC chairman.  Good insider stories and detailed explanation of political machinations.  Can be irritating to investors who wonder why Levitt didn't do more to protect small investors while he was in office.  However, I bought his sincerity and the difficulty of dealing with powerful interest groups.

 

John Bogle on Investing: the First 50 Years -- John Bogle

Jack Bogle's heroic effort to promote long-term, low-cost diversified investing, especially through passively-managed index funds, led to the triumph of Vanguard over stiff competition from a financial services industry that regarded him as a maverick and a traitor.  This is a collection of 25 of his speeches over the decades.  You'll appreciate it better if you've already read one of the three preceding books.

 

Capital Ideas: The Improbable Origins of Modern Wall Street  -- Peter Bernstein

This is a good, detailed history that tells the story of how big ideas have filtered from academic finance to Wall Street.  Some of them have turned out only mostly right, but in the main they have been far closer to reality than the myths with which we are constantly bombarded.

 

A Random Walk Down Wall Street -- Burton Malkiel

Another old standard, often cited over the last several decades.  Included here because the idea, around since the 1960's, that stock price movements approximate a random walk, is so foreign and difficult to accept for most of us.  Malkiel focuses hard on getting the idea and the evidence for it across, and it pays off.

AVOCATION

Beating The Street -- Peter Lynch & John Rothchild

Lynch is the highly successful former portfolio manager of Fidelity's Magellan Fund, in the days when it had outstanding performance over a long period.  He sincerely believes that he can beat the market averages through skill rather than luck, and that if you work at it, you can too.  Unlike most such books, this one is somewhat persuasive even to a professional.  Suggests several different ways of going about it in some detail.

 

The Essays of Warren Buffett:  Lessons for Corporate America -- Warren Buffett & Lawrence Cunningham

There are far too many books claiming to represent Buffett's thought.  This one at least has him in his own words.  The stock is not the company, but it pays the long-term stock investor to know what the company is all about.

 

The Alchemy of Finance: Reading the Mind of the Market -- George Soros

Soros may have been the last of the great speculators.  His approach considers the market's mass thinking as a variable interrelated with large macro-economic forces and points out the way in which positive feedback, which he terms reflexion, causes extremes.  An original thinker, well worth reading despite his own personal jargon.

 

Market Wizards: Interviews with Top Traders -- Jack Schwager

Interviews with successful traders, some of whom became less successful after the book was written.  There are also two later books in this series with similar titles, but this is probably the favored classic.  Think of these stories as those of possibly temporary survivors of a harsh Darwinian process.  They may not truly know why they have been successful, but at least their thinking is not inimical to success.  Note the mantras of risk management and awareness of your own psychological weaknesses.  These tend to argue for a system of trading rules rather than case-by-case decisions.

 

Reminiscences of a Stock Operator -- Edwin Lefèvre

Fictional biography said to be of Jesse Livermore, an American speculator of nearly a hundred years ago.  Gets the competitive juices running for speculation.  Problem:  the market is a bit more efficient today.  Good on the importance of mastering your own behavior patterns.

 

Financial and Business Statements (Barron's Business Library) -- George Friedlob & Franklin Plewa

A practical explanation of how to read financial statements.  You may find this dry.  Still, fundamental investing is pretty hopeless unless you have mastered enough accounting to know at least when management is being conservative or aggressive in their depiction of profit and balance sheet resources.  There is also a newer, shorter, less-complete paperback version.

 

PROFESSIONAL

This list is focused on U.S. publications over the last few years, with the earliest, as reviewed by the Financial Analyst's Journal, noted first.  There are many other important, serious books that can be helpful to the professional investor, stretching back over a hundred years, but these reflect a personal taste.

Security Market Imperfections -- Donald Keim & William Ziemba

A survey of the econometrics documenting various systematic tilts that purport to provide added returns in equity investing.  Requires statistical background to appreciate the argument.

 

Puzzles of Finance -- Mark Kritzman

This little book has a separate chapter on each of six unresolved questions of modern finance.  Clear exposition.  Kritzman benefits from his long experience as a explicator of quantitative investment concepts in the Financial Analyst's Journal.

 

When Genius Failed: the Rise and Fall of Long-term Capital Management -- Roger Lowenstein

A reporter's look at a colossal failure in risk management. Worth reading not only for the story and the lesson, but because, for many of us, "There, but for the grace of God, go I."

 

Investments, Vol 1 ,Investments, Vol 2 -- Edwin Elton & Martin Gruber

Two academic stalwarts present many years of academic research on investment issues.  The struggle of keen minds to understand the complex and straighten the crooked thinking of the rest of us. Not for those who shun academic papers.

 

Beyond Greed and Fear, etc. -- Hersh Shefrin

Shefrin summarizes the body of research labeled "behavioral finance." A welcome antidote to the dictates of mathematical bullies, but perhaps a little lacking in putting up a comparably cohesive predictive framework.

 

Capital Ideas and Market Realities, etc. -- Bruce Jacobs

A well-taken, but controversial attack on dynamic hedging as practiced during the crash of 1987.  The truth is perhaps a little too black and white here.

 

Derivatives: A PowerPlus Picture Book -- Mark Rubinstein

Rubenstein is a brilliant expositor of the thinking behind the modern approach to understanding financial derivatives.  He also originated much of it.

 

The Ultimate Investor -- Dean LeBaron & Romesh Vaitilingham

Wide ranging brief commentary on investment issues by a pioneer in both quantitative screening and highly artistic contrarian synthesis.  Some people will find it light, others intriguing.  It depends on where you've been.  Truth in advertising compels me to admit that I worked for LeBaron twice.

 

Investing By the Numbers -- Jarrod Wilcox

Martin Fridson, who reviewed the book, said:  "Investing By The Numbers challenges both hard-core quants and investors who rely on gut feel....investors will profit from reading this compendium of wisdom acquired over a long and distinguished investment career."

 

The New Financial Order -- Robert Shiller

Shiller gives a very interesting general description of novel financial products that would allow people to hedge or insure additional financial risks, such as their employment income and the price of their house.