Reading brings knowledge and knowledge is power; therefore reading is power Emma Chase
One or two people I've been speaking to recently have asked me for advice on how to get started in the world of share investing. I wrote my story back on 15 February 2020, giving an overview of how I got into the interesting world of trading and investment in shares*.
The key to it (and it is really unavoidable) is reading. The good news is that there are a lot of great books out there to choose from. With the Internet you can supplement your diet with podcasts, blogs (like this) and even YouTube videos however in my view there really is no substitute to learning from some great investors by reading.
I've included links below mostly to Blackwells in Oxford (one of my favourite places in the World). You may find the book cheaper on Amazon or eBay who both offer second hand editions. However I am a fan of Blackwells as they offer an excellent range of investment books, many of which you can browse physically in their cavernous bookshop in Oxford. For the record, I have no affiliation to them at all.
I've sought to include categories of books in the article below.
The book that got me started was The Naked Trader by Robbie Burns. Now in its fifth edition, the book is an excellent introduction to trading shares and is accompanied by Robbie's website. The philosophy is simple- find and buy shares in growing companies at a reasonable price. The books shows you how to research them and is also big on the timing of your purchase.
I personally tend to take a longer view on shares, so entry point on price is less critical for me. However if deployed well, it can be a great weapon. I take great pleasure in spotting and buying shares before Robbie does (it happens occasionally). You get a lovely boost when Robbie and his followers buy in! You can also get the book as a free eBook edition as well, which is handy for holiday reading or if you need to refer back to it quickly.
There are two core skills that you will need as a trader and investor- a base understanding of psychology and basic accounting analysis.
I would recommend Trade like a Shark which is also by Robbie Burns ("How to eat and not get eaten in the stock market"). It's a great introduction to the psychology behind share trading- crucially how to manage your emotions. I have written a fair bit on psychology as I believe that it is critical to master your emotions to become a good share trader and investor. For deeper reading on the subject of psychology I recommend Your Money and your Brain by Jason Zweig- it exposes how your brain really thinks when it comes to trading and investing and how you can overcome its flaws.
In order to be a proper investor, it is my conviction that you need to spend some time learning how to read accounts. I've had accountancy training as part of my work, however I must confess that I found it deathly boring. It was therefore a great relief to pick up Accounts Demystified by Anthony Rice (also available here as a used copy at a bargain price) which somehow managed to explain how to read accounts in a really intelligible way. Highly recommended reading!
One you have mastered core skills, it is time to learn a few strategies. Below are books that I have read and have learned the strategies that I now deploy.
I started with The Little Book that (Still) Beats the Market by Joel Greenblatt (borrowed from my local library). I have written about his system here. He advocates looking for a high quality companies using his "magic formula". You can plug the criteria into a stock screener like Stockopedia and find the companies that you need. I have found great success by focusing on high returns on capital and it remains a key metric for me in any research on a company.
An old investor friend recommended Jim Slater's Zulu Principle. Although the book was written some years ago, the principles remain. He takes the classic Price/Earnings Ratio and adds in a growth factor, arriving at "PEG". In essence great companies grow into their valuations- they may have a high P/E but if you add in a strong growth factor you may actually be buying them cheaper.
A great book that others have recommended too is How to Make Money in Stocks by William J O'Neill. He advocates a seven step process called CANSLIM:
C= Current quarterly earnings per share- the higher the better.
A= Annual earnings increases: look for significant growth.
N= New products, New management, New highs: buying at the right time.
S= Supply and demand: shares outstanding plus big volume demand.
L= Leader or laggard: which is your stock?
I= Institutional sponsorship: follow the leaders
M= Market direction: how to determine it.
More recently I have become a fan of Phil Oakley's How to Pick Quality Shares which describes a three step process for finding great companies. He shows how to find high quality investments which will remain so over the long term. He then looks closely at a risk appraisal, in particularly looking at debt. Finally he looks at how to value the shares and look at what a reasonable price is to pay.
The most recent book I have read is Excellent Investing- how to build a winning portfolio by Mark Simpson. Super common sense advice and a really good summary of a lot of sources. If I was starting out from scratch again today, I would reach for this book.
Learning from Great Investors
Lee Freeman-Shor wrote a modern classic in 2015 in The Art of Execution. In an experiment using some of the best investors, he gave them all a sum of money to go and invest. The results are fascinating. I wrote a detailed review in February 2020. There are real lessons to be learned.
Another review that I wrote back in March 2020 was of a book that was written over 50 years ago by the father of value investing- Ben Graham. In his book, The Intelligent Investor Graham explains how to enter the world of deep value investing. How companies that trade at a discount to the value of their liquidated assets may yet turn into exceptional bargains.
Ben Graham was the tutor of arguably the greatest living investor Warren Buffett. Regular readers of my blog will know that I am a big fan of Buffett. Buffett has not spent time writing books although his letters are definitely worth reading. His autobiography appears to be out of print but you can easily pick up a used copy I do rate The New Buffetology by Mary Buffett and David Clark is a great primer on the methods that Warren uses.
It sometimes pays to go against the crowd. David Dreman's book Contrarian Investment Strategies has not got the most exciting title, but he really does know his stuff and it is the stand out book in my view on Contrarian Value Investing. His fund was a great success in the 1990's, regularly outpacing one of the strongest ever bull markets.
I really warmed to Peter Lynch in One Up on Wall Street. He has a homespun style a little like Warren Buffett, but one that you can really relate to as a private investor. He talks of the value of listening to where your family shop and how you can spot some really good companies from just eying consumer trends. He is big on the "edge" that private investors enjoy over fund managers. Peter Lynch is no mug himself. His Fidelity Magellan fund was one of the great successes of the twentieth century and handsomely rewarded investors.
I enjoyed How to Make a Million Slowly by (Lord) John Lee. He has become one of the UK's ISA millionaires by adopting a long term "buy and hold" strategy. His success is there to see.
Finally I had the absolute pleasure of meeting veteran fund manager Paul Mumford at an investor show a couple of years ago. His book The Stock Picker is a great read as it tells the story of his fifty year journey as a fund manager. It is autobiographical in style, but includes some really sound advice from one of the UK's best fund managers.
Happy reading one and all!
*This is published subject to my usual disclaimer.