“It’s been my experience in life if you just keep thinking and reading you don’t have to work.” – Charlie Munger
Yesterday I ordered five finance books–928 total pages–for $82.82. Authors spend hundreds of hours turning decades of experience into 200-page books you can get for less than 20 bucks each. No other investment comes close.
I’ve divided book recommendations into six categories:
- If You Only Read Three
- Business Finance
- Personal Finance
- Investing Basics
- Investing Advanced
- Money Philosophy
If You Only Read Three
According to the Washington post, 46% of Americans finished zero books last year. If you read only three books this year from this article, read these–you’ll be ahead of half of America.
Happy Money
You think buying stuff will make you happier. To make more money, you work harder and take more risks. Your health, relationships, and well-being deteriorate.
I bought a black convertible Audi R8–the sports car driven by the billionaire hero, Tony Stark, in Ironman–after I made my first million dollars. I soon realized how stressful it is to drive a car two inches off the ground in a city with potholes. I also didn’t like the attention. I sold it two months later.
Happy Money offers research-backed strategies for how to spend money to increase happiness. If you don’t understand these lessons, it won’t matter how much money you make–no amount will ever be enough.
Key lessons:
- Spend money on experiences, not things.
- Pay in advance to enjoy your purchases more.
- Spend money on others.
The Little Book of Common Sense Investing
I’m partial to books that drive a single point home, like The Little Book of Common Sense Investing. The key point: invest in index funds.
For any book–or anywhere else–question the incentives of the author before applying its advice. Jack Bogle founded Vanguard, a company which sells index funds. In his book, he recommends purchasing index funds; suspicion is warranted. However, Bogle made investing in index funds cheap for millions of people.
“If a statue is ever erected to honor the person who has done the most for American investors, the handsdown choice should be Jack Bogle. For decades, Jack has urged investors to invest in ultra-low-cost index funds. In his crusade, he amassed only a tiny percentage of the wealth that has typically flowed to managers who have promised their investors large rewards while delivering them nothing – or, as in our bet, less than nothing – of added value.” – Warren Buffett
Key lessons:
- Most active managers don’t beat the market.
- Buy index funds.
- Watch for fees.
The Little Book that Beats the Market
I currently don’t own any index funds. Why? Because I think I can beat the market. Maybe I’m wrong. Over the last three years, I’ve beaten the S&P 500 index by a large enough margin to continue investing in individual stocks. If I ever underperform the market for long enough–or decide I don’t want to spend time analyzing companies–I’ll invest in index funds.
Even if you wish to only invest passively via index funds, I still recommend you read The Little Book that Beats the Market. Unlike most personal finance authors, you’ll understand what it takes to value assets and won’t dogmatically proclaim that buying anything other than index funds is insanity.
Key lessons:
- A company is worth all its future cash flows discounted to today.
- Sometimes companies sell for much less than their true value.
- You can beat the market.
Business Finance
If you’re an entrepreneur, before you invest, you need your business to make money. These books show you how to build a more profitable business by putting profit first, watching your numbers, and cutting costs.
Profit First
Ever have a good month in business only to wonder where all the profit went? It’s because you produce revenue, pay for costs, then see what’s left. An alternative approach is to figure out how much profit you want your business to make, then budget your costs based on how much revenue your business generates. Put profit first.
I think the implementation of the profit first strategy recommended by author Mike Michalowicz is overkill. Michalowicz advises creating at least five bank accounts to hold various buckets of money. I think one, a profit account, is sufficient. Take a small percentage of your sales each month–I started with 1%–and deposit that into a separate account. Act as if your business doesn’t have that money. Your company won’t miss the money, but you’ll be thankful for the additional profit.
Key lessons:
- Put profit first.
- Budget costs based on your profit goal.
- Set aside a small portion of sales to lock in profits.
How to Double Your Profits in Six Months or Less
Bob Fifer is a Harvard-educated consultant who helped Fortune 500 companies improve their results. As the title suggests, implement the strategies in his book to double your profits in six months or less.
Key lessons:
- Cut waste.
- You can fire 10% of your employees with zero negative impact on your business.
- Negotiate your biggest expenses regularly.
Memos from the Chairman
Warren Buffett and Jeff Bezos alike have read Alan C. Greenberg’s memos. This book includes a collection of memos written by Greenberg, former CEO of Bear Stearns from 1978 to 1993. Over 15 years, he repeatedly emphasized the same few values. During Greenberg’s tenure, Bear Stearns grew from $46 million in capital and 1,000 employees to $1.8 billion in capital and 6,300 employees. (This successful period was 15 years before the company’s failure during the 2008 financial crisis.)
Key lessons:
- Reduce expenses.
- Return calls promptly.
- Cut expenses. (Yes, it’s redundant. Read the book.)
Personal Finance
Authors publish over 500 personal finance books each year. I’ve read 50 over the last 10 years. I can’t point to a single one that I think is better than all the others. (However, I’ve included ones that I’ve enjoyed, and are worth reading, in the “Other Books” section at the bottom of this article.)
However, there is one blog I recommend you read, starting with his most popular posts from more than 10 years ago.
(Blog) Mr. Money Mustache
Peter Adeney, aka Mr. Money Mustache, worked as a software engineer before retiring at the age of 30. He made good, but not extraordinary, money. He retired early because he saved a large portion of his income and invested in index funds. Adeney is one of the informal founders of the FIRE (financially independent retire early) movement.
Key lessons:
- Be frugal.
- Invest in index funds.
- Ignore the noise, life is good.
Investing Basics
The basics of investing are simple. These four books give you everything you need to invest well as a passive investor uninterested in analyzing businesses for individual stock selection. I’ve included only three books because if you’re uninterested in learning to invest beyond index funds, you don’t need–or want–to read hundreds of books on investing.
The Little Book of Common Sense Investing
Over the last 100 years, owning a diversified selection of high-quality stocks produced the best investment returns. Over the next 100 years, owning high-quality stocks is your best bet. Buy index funds of such companies, and hold for at least 10 years. You’ll beat most professional investors.
Key lessons:
- Most active managers–with high fees–don’t beat the market.
- Buy index funds.
- Watch for fees.
The Little Book that Beats the Market
This book was also included in the “If You Only Read Three” section. Even if you only buy index funds, it’s useful to understand how businesses are valued. This book explains it in a way anyone can understand–author Joel Greenblatt wrote it for his five children.
Greenblatt ran a hedge fund, Gotham Capital, from 1985 to 1994 which produced an average annualized return of 50%. In 1995, Gotham returned all capital to outside investors. When you produce a 50% annualized return, you build wealth so fast you don’t need anyone else’s money. Greenblatt taught value investing at Columbia’s Graduate School of Business for over 20 years.
Key lessons:
- A company is worth all its future cash flows discounted to today.
- Sometimes companies sell for much less than their true value.
- You can beat the market, if you’re willing to do the work. (Most aren’t.)
The 5 Mistakes Every Investor Makes
A family member of mine sold his business and hired the wealth management firm, Creative Planning. The creator of that firm, Peter Mallouk, co-wrote Unshakeable with Tony Robbins. A standing offer Creative Planning offered its clients at the time was that any new client could meet in-person with Mallouk at their Kansas headquarters. I jumped at the chance to tag along with my family member to meet Mallouk. While there, I picked up a copy of The 5 Mistakes Every Investor Makes.
Key lessons:
- Nobody can consistently forecast stock market movements.
- Incorrect forecasts–of which there are many–are forgotten.
- Correct forecasts–of which there are few–are re-told as evidence of forecasters’ ability.
Investing Advanced
Every successful investor I’m aware of is a voracious reader. As an investor, your job is to take in a lot of information about companies and industries, then decide which companies to invest in–and when to sell.
These books provide a good foundation in the form of investing–typically called value investing–which offers the best prospects of high long-term return with reasonable risk.
Richer Wiser Happier
This is the only book I’ve read twice in a row, cover-to-cover. (I’ve also re-read it two more times since.) It’s based on interviews with many of the world’s greatest investors, all with decades of experience.
My favorite section of the book is the first chapter with Mohnish Pabrai. Before reading this book, I’d read much about and written by Warren Buffett. In 2007, Pabrai teamed up with investor and friend Guy Spier to pay $650,000 to have lunch with Warren Buffett. That lunch turned into a meeting with Charlie Munger. Pabrai and Munger became close friends. Pabrai offers refreshing rules of thumb for investing. One concept is to only buy investments that you think will at least double or triple–anything less isn’t worth your time. Another is to not sell any stock that has declined in value at least for two to three years, unless you can confidently say its intrinsic value has declined below its price. Pabrai also has a great YouTube channel.
Key lessons:
- Concentrated investing requires lifelong learning.
- Even the best investors are often wrong–that’s OK because the winners can make up for the losers.
- Aim to lead a great, honorable life, not just to get rich.
The Intelligent Investor
If you asked 50 top investors of their favorite investment books, this book would end up at the top of most recommended. Written by Warren Buffett’s mentor, teacher, and former employer, Benjamin Graham, The Intelligent Investor lays the foundation for how to think about investing as a profit-making enterprise.
Key lessons:
- A share of stock is ownership in a real business.
- Only purchase an investment if there is a significant gap between when it’s worth and its price. (Graham calls this a margin of safety).
- The stock market swings from irrational exuberance to despair; use these swings to your advantage. (Graham refers to this tendency using the metaphor Mr. Market.)
Mastering the Market Cycle
Howard Marks began his investing career in 1969. Warren Buffett said of Marks’s memos, “When I see memos from Howard Marks in my mail, they’re the first thing I open and read. I always learn something, and that goes double for his book.”
Key lessons:
- The market forever swings from greed to fear.
- We can’t predict when the market will swing the other direction.
- We can know approximately where we are currently in the cycle and position ourselves accordingly, in terms of a more aggressive or more defensive investment posture.
Berkshire Hathaway Letters to Shareholders
Between 2019 and 2023, I read every book written about Warren Buffett and every piece of content I could find written by Buffett. There are many good books dissecting and regurgitating the material he’s published over the past 70 years.
I can’t point to a single book that I think is better than the rest. So, I offer a book which I picked up at one of the annual shareholder meetings for Berkshire Hathaway. It includes direct copies of Buffett’s annual shareholder letters. I think it’s worth going directly to the source to learn from Buffett.
Key lessons:
- A business–any asset–is worth the total cash it produces in the future, discounted back to today by a reasonable interest rate.
- Only invest in companies that 1) you understand, 2) you can confidently estimate its cash flows 5 to 10 years in the future, 3) has good, honest management, and 4) is available at an attractive price.
- Set a good example for others–tell the truth, do what you say you’ll do, underpromise, don’t associate with crummy people, keep learning your entire life.
Money Philosophy
This is my favorite section. We spend our entire lives working to make money, only to spend it on stuff that doesn’t make us happy, at best, or destroys its value, at worst. It’s up to us to develop our own philosophy of money. Fortunately, we can do so without relying on trial-and-error. There’s good science letting us know what does and doesn’t make us happy with regards to making, keeping, and spending money.
Happy Money
This is the first book I included in the “If You Only Read Three” list at the beginning of this article. If you read it and take to heart its lessons on how to spend money in ways that make you happier–and avoid spending money in ways that don’t–you’ll live a much better life.
Key lessons:
- Buy experiences, not things.
- Pay in advance (make it a treat).
- Spend money on others, especially if you can spend time with them while they enjoy the expenditure.
Your Money or Your Life
This book was an inspiration for many people in the FIRE (financially independent retire early) movement. Rightly so. It makes the strong case that we often trade hours, days, weeks, and years of our lives for more money–only to spend the money we earn on stuff that doesn’t make us any happier. Author Vicki Robin encourages you to think of your purchases in terms of how much of your life–in hours–you had to give up to pay for those purchases. Maybe you’ll buy less, work less, and enjoy life more.
Key lessons:
- We work a lot to buy stuff we don’t need.
- We trade our lives–in hours–for stuff.
- We only need so much money to live great lives.
Die with Zero
After Richer Wiser Happier, Die with Zero is my second most recommended book over the last five years. Successful energy trader, Bill Perkins, realized long ago that putting off life experiences till we’re old, retired, and rich is a bad decision. In his book, Die with Zero, he gives the example of someone who enjoys skiing. When you’re 30, you might do 15 runs in a single day; when you’re 60, you might only do 3 because your body can’t handle it. You physically can’t enjoy the same activities when you’re older than you can when you’re younger. Enjoy life more now.
Perkins doesn’t advocate a hedonistic lifestyle. Instead, he advocates for nurturing your health and investing in relationships today so you can live the highest quality life until you’re dead.
Key lessons:
- We can fully participate in some activities only when we’re younger–don’t put off your favorite hobbies till you’re old and rich.
- Invest in experiences that enhance your life today–you reap the “memory dividends,” according to Perkins, for the rest of your life.
- Spend time with and money on those you love now as some of them might not be around in the future if you put off those experiences.