If you want to understand Warren Buffett's approach to investing, here are 10 books that can help you do that.
Warren Buffett is an avid reader. In fact, when asked about his secrets to success, Buffett once pointed at a stack of books and said:
Read 500 pages like this every day. That's how knowledge works. It builds up, like compound interest.
While we don't all have time to read quite as much as Buffett does, a good reading list can be made from various books Warren Buffett has recommended over the years. These recommendations, most of which have come from his famous letters to Berkshire Hathaway (NYSE: BRK-A) (NYSE: BRK-B) shareholders, can help you understand how Buffett's investing philosophy was shaped and give you valuable tools to apply to your own portfolio.
Image source: The Motley Fool.
1. The Intelligent Investor, by Benjamin Graham
I can't fathom any list of "Buffett Books" that didn't start with this Wall Street classic. Considered the book for new investors who want to learn value investing, Buffett once said that "picking up that book was one of the luckiest moments in my life" and has called The Intelligent Investor "By far the best book on investing ever written."
In the book, Graham gives in-depth, yet easy-to-understand explanations of concepts like defensive investing, how to cope with market volatility, and some basic analysis methods to find undervalued stocks.
2. Security Analysis, by Benjamin Graham and David Dodd
If The Intelligent Investor is a foundation of value investing, Security Analysis is graduate school. This book's methods have been Buffett's "road map for investing" that he's followed throughout his career.
To be clear, this is a somewhat more difficult read than Graham's other book, but if you really want to learn how to be a highly effective value investor, this is the book for you. In Security Analysis, Graham teaches the concept of intrinsic value, as well as thorough valuation methods for both stocks and bonds.
3. Business Adventures: Twelve Classic Tales From the World of Wall Street, by John Brooks
More than a quarter-century ago, Microsoft co-founder Bill Gates asked Warren Buffett for a book recommendation, and this was it. Gates loved the book. In the Wall Street Journal, Gates said that "Business Adventures remains the best business book I've ever read." While not as much of an investing book as the first two on the list, it gives great insight into the world of finance that Buffett feels is certainly worth a read.
4. Common Stocks and Uncommon Profits, by Philip Fisher
Aside from Benjamin Graham, Philip Fisher is perhaps Warren Buffett's most highly regarded financial author. One of the major themes in Common Stocks and Uncommon Profits is that a company's management can be just as important as evaluating its financial statements -- a principle Buffet uses in all of the deals he makes and with every stock he buys.
5. Paths to Wealth Through Common Stocks, by Phillip Fisher
At Berkshire's 2004 annual meeting, Buffett said that "Those (Fisher's) two books were terrific books, and as with Ben Graham, you can get it all just by reading the books." Common Stocks is the more well-known of the two, but Paths to Wealth Through Common Stocks is another that has a firm place on Buffett's list.
To be sure, a fair amount of information in this book is outdated (it was first published 58 years ago), such as the extensive discussion on the major growth industries of the 1960s. However, it's still full of useful wisdom. My personal favorite section of this book is where Fisher describes in detail how the best-performing stocks achieve such large increases in value.
6. Jack: Straight From The Gut, by Jack Welch
This recommendation came from Buffett's 2001 letter to Berkshire's shareholders, and it is former General Electric leader Jack Welch's autobiography. This is more of a must-read for managers, more so than it is for investors, but remember that it's difficult to overstate the value Buffett places on good management, and this book is a great way to get perspective on what Buffett's idea of good management is.
7. The Essays of Warren Buffett, by Warren Buffett and Larry Cunningham
This book contains a collection of Buffett's own writings on topics such as stock valuation, M&A strategies, alternative investments, and more. Buffett obviously thinks this information is useful reading (after all, he wrote it), and has endorsed this as "the most representative book on my views...he (Cunningham) essentially has taken my words and rearranged them."
8. Where Are the Customers' Yachts?, by Fred Schwed
If you want a good laugh, as well as some practical investment wisdom, Where Are the Customers' Yachts? is the book for you. Buffett called it "the funniest book ever written about investing" in his 2006 letter to shareholders and said that it teaches some truly important lessons all investors should know.
9. The Outsiders, by William Thorndike Jr.
In his 2012 letter to Berkshire's shareholders, Buffett called The Outsiders an "outstanding book about CEOs who excelled at capital allocation." The story of eight business leaders' recipes for success, the book features a section about Berkshire director Tom Murphy.
10. The Little Book of Common Sense Investing, by Jack Bogle
In his 2016 letter to Berkshire shareholders, Buffett said that "If a statue is ever erected to honor the person who has done the most for American investors, the hands-down choice should be Jack Bogle."
Bogle, the founder of Vanguard and the pioneer of the concept of low-cost index fund investing, wrote this book in 2007 to encourage investors to use index funds (as opposed to higher-fee investment vehicles) to build wealth. Buffett has often said that low-cost index funds are the best investment most people can make. This book will show you why.
