Warren Buffett of Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B) once said there is a book that "not only changed my investment philosophy, it really changed my whole life," and we would all do well to read it and two other books he has praised through the years.
Buffett is an avid learner, and his shareholder letters are often met with book recommendations. He once said:
"I insist on a lot of time being spent, almost every day, to just sit and think. That is very uncommon in American business. I read and think. So I do more reading and thinking, and make less impulse decisions than most people in business. I do it because I like this kind of life."
While Buffett's library is likely full of all sorts of books, there are three he has elevated above the rest, noting they are at the top of his "the all-time-best list for the serious investor."
3. Common Stocks and Uncommon Profits -- Phil Fisher
Buffett praised Fisher's work, noting, "I am an eager reader of whatever Phil has to say, and I recommend him to you." Fisher's books extols the values of going beyond the strict valuation methodology found by pouring through a financial statements, to also evaluating the management and the foundational principals of the company and its business.
In a 1987 articlein Forbes, Fisher said his approach, "is to find something so good -- if you don't pay too much for it -- that it will have very, very large growth," and Warren has long shown that his investment philosophy goes well beyond simply trying to find the best bargains out there, as he often praises a company's management and business before ever speaking of its valuation.
2. Security Analysis (1940 Edition) -- Benjamin Graham
While Fisher's philosophies helped shape Buffett, there of course is no more influential investor on Buffett than former Columbia University professor Benjamin Graham. While Fisher's approach had a major impact on Buffett's line of thought, Buffett once said his investment philosophy was characterized 15% by Phil Fisher and 85% by Ben Graham. He noted that Graham was the greatest influencer of his life, "[m]ore than any other man except my father."
Buffett once saidSecurity Analysis provided "a road map for investing that I have now been following for 57 years." The book itself laid the foundational principals of value investing, highlighting that through diligent analysis, one can actually determine the value of a company and see whether or not the market is appropriately classifying it.
To that end, Security Analysis teaches readers the fundamental steps required to evaluate an investment, whether it be a stock or a bond, and how to determine if it is appropriately priced. Remember it was Buffett who once remarked after the massive market upheaval in 2008:
"[T]he market value of the bonds and stocks that we continue to hold suffered a significant decline along with the general market. This does not bother Charlie and me. Indeed, we enjoy such price declines if we have funds available to increase our positions. Long ago, Ben Graham taught me that "Price is what you pay; value is what you get." Whether we're talking about socks or stocks, I like buying quality merchandise when it is marked down."
1. The Intelligent Investor -- Benjamin Graham
Buffett has remarked that, as a 19-year-old, the day he picked up Graham's seminal book was among the luckiest moments in his life, and it forever shaped his investment philosophy. Of the book he once remarked that it is "by far the best book about investing ever written," and he highlighted the "invaluable advice," found in the 8th and 20th chapters. The book is full of the fundamental information needed to invest soundly, and Buffett said:
"To invest successfully over a lifetime does not require a stratospheric IQ, unusual business insights, or inside information. What's needed is a sound intellectual framework for making decisions and the ability to keep emotions from corroding that framework. This book precisely and clearly prescribes the proper framework. You must provide the emotional discipline."
These two men helped profoundly shape and influence Buffett from a young age. He has remarked, "[a] thorough understanding of the business, obtained by using Phil's techniques, combined with the quantitative discipline taught by Ben, will enable one to make intelligent investment commitments."
For anyone seeking to learn about investing, having Warren's three favorite books on their list, whether it is for Christmas or a New Year's Resolutions reading list, would be a great place to start.
If you'd like to purchase any of the books mentioned above, they are available at the links below: