3 Great Investment Books for Intermediate Investors
A great way to increase our knowledge of investing techniques, company analysis, and our own psychology is to read great investment books. You can start out with easier-to-read, basic books early in your investing career, then progressively move on to more difficult and complex concepts as you get better at investing.
The three main topics I think intermediate investors should wrap their brains around are (in no particular order of importance): behavioural finance and investment psychology, corporate growth and excellence, and factors that make a business great. Here are three investment books that tackle each of the above topics, geared toward investors who already have some years of investment experience and would like to further their knowledge.
The Little Book of Emotional Investing by James Montier
This is a great book for investors who want to understand the many types of fallacies and biases that may plague them during the investment process. Montier provides a list of psychological traits such as overconfidence, confirmation bias, and hindsight bias that regularly trip us up and cause us to make sub-optimal investment decisions.
The book also highlights the steps involved in the formation of a bubble, and it’s useful in allowing investors to judge the state of the stock market right now, whether exuberant or downbeat. Finally, Montier provides eight dangers of groupthink (i.e., going along with the crowd) and advises us on how to guard against these when investing.
Good to Great by Jim Collins
Collins’ book provides a great platform for analysing what makes good companies become great, while others remain mired in mediocrity. He outlines the essential attributes of such companies, from leadership to process to culture, and teaches readers what to watch for when trying to identify potential future greatness.
I found this book extremely useful in teasing out the differences between “normal” companies and truly great companies; it also taught me to focus my attention on how great companies are able to sustain a culture of innovation and adaptation that enables them to continually grow and prosper. Investing in such companies also allows an investor to get great returns through compounding.
Why Moats Matter (Morningstar) by Heather Brilliant and Elizabeth Collins
This book by global financial services firm Morningstar encapsulates the various types of competitive moats that allow companies to compound shareholder wealth over long periods of time. The book defines what a moat is, provides details on different kinds of moats (e.g., network effect, switching cost, low-cost), talks about moat durability, and also assesses moat trends.
Those who invest in companies with competitive moats should find this book very useful as it defines the characteristics of a sturdy moat and teaches readers how to discern whether the moat is getting stronger or weaker over time. Using the techniques from the book, investors can then make more informed investment decisions and practice continually assessing if their investment theses are still valid, based on their assessment of how the moat evolves over time.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice.