Best investment books for beginners

Over the years, many many friends have asked me some version of the following question:

I have never actively invested in my life, but plan to start now. What books would you suggest that I read? Remember I am not active in the market, so keep it simple. But I am smart enough to know that I should read before I start. So don't dumb it down too much either. What would you suggest I read?

Here is my personal list of the Top 5 Investment Books for Beginners:

1. The Bogleheads' Guide to Investing, by Taylor Larimore, Mel Lindauer and Michael LeBoeuf: This isn't really an invetment book per se. It is more a personal finance book. But it is one that I often recommend should be the starting point for beginner investors. Why? Because it deals with the really important questions - Should you be investing at all, given your personal financial situation? How should you think about savings vs investments? How should you set up your personal investment goals? And it does give you a good introductory walk through simple investment strategies you could start with.

2. Stocks for the Long Run, by Jeremy Siegel: If you have a single conservative bone in you, you will find yourself asking the question - should I invest in the stock market at all? Didn't the darn thing just fall 50% over one year? Who needs that? Maybe I will just stick to bonds, Money Market Mutual Funds and such. If you have ever said some versions of the above to yourself, read Jeremy Siegel. Once you read this book, you will not ever question the financial wisdom of investing a substantial part of your portfolio in the stock market. [To be fair, I must also state that Stocks for the Long Run is criticized for fueling the stock frenzy in the late '90s. And also that Siegel recommended buying stocks in Aug 2007 - we know how that turned out. But don't let those criticisms stop you from reading this book. It is a gem and for my money, one of the best investment books of all time.]

3. The Warren Buffett Way, by Robert Hagstrom: I am a big fan of Buffett. Shocker for readers of Brick and Rope, I am sure. Of the many books written about the Oracle of Omaha, this is one of my favorites. Short, simple, accessible and insightful. I wouldn't recommend that this be the first book you read, but when you are done with #1 and #2 above, pick this up. Not just does this explain the genius of the man, it does so in a way that will leave you with simple tips you could use in your investment life.

4. One Up on Wall Street, by Peter Lynch: If there is an investor who comes close to Buffett on my personal respect scale, it is Peter Lynch. And One Up is a masterpiece. Lynch makes investing look easy and common sense. Takes the mystery and mumbo-jumbo out of it. And he does so with a folksy style that is as entertaining as it is illuminating. Read here why 'gentlemen don't prefer bonds', why the only thing that matters is 'earnings, earnings, earnings'. In particular, read the chapter on 'The twelve silliest things people say about stock prices'. [#1: If it's gone down this much already, it can't go much lower.]



5. Random Walk down Wall Street, by Malkiel Burton: So you have learnt that investing is a good idea, that the stock market is the place to be. But hey, I don't have the time (or the interest) to reads tens of financial statements. If I just pick some quality stocks and hold them for the long run, wouldn't I make a killing? Or if I pick a professional financial manager and hand my money over to him, wouldn't I beat the market? Well, you might. Then again, you might win a lottery next week too. Before you hand over any of your hard earned cash to a 'professional', read Random Walk. In particular, read the last section of the book - A practical guide for random walkers and other investors.

There is my list then. Brick and Rope certified!

An aside: If you ever walked the personal finance or Investing aisles of your local bookstore, you know that there are literally thousands of books on the subject. The five above are clearly ones I have really enjoyed and personally benefited from. But then, I have also burnt my money on some really bad ones. So here is my quick list of some garbage masquerading as advice - Buy these books if you are running out of firewood:

1. Anything from the Rich Dad, Poor Dad series
2. Any book with a number in the title - 'How I made $2,000,000 in the stock market'; 'How to be a billionnaire', 'Successful investing in only 15 minutes a week' ... I could go on.
3. All of the Mad Money stuff - Empty vessels make much noise.

What do you think? Any more that come to your mind?