If you're just starting out as a do-it-yourself investor, it can be hard to know where to start. Luckily, there are plenty of resources out there to help beginning investors who are willing to put in a little time and effort. These include a variety of articles here on Morningstar.co.uk, and Morningstar analysts have also written several books that go into more depth on how we think about investing that are also useful for beginners; these include Christine Benz's The Morningstar Guide to Mutual Funds and Pat Dorsey's The Five Rules for Successful Stock Investing and The Little Book That Builds Wealth. Of course, there are lots of other good investing books out there, some of which we've written about before. Here are a few of our favourites, with the caveat that this list is far from exhaustive.
The Only Investment Guide You'll Ever Need by Andrew Tobias
This book, first published 30 years ago and now in its eighth edition, is a classic overview of the essential things of which any investor should be aware. Though written for a U.S. audience—retail investing is still in its infancy in the U.K. in comparison, writing in a witty, irreverent style, Tobias covers the basics of stocks, bonds, mutual funds, pension planning, real estate, and how to save and invest prudently for the long term. If you feel totally at sea when it comes to investing, this book is a good place to get your footing.
Buffett: The Making of an American Capitalist by Roger Lowenstein
We at Morningstar are longtime fans of legendary investor Warren Buffett, and this biography by Roger Lowenstein is a good way to introduce yourself to the man and his investing philosophy. Buffett has become one of the world's richest people by investing in good businesses at low prices through his holding company, Berkshire Hathaway, using timeless principles that are helpful for anyone. This biography has a lot of background information that explains how Buffett got where he is today, but if you're more interested in concentrated doses of his investment wisdom, a great place to start is The Essays of Warren Buffett, edited by Lawrence Cunningham from Buffett's Berkshire Hathaway shareholder letters. Robert Hagstrom's The Warren Buffett Way is also a good overview of how the Oracle of Omaha thinks about investing.
The Bogleheads' Guide to Investing by Taylor Larimore, Mel Lindauer, and Michael LeBoeuf
John Bogle, founder of the Vanguard Group, is another investment legend who has always had lots of admirers here at Morningstar. His relentless emphasis on the importance of low expenses changed the mutual fund industry--he invented the index fund, among other things--and has saved money for countless investors over the years. In the 1990s Bogle wrote a couple of books on mutual funds that are still well worth reading: Common Sense on Mutual Funds and Bogle on Mutual Funds. This more recent book by Taylor Larimore, Mel Lindauer, and Michael LeBoeuf (with a foreword by Bogle) is a great introduction to Bogle's ideas and how to apply them to your investing life. The authors are prominent members of the Vanguard Diehards forum on Morningstar.co.uk’s sister site, Morningstar.com.
A Random Walk Down Wall Street by Burton G. Malkiel
This book, which has been updated many times since its initial publication in 1973, is the most entertaining and accessible defence of efficient-market theory, which says that it's impossible to predict what the market will do with any kind of consistency. This idea is one of the cornerstones of modern academic finance, and it's also a key element in John Bogle's advocacy of low-cost index funds that simply track a market index rather than trying to beat it. Malkiel discusses various versions of efficient-market theory, explains what they mean for investors in practical terms, and discusses challenges to the theory. The most significant such challenge has come from behavioural finance, which studies the irrational ways that people sometimes behave around money. Among the books that discuss this fast-growing area of finance are Jason Zweig's Your Money and Your Brain and Gary Belsky and Thomas Gilovich's Why Smart People Make Big Money Mistakes and How to Correct Them.
Stocks for the Long Run by Jeremy Siegel
This is another modern classic, first published in 1994 and now in its fourth edition. Siegel, a finance professor at the University of Pennsylvania's Wharton School, has long promoted stocks as the best long-term investment available, and in this book he provides plenty of evidence to back up that claim. There is quite a bit of market history, but there are also excellent explanations of such topics as stock indexes, futures and options, global stock investing, and the Federal Reserve. Siegel discusses historical evidence about which types of stocks perform best over the long run, as well as various attempts to beat the market and thus disprove the efficient-market hypothesis. A chapter at the end on how best to use stocks in a portfolio is especially valuable for beginners.
All About Asset Allocation by Richard A. Ferri
Asset allocation, or the percentages of stocks, bonds, cash, and other investments in your portfolio, is a very important topic that doesn't always get the attention that it deserves. Several of the above books touch on asset allocation, but this book goes into more depth on this important topic in a way that's accessible to investors who are just starting out. Ferri includes a big-picture overview of asset allocation and why it matters, discussions of the various asset types (U.S. stocks, foreign stocks, bonds, real estate, and alternative investments), and a clear discussion of how to build and maintain a portfolio. For somewhat more advanced (but still very readable) coverage of the same general topic, check out William Bernstein's The Intelligent Asset Allocator and The Four Pillars of Investing.
A version of this article first appeared on Morningstar.com in October 2009.
