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Back to basics

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With markets looking precarious and portfolios under pressure, it’s always a good idea to head back to the basics. That’s why I want to revisit my list of preferred books for investors and traders. A good book can reaffirm what we’re trying to do in the markets – which is to have a plan and to not panic.

The first book on the list is One Up on Wall Street by Peter Lynch.

First published back in the 1980s, it remains as relevant today as ever. Lynch writes in a style that is easy to understand. He covers a number of methods for selecting winning stocks that are practical and that we can easily integrate into our investing.

The second book on the list is Effective Investor by Franco Busetti.

This is a more advanced read than One Up on Wall Street, but it is well worth the effort. Being a local book, the examples are all companies that we know and understand. What I really like about this book is that Busetti pokes a lot of holes in conventional investing wisdom.

For example, he pulls apart economists’ ability to predict the future. Using the rand/dollar exchange rate over a decade, he shows that projections for future levels of the currency were simply never correct – not once. Now, sure, he was socking it to economists, but the theory applies to anybody trying to predict the future.

Intelligent Investor by Benjamin Graham would be on many lists, but I find it a dry book with little practical use these days (regular scans of the market using his methods return few, if any, investable stocks). Warren Buffett started life as a value investor, but he is now a Fisher disciple and a follower of the book Common Stocks and Uncommon Profits by Philip Fisher.

This is a great practical book that really delves into finding awesome stocks to invest in, again like Lynch, using practical theories that do not require an advanced degree to understand.

Nassim Taleb is best known for his book Black Swan, but the earlier Fooled by Randomness is way better. The latter deals with the role that luck plays in our lives and in investing. It’s a powerful lesson: We need to recognise luck for what it is and not attribute it to our ability.

Then some books for traders: The first is Trading in the Zone by Mark Douglas. More than anything, trading is about psychology and nobody explains it better than Douglas. Again, this book isn’t easy to read, with no funny anecdotes. But it remains the most important trading book I have ever read. I reread it every year-end holiday to keep me on track. 

Trend Following by Michael Covel is another great read for traders. I am a firm believer in trading the trend and this book lays out the case for trend trading with many examples. But it also warns of the shortfalls in the concept. Be cautioned here: He does try to sell you his systems, which I do not recommend spending the money on.

Perhaps my favourite is Reminiscences of a Stock Operator, which covers the trading life of Jessie Livermore from over a hundred years ago. This book is full of excellent lessons for traders that are easy to understand and will without a doubt make you a better trader.

Of course this list is not exhaustive, and no book will turn you into a top trader or investor. But we can learn a lot from them. And, more importantly, reading gets us thinking, and thinking will help us define our own personal strategies for the markets and help distract us from the current market woes.

This article originally appeared in the 24 October edition of finweek magazine. Buy and download the magazine here or subscribe to our newsletter here. 

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