If you don’t know accounting, you will have to learn it, one way or another. Accounting is the language of business, and you need to know how profitable a business is, how much capital it needs, and how much of its profitability you can expect to benefit you.
Any book will do, but as the topic is quite dry, for newbies i would recommend chapters 4 to 8 of The five rules for successful stock investing, by Pat Dorsey.
What makes a good business
Berkshire Hathaway, letters to shareholders, 1965-2019. Buffett’s letters are famous for a reason, and i learned a lot about what makes a good business in them. The topics are a bit random every year, so if you want them more organized, Lawrence Cunningham ranked them by topic in his book The essays of Warren Buffett : Lessons for Corporate America
The blog and lectures of Sanjay Bakshi. Sanjay is an indian professor and successful practitioner of value investing. Over the years he has amassed a lot of wisdom that he shares freely on his lectures (they can be a bit messy, but full of treasures, especially the company analyses), as well as on his blog. In particular, this article is a masterpiece.
Quality Investing by Lawrence Cunningham will give you the building blocks of what are excellent businesses
You will need to be able to evaluate management. This might look like a vague and daunting task, but your priority is to know if they are good capital allocators. No better book has been written on the subject than The Outsiders, by William Thorndike
Financial Statement Analysis and Security Valuation, by Stephen Penman, so you can get an idea of how the characteristics of a business make it worth more or less. You can also have a look at Accounting for value, by the same author.
Various good books
You can be a stock market genius, by Joel Greenblatt. Worst book title ever, but best book on special situations. Additionaly, the author has compounded at 40% per year for 20 years in case you needed credentials.
One up on wall street by Peter Lynch will teach you how to think about growth.
The joys of compounding by Gautam Baid: a nice recent surprise. I was pleased to see the number of important topics this book covers. I’d recommend it as soon as you have a broad idea about how business and investing work in general
100 baggers , by Chris Mayer: the author spent his life studying businesses that made a x100 in the stock market. While he admits he can never be sure how well he avoided survivorship/hindsight bias, he draws interesting conclusions always worth keeping in mind.
- Everybody quotes The intelligent Investor by Benjamin Graham, but the book is really, really dry. I would advise reading chapter8 (the Mr Market Allegory) and chapter 20 (on the margin of safety).
Poor Charlie’s Almanack, by Charlie Munger: in this book you will learn more about how to think , as well as about your cognitive biases, than anywhere else.
Seeking Wisdom and All I want to know is where i am going to die so i’ll never go there by Peter Bevelin: builds up on Poor Charlie’s Almanack.
- Read financial reports. Reading books is good, but applying lessons and figure out stuffs for yourself will make you learn 10 times more. Pick a company you are curious about and download its annual reports for the last 5 years, and see how it evolved over the period. Did it get better at allocating capital? Did it grow earnings BUT reduced profitability, making it less valuable? Is management candid and telling things the way they are, or are they putting lipstick on a pig (you’d be surprised how often companies managements talk about “adjusted EBITDA” to try not to look bad…)
Well, there are so many books to read, but with those you should have an idea about where you want to go next…
Oh, and one more thing: don’t neglect the Sanjay Bakshi resources: they are really that good. Don’t be rebuffed by the Indian units he’s using, it is worth learning to understand his articles (1 lakh = 100’000, and 1 crore = 10’000’000).