Ok so I will start with a wiki post about books I recommend. Dot not hesitate to contribute and/or edit this post! Please explain why you love this book so newcomers can have a feel of it and not feel lost in this (hopefully) huge list of knowledge . Please also mention who recommended each book.
I. Early Retirement
- Your Money or Your Life , by Vicky Robin and Joe Dominguez (recommended by Julianek) : One of the first books talking about early retirement and financial independence, long before MMM. Among other things, it explains how not only time is money but money is time (and thus represents all the life you do not have to work for). Of course it was one of the first to spread the evangile of FI : spend less than you earn, save, document your spendings, only purchase things you need, the less you need the more fulfilled you will be, …
- Early Retirement Extreme, by Jacob Lund Fisker (recommended by Julianek): All the FI mindset on steroids. It shows you how, by using thinking in systems, you can retire in 5 years. The book is sometimes quite radical, but contains tons of nuggets of wisdom, like how to tackle issues like depreciation. . If you want to see how a hyper-rational mind tackles early retirement, this book is hugely recommended. Note that there is also a forum talking about the ERE mindset.
II. Passive Investing
- A Random Walk Down Wall Street, by Burton G. Malkiel (recommended by @1000000CHF). Excellent book on passive investing. It’s 450 pages of introduction into financial markets history (bubbles), financial economics theory (modern portfolio theory, efficient market hypothesis, behavioral finance), excellent critique of technical analysis (and moderate critique of fundamental analysis), explanation of factors and smart beta, portfolio construction examples and great deal of best practises for individual (passive) investor.
III. Active Investing
The Intelligent Investor, by Benjamin Graham (recommended by Julianek) I have some mixed feelings about this one. First, the good points : Graham invented the concept of Value investing and Security Analysis, and in this book you will find discussion about the most fundamentals concepts of value investing : The margin of safety (the bigger the gap between what you pay and what you get in valuation, the more you can be wrong and still make money), the Mr Market parabole and the concepts of Net Nets. Now for the bad parts : the writing style is really dry (same for Security Analysis) and the interesting parts are only in a few chapters. My advice : read the whole book if you want, but read especially chapters 8 and 20.
The Dao of Capital : Austrian Investing in a Distorted World, by Mark Spitznagel (recommended by Julianek). Known for having been Nassim Taleb student (of The Black Swan’s fame) and then having created a very successful Hedge Fund with him, Spitznagel has written here a very interesting book. It shows you how to put into practice the teachings of Austrian economics to be a successful investor by screening for companies with very high ROIC and low Faustmann’s Ratio. Spitznagel claims historical returns of about 24% (I am currently trying to check this). However, even if you do not put it into application, you will learn a lot about Austrian Economics (Mises, Böhm-Bawerk), War and … Pinecones.
V. Psychology and Human Behavior
Influence : The psychology of Persuasion, by Robert Cialdini (recommended by Julianek). An absolute must-read. This book shows you all the ways in which the human mind is not rational, and how other people take advantage of you by exploiting these faults. Next time you feel like you have been scammed by another salesperson, read this book and discover how you have been tricked. Charlie Munger was so impressed by this book that he offered a class A share of Berkshire Hathaway (worth at the time 75’000 USD) to the author as a thank you note for his work.
The Power of Habit, by Charles Duhigg (recommended by @1000000CHF). It’s a popular science book on psychology and neurology of habit formation. The book explains how habits are created and how they can be changed. It not only explains how ganglia basales (part of the brain responsible for habits) works, but it’s also full of extremely interesting anecdotes on people (and rats) who had brain disorders or people who changed their habits (and thus their brains) radically. It’s estimated that about 40% of our daily “decisions” are made by ganglia and are thus are not fully conscious. I guess huge part of that are spending habits.
- Sapiens : A brief history of humankind , by Yuval Harari (recommended by Julianek) A very interesting inquiry into how Homo Sapiens went to conquer the natural world. Harari states that it was the capacity of human beings to cooperate on a large scale with complex interactions that allowed Homo Sapiens to reach the top of the food chain. The key to this cooperation is the usage of “myths”, or common beliefs about things that does not exist in the natural world : Gods of course, but also money, the Limited Liability Company, the Nation State, human rights and so on…
VII. Wisdom and Good Life
- Poor Charlie’s Almanack, by Charlie Munger (recommended by Julianek): A book I have been reading and re-reading. Munger’s mind is phenomenal, and you will find tons of nuggets of wisdom in this collection of all his most important speeches. His way of thinking with a latticework of mental models has deeply influenced me. The speech alone on The Psychology of Human Misjudgement is worth more gold than anything you will learn on investing!