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An informed investor is a better investor, as knowledge is the best defense against emotional, knee-jerk reactions to market volatility. Want to know Warren Buffett's secret to success? He claims to spend 80% of his day reading:
Read 500 pages like this every day. That’s how knowledge works. It builds up, like compound interest.
Need a last minute gift for the bookworm on your list? While it's not quite as alluring as a car with a bow in the driveway, the right book may prove to be a more valuable gift over the long run.
Invested: How Warren Buffett and Charlie Munger Taught Me to Master My Mind, My Emotions, and My Money (with a Little Help from My Dad) by Danielle Town & Phil Town
Danielle Town is a millennial lawyer with a minimal interest in personal finance or investing. Her father, Phil Town, is a hedge-fund manager and investment educator who has written bestselling investing books.
This book, written mostly by Danielle with a few side notes from Phil, is an entertaining entry point into the world of investing. Danielle's personal story and journey to overcome her fears of investing are relatable and enjoyable and there's plenty of good information for investors of all ages.
This book would appeal to someone who doesn't like numbers and cringes at the thought of reading a book about personal finance and investing. The book is constructed as a 12-month plan based on value investing and the wisdom of Buffett and Munger, and each chapter concludes with valuable action steps and exercises.
Big Mistakes: The Best Investors and Their Worst Investments by Michael Batnick
Batnick writes, "The difference between normal people and the best investors is that the great ones learn and grow from their mistakes, while normal people are set back by them."
Each chapter of the book is devoted to the blunders of the world's most famous investors: Warren Buffett, Benjamin Graham, Jack Bogle and even Mark Twain. Some of the mistakes are so disastrous, you wonder how some of these famous investors could ever have bounced back from them or how they could continue to be held in such high regard.
One of the most dangerous mistakes an investor can make is succumbing to cognitive biases and falling prey to "the illusion of control." Striking it big on their first trade can give an investor overconfidence in their abilities and lead to far greater losses over the long haul.
Batnick touches on his own mistakes (such as spending $12,000 in commissions in a single year as a day trader) in the poignant final chapter, "Looking in the Mirror." He's not shy about owning up to his failures, which is refreshing in an industry where so many of his colleagues crow relentlessly about their successes.
Unshakeable: Your Financial Freedom Playbook by Tony Robbins With Peter Mallouk
When I interviewed Tony Robbins about his book, released this year in an updated paperback edition, he told me his main goal was to write "something that people could read in a weekend to prepare themselves for the next bear market."
He interviewed some of the greatest financial minds and created a game plan for investors to follow, written as if Robbins is speaking directly to you.
Some of the most valuable sections come from his co-author Peter Mallouk, President and Chief Investment Officer at Creative Planning. Mallouk's appendix on estate planning contains some of the best and most important information available on the subject.
Mastering the Market Cycle: Getting the Odds on Your Side by Howard Marks
Howard Marks is the co-founder and co-chairman of Oaktree Capital Management, a hedge fund with $120 billion of Assets Under Management. Marks has been sending legendary memos to his investors since the 1990s, many of which were collected and published as The Most Important Thing Illuminated (which I previously recommended).
In Mastering the Market Cycle, Marks expounds on one of his "most important things" — studying market cycles and learning how to spot the next trend. He refers to psychology and behavior as it relates to greed versus fear. As he writes, "An investor has to learn to recognize cycles, assess them, look for the instructions they imply and do what they tell him to do."
Marks proves yet again that he is able to elucidate complex topics into highly readable and informative financial writing. However, his commentary can be esoteric so I would recommend this book for a more advanced investor interested in engaging more with what Marks refers to as "second-level thinking."
Smart Women Finish Rich, Expanded and Updated by David Bach
To celebrate its twentieth anniversary, David Bach published an updated edition of this classic book. I interviewed him earlier this year about how everyone, no matter their age or gender, can finish rich.
Bach writes in an easy to understand style and uses investing lessons learned from his grandmother to make the topic more relatable. Bach has far surpassed his original goal of helping a million women be smarter with their money.
In the preface to this new edition, he talks about a publisher who told him that "women don't buy investment books." This book, which launched Bach's "Finish Rich" series of books, has sold over a million copies.
Financial Independence (Getting to Point X): A Comprehensive Tax-Smart Wealth Management Guide 2nd Edition by John J. Vento
This book is certainly comprehensive and, at nearly 500 pages, can double as an effective doorstop (please read it first). Vento walks you through all you need to achieve financial independence, or what he calls "getting to Point X." He covers every financial topic you can think of, from estate planning to business taxes to life insurance.
The book has been updated to include the latest information from the Tax Cuts and Jobs Act. Vento's greatest strength is clearly explaining the importance of maximizing your tax efficiency through a process he calls "Tax Alpha to the 2nd Power."
Vento is skilled at taking a dry topic and making it engaging, and he doesn't skimp on the small stuff. An appendix at the back of the book lists 101 ways to save $20 per week, and there's an entire chapter on committing to living within your means.
Reducing the Risk of Black Swans: Using the Science of Investing to Capture Returns with Less Volatility, 2018 Edition by Larry Swedroe & Kevin Grogan
"Black Swans" are unpredictable events that cause market turmoil, such as September 11th or the October 1987 market crash. Swedroe, a prolific writer and Director of Research for Buckingham Strategic Wealth details how an investor can construct a portfolio using alternative investments (such as reinsurance or alternative lending) to protect themselves from unforeseen calamities.
I found the final chapter to be the most meaningful. It's simply called "Enough." Swedroe and Grogan discuss the marginal utility of wealth — in a nutshell, how much money do you really need to be happy? I was surprised to find this at the end of a book on portfolio management but delighted nonetheless.
As an added bonus, I'll include a book that comes out in the first week of 2019: Swedroe and Grogan's newest book Your Complete Guide to a Successful & Secure Retirement, which Swedroe considers to be his magnum opus (I've recently interviewed him and will be publishing it shortly). Just like Vento's Financial Independence, it contains comprehensive strategies to ensure not only a successful retirement but a meaningful one as well.
Make a New Years resolution to become a smarter investor. While everyone else is crowding the gym during the first few weeks of January, cozy up next to the fireplace with a good book that will help improve your financial future. By reading some or all of these books, you'll be heeding the wisdom of the Oracle of Omaha, building up knowledge like compound interest.