What books does the world’s greatest investor Warren Buffett really reads and recommends that every wise investors should read as well? I was able to find 3 which were explicity mentioned by Warren Buffett himself that they were of good reference and by reading reader’s reviews on books written about Warren Buffett.
The Intelligent Investor By Benjamin Graham
Warren Buffett was recently quoted on PBS:
I read a book, what is it, almost 60 years ago roughly, called The Intelligent Investor and I really learned all I needed to know about investing from that book, and particular chapters 8 and 20 … I haven’t changed anything since.
Also known as the “father of value investing”, Graham was the mentor of Buffett when he was working in Graham’s investment firm. Buffett, who credits Graham as grounding him with a sound intellectual investment framework, described him as the second most influential person in his life after his own father. Warren Buffett describes The Intelligent Investor as “the best book about investing ever written”.
If you want to know more about value investing (that’s what Warren Buffett practise day and day, year after year), you might also be interested in reading Security Analysis written by Graham and David Dodd.
The Essays of Warren Buffett: Lessons for Corporate America
This book is a collection of Buffett’s letters to the shareholders of Berkshire Hathaway written over the past few decades that together furnish an enormously valuable informal education. The letters distill in plain words all the basic principles of sound business practices and intelligent investment philosophy. Both the first edition and second edition has received good reviews and it’s streets ahead of the other “about warren buffett” books.
In case you were wondering what chapter 8 and 20 is about in the intelligent invevstor, here’s a summary (thanks to motley fool)
Chapter 8: The Investor and Market Fluctuations
Markets go up. Markets go down. Most of us accept this fact until we experience the latter, at which time we throw up our hands and consider the whole thing a sham. That kind of behavior is what Chapter 8 is all about: dealing with market movements, and how fundamental they are to investing success.
Here’s how Graham puts it in Chapter 8:
The true investor scarcely ever is forced to sell his shares, and at all other times he is free to disregard the current price quotation. He need pay attention to it and act upon it only to the extent that it suits his book, and no more. Thus the investor who permits himself to be stampeded or unduly worried by unjustified market declines in his holdings is perversely transforming his basic advantage into a basic disadvantage. That man would be better off if his stocks had no market quotation at all, for he would then be spared the mental anguish caused him by other persons’ mistakes of judgment.
Chapter 20: Margin of Safety as the Central Concept of Investment
Graham opens Chapter 20 with a potent message:
In the old legend the wise men finally boiled down the history of mortal affairs into the single phrase, ‘This too will pass.’ Confronted with a like challenge to distill the secret of sound investment into three words, we venture the motto, MARGIN OF SAFETY.
There’s only one surefire solution to this: Pay far less for stocks than your estimate of value, leaving room for error. That’s a margin of safety. It’s giving yourself room to be wrong, knowing that you probably will be. Think a company is worth $50 a share? Great. Don’t pay more than $25 for it. Think a company could earn $2 per share next year? Great. Set yourself up so you’ll profit if it only makes a buck. There has to be a wide range of acceptance between the projected and the potential.
So that’s it. If you want to think like Warren Buffett, you should at least know what philosophy his investment decisions are based on.