Top 3 Investment books for new investors, recommended by financial advisors
Investing in yourself by cultivating a reading habit can do wonders for your investment portfolio. By learning about money management as well as investment mindsets and strategies, you can improve your financial literacy and be a better investor.
Life First Advisory (LFA) often meets individuals who want to start growing their money, but are clueless on how to do so. Throughout our journey of helping many clients kickstart their investments, we realised that it is crucial for them to understand what investment is all about. Client who adopt the right mindset and take ownership of their wealth can better rely on us to guide them in growing their money.
Here are some books recommended by our advisors.
Richest man in babylon
by George S. Clason
Babylon was the wealthiest city in the world at its prime as its people appreciated the value of money. Clason advocates saving at least 10% of your income, use 20% to repay debts, and to not splurge unnecessarily.
While allocating a portion of your earnings to savings can seem burdensome or suffocating to some, readers can reframe their mindset by thinking it as a way of paying yourself and building your personal mountain of gold. The author also highlights the importance of protecting yourself with insurance.
LFA notes that while it is important to save up and have an emergency fund, holding too much cash is bad.
Clason encourages readers to invest in furthering their skill set to generate more income, stating that “hard work is the best friend (he) ever had.” Interestingly, the book gives a crash course about money by summarising seven simple rules, namely:
Start thy purse to fattening: save money.
Control thy expenditures: don't spend more than you need.
Make thy gold multiply: invest wisely.
Guard thy treasures from loss: avoid investments that sound too good to be true.
Make of thy dwelling a profitable investment: own your home.
Ensure a future income: protect yourself with life insurance.
Improve thy ability to earn: strive to become wiser and more knowledgable.
Richest man in Babylon urges readers to surround themselves with people who are familiar with money, work with money, and make money. Just as “it costs nothing to ask wise advice from a good friend”, you can reach out to LFA for a non-obligatory consultation about how we can work on increasing your wealth to meet your life goals.
A Random Walk Down Wall Street: The Time-tested Strategy for Successful Investing
by Burton G Malkiel
Written by a former Princeton economics professor, this book revolves around the idea that stock prices are largely unpredictable, even by professional stock analysts. While historical prices can affect present prices, it does not help to accurately predict the future.
Malkiel suggests that beating the market is impossible unless you are extremely lucky, since the transaction costs will eat up the returns. Even if you follow Wall Street’s crowd psychology, or chart trends in stock prices, or study companies’ annual reports, you will still be incapable of predicting future share prices accurately. This is all because of the efficient market theory which says that all information about a stock is already reflected in its share price.
LFA is also of the view that investors should not time the market, and instead, explore the magic of dollar cost averaging by staying in the market for a long time.
While the author recommends investors to ride waves and invest in trends for profit, he also cautions against following the crowd blindly. Since humans are wired to follow what others are doing, Malkiel urges investors to make a mental note when they find themselves following trends without any due diligence or research. The book cited a price hike and fall with Tulipomania, a mass hysteria during the Dutch Golden Age when contract prices for some bulbs of a new tulip soared before collapsing dramatically in February 163.
The book also talks about portfolio theory and encourages readers to maintain an adequately diversified portfolio to spread out risks and maximise rewards.
Outliers: The Story of Success
by Malcolm Gladwell
Any book by Malcolm Gladwell is generally well-received. However, this particular one talks about the concept of economics in detail in a simple manner which makes it easy to digest. The book looks at the secrets behind successful outliers, which is a concept that can be applied to your investment, especially when it comes to understanding tenbaggers (investments that return 10 times its initial investment) or stocks that performed way below expectations.
If you ever find yourself obsessed or envious of other people’s success, this book is for you. Outliers begins with stories of individual greatness like the Beatles, the giants of Silicon Valley, and more. You learn that “it is not the brightest who succeed”, and that “the sum of the decisions and efforts we make on our own” is not everything. Success is also largely reliant on legacy and the opportunities presented to outliers equipped with the ability to seize them.
To illustrate the complexity of success, the author explains the notion that prodigies are not born but made, how accumulative biases are hidden in meritocratic school systems and in sports (e.g: streaming), and how luck is crucial in enabling the quantity and quality of practice needed for success. Interestingly, this is the book that popularised the 10,000 practice hour rule.
Gladwell helps readers understanding that there are factors beyond our awareness and control that leads to success. New investors will find this book helpful as it draws on examples not just in the finance industry, but across science, sports, medicine, history, music, and the author’s own life.
Invest in yourself in 2021
Spend time to build a wealth of knowledge.
This 2021, carve out some time to indulge in reading a book. If reading does not float your boat, try listening to an audio book version while on commute instead. Stop delaying your wealth of knowledge, and start committing a small fraction of your free time to investing in yourself.