I just realized that over the years since I had first learned investing in the US stock market, which started 12 years ago, that I have collected quite a number of good books on investment that can be considered as classics. I have to be honest that I stopped following the market in 2001 and started to follow it again just a couple of months ago. When I looked at my book cabinet, I realized that I have quite a collection of books that are good references. I re-read some of the books and re-learned the knowledge quite fast.
I would like to give a brief review of the books. Here’s some of the books that I own and what I learned from them:
1. Trading for a Living by Dr. Alexander Elder
The book covers three essential aspects that you need to adopt when you want to commit yourself to trading. First is psychology: it covers the fact that market is driven by mass psychology. People get scared and sell or get excited and buy, and hence the mass psychology of the market determines the direction of the market. Second is Trading Tactics: here, the book explains on many technical aspects of stock trading mostly from charting perspective. Third is money management: manage your emotion by having a strategy in how much you invest on a stock and when you need to exit. You must have rules so that you don’t decide based on your emotions. With money management, you have to make sure that you don’t lose out all your investment in a few trades.
I like the book because it prepares you on how to become a good trader. It does not make you a good trader right away, but by knowing the basics, you can be prudent. Experience over time makes you a good trader. This book ensures that in the process of becoming a good trader you don’t quickly lose out money and quickly get thrown out of the market.
2. One Up on Wall Street by Peter Lynch with John Rothchild
Fundamentals is the key word that I learned from this book. Unlike “Trading for a Living”, this book does not teach you to rely on charts, but more to understanding the fundamentals of the company. Peter Lynch advises us that understanding the products and services of a company enables us to have a sense on how well the company is going to perform. If you like the product of a brand, then that’s a start. You can put more time in studying more fundamental aspects surrounding the company. The book covers some crucial fundamental numbers that you have to understand about the company.
I like the book as it provides you with some fundamental knowledge on how to understand a company from the fundamental point of view. It talks about how important company earnings are. It also covers much on the P/E ratio and how you should use the ratio to determine if the price of the stock is fair or not. The book is a good reference that you can go back into every now and then.
3. How to Make Money in Stocks by William J. O’Neil
The book gives you a mix between fundamental and technical. O’Neil has a system called CANSLIM. He makes sure that you understand how the market is currently performing. No need to go against the tide as most of the time you would lose. He wants you to look at the performance of a stock through earnings for the last few years, comparing year-to-year performance as well as quarter-to-quarter. The book also covers about charting, but more with eyeballing technique. There are chart patterns that people can recognize which indicate that a stock is going to make a significant gain.
This was the book that I first studied seriously. It opened up my eyes on how to carefully enter the stock market world. We need to look at stocks from both the fundamental and technical aspects, but before you decide to buy know where the market is heading.
4. The Motley Fool Investment Guide by David and Tom Garner
The book raised my interest in the stock market. Things are not as difficult as people say. You don’t really need to be a chartered accountant to evaluate stocks. The two brothers teach you fundamental numbers in a simplistic way. ‘Anybody can do it’ kind of attitude, which is true as the book reveals. The book is also a good reference on the fundamental numbers. I also bought another book written by the brothers, “The Motley Fool‘s Rule Breakers, Rule Makers”, but I was not too impressed with it – it’s a bit confusing to follow.
5. The Warren Buffett Way by Robert G. Hagstrom, Jr.
A book that preaches on buy and hold. Understand the company and buy it for the value. The book is a good read, but I do not use it as a reference. It tells you how Warren Buffett carefully evaluates companies that he wants to buy. He has an eye for companies that will produce products or services that bring value to the general public. Hence, by investing into such company, in the long run, the company will grow considerably and you will make considerable gains. Your portfolio should contain stocks of such companies. There may be a few laggards in the portfolio, but the negative value of the laggards should be greatly outnumbered and out-valued by the strong performers, hence the net result should be a large gain that brings you wealth.
Books make you smart. People must equip themselves with the right knowledge before they enter the market. In later posts, I will review some of books above in greater details.
Disclaimer: Techniques or analysis covered on this website are to be used at your own risk. I cannot guarantee the outcome of applying any of the techniques or analysis, will always be in your favor. You must always do your own analysis and make your own decision before you purchase a stock.
“Stock of the Week” is not a recommendation of stock. It is a coverage of an interesting stock. Unless otherwise stated, no actual purchases or sales of stocks are undertaken. Actions taken are only simulated trading.
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