6 Best Books on Value Investing

I normally try to keep my book lists to a maximum of three, but on this topic, it was impossible.

1. The Warren Buffett Way/Portfolio by Robert Hagstrom

These complimentary books offer the best explanation of Buffett’s investment career and how one might apply it to his or her own portfolio.

“Your goal as an investor should be simply to purchase, at a rational price, a part interest in an easily understood business whose earnings are virtually certain to be materially higher, five, ten, and twenty years from now. Over time, you will find only a few companies that meet those standards-so when you see one that qualifies, you should buy a meaningful amount of stock.”

2. Warren Buffett’s Ground Rules By Jeremy Miller

This is the best breakdown of Buffett’s earliest days as an investor, when he was much more relatable to the average investor.

“Interestingly enough, although I consider myself to be primarily in the quantitative school (and as I write this no one has come back from recess—I may be the only one left in the class), the really sensational ideas I have had over the years have been heavily weighted toward the qualitative side where I have had a “high-probability insight.” This is what causes the cash register to really sing. However, it is an infrequent occurrence, as insights usually are, and, of course, no insight is required on the quantitative side—the figures should hit you over the head with a baseball bat. So the really big money tends to be made by investors who are right on qualitative decisions but, at least in my opinion, the more sure money tends to be made on the obvious quantitative decisions.”

3. The Outsiders : Eight Unconventional CEOs and Their Radically Rational Blueprint for Success by William Thorndike

This is the best book on capital allocation, “the process of deciding how to deploy the firm’s resources to earn the best possible return for shareholders.” There are a TOTAL of five ways to deploy a firm’s financial resources and ONLY three ways to generate capital.

4. Common Stock and Uncommon Profits by Philip A. Fisher

A timeless, insightful book...

“One, which I mention several times elsewhere, is the need for patience if big profits are to be made from investment. Put another way, it is often easier to tell what will happen to the price of a stock than how much time will elapse before it happens. The other is the inherently deceptive nature of the stock market. Doing what everybody else is doing at the moment, and therefore what you have an almost irresistible urge to do, is often the wrong thing to do at all.”

5. Mastering the Market Cycle by Howard Marks

This book provides a great overview on market cycles, especially how credit influences the expansion and contraction of the economy.

“For example, people hold equities because they find prospective long-term equity returns attractive. The average annual return on equities from 1926 to 1987 was 9.44%. But if you had gone to cash and missed the best 50 of those 744 months, you would have missed all of the return. This tells me that attempts at market timing are a source of risk, not protection.” - Howard Marks

6. Reminiscences of a Stock Operator by Edwin LaFavre

This book skews more toward trading than the others, but it provides classic wisdom on market dynamics and the need to control one’s emotions.

“It never was my thinking that made the big money for me. It always was my sitting… Men who can both be right and sit tight are uncommon. I found it one of the hardest things to learn. But it is only after a stock operator has firmly grasped this that he can make big money.”