Ready to learn more about investing? Great! Owning shares in robust, growing companies can significantly transform your wealth over time.
Just think about how owning shares in blood product company CSL Limited (ASX: CSL) could have turned a $1,000 investment into over $200,000.
If you want to get your finances sorted and learn to invest, here are 3 books I think are must-reads to get you started:
1. Unshakeable: Your Financial Freedom Playbook by Tony Robbins
I know, I know, it's Tony Robbins. But having read this book cover to cover, I think Unshakeable is one of the best investing books you can get. In it, Robbins taps his connections to the world's best investors including Jack Bogle, Ray Dalio and Howard Marks to explain how to think about investing and how to get started.
The book spells out the importance of minimising fees, diversification and being cautious with who you trust for advice. But I also think the book offers valuable insight on how to choose individual investments and hunt for big winners like CSL.
3 key takeaways:
- As investors, we get betrayed by our emotions. We can avoid this by automating the process and letting time do the hard work.
- When investing, focus on risk reduction and not getting wiped out. It is incredibly difficult to claw your way back from a big loss.
- We should look for asymmetric returns when investing in individual companies, where the upside is much bigger than the potential downside.
2. One Up On Wall Street by Peter Lynch
If you're ready to start researching companies yourself, Peter Lynch's One Up On Wall Street is the place to start. Peter Lynch was one of the world's top mutual fund managers in the '70s and '80s, and he shows us how we can use our own 'edge' to find some of the best investing ideas.
One of the most important ideas in the book is Lynch's 'two-minute drill'. This means being able to explain your reasons for investing in a company, what needs to happen for the company to be successful and what the potential risks are.
From the best time to buy and sell to understanding company earnings, this book is a great dive into the investing process, even 30 years on.
3 key takeaways:
- Every day we come across potential investing ideas as we go about our lives that can fly under the radar of professional investors.
- Picking shares takes time and dedication. Be prepared to do your homework and dedicate time each week to research and keeping up with company news.
- Understand how companies you own shares in make money and write down the specific reasons for holding shares in them.
3. The Little Book That Builds Wealth by Pat Dorsey
Some of the best businesses are those with a strong competitive advantage, or economic moat. A sustainable economic moat lets a company reinvest its cash at high rates of return and this can turn a small initial investment into staggering wealth.
Dorsey was director of stock research for investment research provider Morningstar Inc. and his book is an excellent guide to identifying businesses with robust moats, like A2 Milk Company Ltd (ASX: A2M) and Xero Limited (ASX: XRO).
3 key takeaways:
- Competitive moats can come in many forms, including switching costs, network effects, cost advantages and intangible assets.
- Moats can erode over time, especially as technology evolves.
- To get an overview of the moats covered in the book, you can listen to this fantastic podcast from The Investor's Field Guide.
Foolish takeaway
Learning to invest can be daunting. But these 3 easy-going books will give you an incredible headstart. They will teach you what to look for, what to avoid, and help to give you the confidence to get started.
