When I see expert investors giving interviews from home on a Zoom call, I always hope to catch a glimpse of the books on the shelves behind them. I pause the video and try to decipher the titles in their personal libraries. Maybe, just maybe, reading what they read will help me (and you) think a little more like them.
I recently spoke with leading investors and asked them a simple question: What books should someone read if they want to become a better investor? Their answers were broad and practical. What follows are their recommendations, edited for clarity.
Start with the basics: numbers and clear thinking
David Abrams, founder of Abrams Capital, recommends this Innumeracya short book by John Allen Paulos. “People don’t understand how numbers work,” he says. For Abrams, “the first step” in investing is becoming more fluent with numbers. Without that, he argues, “you’re not going to make much progress financially.” You don’t have to be a “brilliant mathematician,” but you do need to “understand something about numbers and how math works.” With that foundation, he adds, “financial matters become easier.”
He also advises Black Box Thinking by Matthew Syed. The title refers to the black box in airplanes. Abrams’ point is that the airline industry records and studies its mistakes, unlike many industries that bury them, such as medicine. For those interested in self-improvement, he says it’s a valuable idea to consider. The book also argues that looking at data that is not obvious is sometimes just as important, if not more so, than the data that is obvious.
Think about human behavior
William Bernstein, co-founder of Efficient Frontier Advisors, recommends two books. One of them is that of Joe HenrichThe secret of our success. “It’s about people – how we work, how our brains work and how different societies function.”
The other isExpert political judgmentby Philip Tetlock, which explores what separates good forecasters from bad ones. “What you really learn is that there are almost no good predictors,” he notes.
Wisdom from “The Oracle” Himself
Abrams and Tobias Carlisle, founder of Acquirers Funds, recommend reading Warren Buffett’s Letters to Berkshire Hathaway Shareholders. They’re available for free on the Internet, and reading them is like getting an MBA, Carlisle says.
“I think a lot of the stuff they teach in the MBA is stupid – and I did a business degree,” he jokes. “They taught me a lot of crazy things that led me down the wrong path. But I was lucky enough to have read Buffett’s letters when I was about 17 years old.”
Ric Dillon, founder of Vela Investment Management, also recommends Buffett’s letters, but in a compiled version. “This is the best book for people who are really interested in investingWarren Buffett’s Essays: Lessons for Corporate AmericaLawrence Cunningham, the book’s author, has compiled decades of Buffett’s letters into a coherent roadmap for responsible investing and strong corporate governance.
“It’s priceless,” he says, adding that even if he did, “you don’t have to read it cover to cover.” At one point he went to the Barnes & Noble bookstore, bought all the copies and gave them to his board members and executives. “It is by far the best book I have ever read on finance in general, and investing in particular.”
Adapt to complex, changing markets
Bernard Horn, founder of Polaris Capital Management, presents Andrew Lo’s book Adaptive markets. Investing is like sailing, and the wind always turns, he says. “The conditions and environment you invest in are constantly changing and becoming more sophisticated over time. We live in a world where things are changing very quickly.” Progress in technology and science is happening very quickly, he points out.
“If you don’t get better and better throughout your career, someone else can take advantage of you. It’s a competition. You have to constantly evolve.”
About cognitive behavior, discipline and strategy
Barry Ritholtz, founder of Ritholtz Wealth Management, says Daniel Kahneman’sThinking, fast and slow is the first book he recommends to anyone asking for a book on investing. “You realize that your brain is part of the problem. It’s not the Federal Reserve; it’s not the secret cows that control the market. It’s your brain. You’re not built for this—you’re built to survive on the savannah.”
A second recommendation, that of Charlie EllisWinning the loser’s gamecompares investing to playing tennis. Ninety-nine point nine percent of the people who play tennis are amateurs; only a small proportion are pro, he says. “And pros win in very specific ways: they serve aces, hit with power, paint the lines and make elegant drop shots.”
This contrasts with the way amateurs play and win, he notes. “We double-fault. We hit the ball into the net. We try a nice shot and miss. Most amateur matches are not won by scoring points – they are lost by unforced errors.”
If you focus on staying within your limits, returning the ball and avoiding mistakes, you will do well at tennis – and even better at investing. Problems arise when investors think they can consistently pick winning stocks or superior fund managers. Most can’t do that.
Cautionary tales every investor should know
Roger Lowensteins When genius failedis a fascinating book, says Tom Sosnoff, founder, thinkorswim and tastytrade. “It’s about long-term capital management and the Nobel laureates who wrote the Black Scholes model and then almost blew up the markets.”
He also advisesWhere are the customers’ yachts? by Fred Schwed. It’s essentially about a tour of the old Merrill Lynch offices in Battery Park, overlooking the Hudson River. A Merrill man shows a visitor all the Wall Street guys’ yachts. The visitor looks outside and asks: “Where are the customers’ yachts?” The Merrill man responds, “Yeah… they’re not around here.”
It reminds us that intelligence, models and prestige cannot protect you from reality. It’s an absolute Wall Street classic.
Stay curious, humble and agile
Taken together, the recommendations point to a simple idea: Becoming a better investor requires stronger judgment, intellectual curiosity, humility and a willingness to learn from history.
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