I get asked a lot on what are the best books to read for investing. And like most people, I used to recommend classics like The Intelligent Investor or One Up on Wall Street. This is a no-brainer, right? Why read something else when you can read the best? At hindsight, those were poor advice. The books that most people think you should read, I included, are not the one you should read. At least not right now.
I remembered when I started investing, I got myself a copy of The Intelligent Investor and Security Analysis, both written by Benjamin Graham, and Philip Fisher’s Common Stocks and Uncommon Profits. Everyone, including Warren Buffett, recommended them. But I couldn’t finish them. I fell asleep. They are boring. They are boring not because they’re bad, but because I can’t absorb what I read.
A book is like a lock. Each lock contains a piece of specific information. Once opened, it becomes a part of your knowledge—a unique key that can be used to open another book with a similar lock. While most books only have a lock, great books have many sets of unique locks. I failed to absorb what I read because those books are way above my level of understanding. I don’t have the right keys to unlock them. A simple passage such as “investing is about controlling yourself at your own game” from The Intelligent Investor requires many unique keys just to unlock its whole meaning. Sometimes, those keys can only be found through experience. So, the best books for you depends on your level of understanding, experience, conceptual reasoning, and many other factors.
Instead of telling you what books to read, my suggestion is to read what’s interesting to you. If a book catches your attention, or even better, surprises you, then that’s the one that has the highest learning value.
Think about the time in life when you get surprised. What are the causes? It is probably something that gives you the ‘Aha’ moment; something that makes you laugh because it’s amusing; things you never thought of that gives you a new perspective; or something that challenge your beliefs. And all of them have the same pattern: surprise forces you to think. To ask questions. And it is questions, not answers, that has the biggest learning opportunity.
It is the same with books. Books that are either too easy or too hard for you have little learning value. You don’t get much out of easy books because you’re already familiar with the key concepts. Whereas for the hard ones, you’ll find it too difficult to grasp even the simple concepts. In both cases, they don’t create surprises. In contrast, books that catch your attention hit the right note with your comprehension. Your mind is able to make meaningful connections between what you read and what you already know, update your worldview, and become part of your cognitive repertoire. Or put it in another way, surprising books improves calibration between your mental model and reality.
Take the P/E (Price-to-earnings) ratio as a concept. Most investors are being taught that stocks with a P/E ratio of less than 10 are generally undervalued (or cheap). Now, if you read a book that confirms that concept, there’s no learning value. But if a book told you the opposite: stocks under P/E 10 are actually expensive and P/E over 20 are cheap, now that is surprising. It has your attention. Your brain is working hard to make sense of these conflicting information. It forces you to ask “How can that be?” And once you learn that the P/E ratio itself cannot determine the value of a stock without looking at the future return of the business, it is like you’ve upgraded your ‘operating system’. Instead of classifying stocks as cheap or expensive along the continuum of P/E ratio, you acquire a more thorough understanding of how to look at it through the right context. And more importantly, know when to discard it when it becomes irrelevant.
If you found a great book that surprises you, that’s the best outcome. But as soon as a book becomes a drag after a number of pages, move to the next chapter, or put it down and pick up the next book that intrigues you. Don’t feel guilty for not finishing a book. Your goal is to learn. Even if that means stopping half-way. And read anything that’s interesting. It doesn’t have to be a book about investing. 90% of the things that makes me a better investor comes from books that have nothing to do with investing. The rule of thumb is: stay curious, and seek out what surprises you.