| By Philip Jenks Warren Buffett once said that All there is to investing is picking good
stocks at good times and staying with them as long as they remain good
companies. In terms of downplaying a challenge, this is almost as bold as a
(genuine) book published in 1912 called - Aeroplane Designing for
Amateurs.
The fact is, few investors are born with stockpicking skills wired into
their cortex, and most have to learn the hard way. One of the quickest ways
to pick up skills is to read around the subject. The quality and choice of
books has improved massively in the last 10 years. These are the titles I
recommend:
A good start is Richard Koch's Guide to Selecting Shares that Perform. In
it, he describes ten approaches to picking shares, shows how each is slanted
towards income or capital growth, and highlights the advantages and
disadvantages of each. For those who feel their investing is aimless or
lacks rigour, this is a book that will give you bearings. It is well
written, straightforward and practical.
Next is Magic Numbers by Peter Temple. Temple's simple and well-executed
idea is to bring together all the financial ratios used to analyse p&ls,
balance sheets, cash flow, share price ratios, and risk/volatility. For each
he provides a definition, gives an example, tells you where to find the
underlying figures, and explains what the significance of the ratio is. The
great American investor, Peter Lynch, quipped that investing without looking
at the numbers is like playing poker without looking at the cards. Magic
Numbers shows you how to look at the cards.
Among the best new books of 2003 is Analyzing Companies and Valuing Shares
by ex-analyst Michael Cahill. Valuation is a concept that many investors
struggle with, and the problem boils down to this: you may know that company
X is a well-managed business, but how do you know if the price you are
paying is good value? This book answers that question. It is also notable
for its excellent coverage of sector investing. As any seasoned investor
knows, companies in a sector tend to rise and fall together, and it takes an
exceptional company to buck the trend of its sector.
The allure of all things Buffett shows no sign of dimming, and there are
several good titles for those who want to learn how he has built up his
billion fortune. The shortest and most lucid account is The Midas Touch by
John Train. It describes how Buffett selects shares, with summaries of Good
and Bad Businesses. A different way to learn the same lessons is to read
the collection of Buffett quotations in Warren Buffett Speaks. This
collection mixes serious points with entertaining jibes and is thoroughly
satisfying. If you are a complete fanatic, you might as well go the whole
hog and buy Of Permanent Value. Despite its length (1,000 pages), it is
light in tone and very readable (time permitting).
Lots of fundamental investors use charts to corroborate their views, and,
arguably, those that don't should. The best book for outright beginners is
probably Alistair Blair's Investor's Guide to Charting. Blair is not a
chartist, so his stance is that of an observer, not a preacher. At the other
end of the scale is Technical Analysis of the Financial Markets, usually
regarded as the bible of technical analysis. In between are charting
manuals which describe particular methods of charting, such as Marc Rivall on Swing Trading.
One final thought: don't ignore the macro-economic aspects of investing. A
new title which is making a big noise in the States at the moment, and which
has just been published here, is Financial Reckoning Day by Bill Bonner
and Addison Wiggin. They argue that Western economies are due to enter the
'soft depression' that afflicted Japan for so long, and that individuals who
want to preserve their wealth have to choose their assets with utmost care.
It's a sobering message, and the easiest thing to do would be to disregard
it. But it's gaining credence in the US, and the authors certainly make a
powerful case.
All the above books can be bought through the Yahoo Finance bookshop.
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