The Education of an Investor, Part 1

“Experience is the toughest kind of teacher — it gives you the test first and the lesson afterwords. Perhaps, by learning a bit of history, you can assimilate the lesson vicariously without bearing the costs.” – Burton Malkiel

I’ve been an ardent reader and believer in “How-To” books since, as a teenager, I read The Education of a Poker Player by Herbert Yardley. It was one of the first books published which addressed poker from a mathematical perspective. What an eye-opener, because it proved (to me, at least) that there is a huge difference between a professional with a well thought out strategy and someone who merely played poker by relying on hunches and the appearance of Lady Luck.

About the same time, I also read How to Play Winning Checkers by Millard Hopper. While not exactly an investment book, it was useful nonetheless, especially if you were willing to practice until you had your winning strategy down pat.

Based on personal experience, it is definitely possible to improve your game by reading “How-To” books.

The concept of learning how to win at a game gives rise to these two real world investment questions: Can someone actually “play” the stock market? Is investing just a “game” or is it something else entirely?

My perspective on this goes back decades (all right, a lot of decades) to when in high school, I first started reading books on the basics and fundamentals of finance and investing. I was intrigued enough to include the biographies of several very successful financiers such as J.P. Morgan, Bernard Baruch, the Rothschilds, etc. Of the many books I read on investing, these three titles stood out among the rest:

Extraordinary Popular Delusions and the Madness of Crowds by Charles Mackay

The Battle for Investment Survival by Gerald Loeb

The Intelligent Investor by Benjamin Graham

I had no idea that these books would one day be considered investment classics. At the time, I read them because the titles attracted me. I read them passionately, often nodding my head in agreement, or shaking my head in wonder at the collective brilliance. And after all these many years, they all continue to be available for sale, albeit in new and updated editions.

Now, there may be selective memory at work, but I cannot remember the titles of any of the other books, the ones which, apparently, did not become classics, merely used book store fodder.

How many and which books about investing should you read? Obviously, that depends on what you have already read, where you are starting, and what your investment goals are. For a beginning investor, though, a good book to start with would be Mutual Funds For Dummies by Eric Tyson.

For more advanced investors, there are several books you might consider, which I’ll discuss in future posts. Stay tuned.