5 must read books on investing .

So, recently I have been getting a lot of questions on book recommendations about personal finance and investing. So I thought why not share my top personal favorite books on investing and personal finance. The suggestions are going to be in order so don't just hop to book number 5 if you have not read the remaining books as there will be chances you might not understand the fifth book in the very first reading so consider these books in the order they are:

1. Rich Dad Poor Dad by Robert Kiyosaki: 

This classic is a must-read for young investors. Kiyosaki's view is that the poor and middle class work for money, but the rich work to learn. He stresses the importance of financial literacy and presents financial independence as the ultimate goal to avoid the rat race of corporate America.
The author points out that while accounting is important to learn, it can also be misleading. Banks label a house as an asset for the individual, but because of the required payments to keep it, it can be a liability in terms of cash flow. Real assets add cash flow to your wallet.
Kiyosaki advocates investments that produce periodic cash flow for the investor while providing upside in terms of equity value. Real estate investments and stocks that provide dividends are viewed favorably. The author advises that America's educational system is designed to keep people working hard for the rest of their lives and that the school system does a poor job of teaching people to create enough wealth so they won't have to work anymore. Kiyosaki also highlights the importance of tax planning.

Key Ideas:

• Assets are things that produce cash-flow. You become wealthy by accumulating assets.
• Rich people make money work for them, while most everyone else works for money
• Financial education is a key to success.
• Being rich = freedom
• Wealth comes from having enough assets, which generate enough income to cover all of your expenses. That way, there is enough left over to invest in more assets.

2. Dhandho Investor by Mohnish Pabrai

Before starting with the book let us know a few lines about the author. Mohnish Pabrai is an Indian-American Investor, businessman, and Philanthropist. He is the Managing Director of Pabrai Investment funds, an investment fund based on the similar model to that of Warren Buffett’s Partnerships in the 1950s. Since inception in 1999, this investment fund has given an annualized return of over 28% and hence has consistently beaten the S&P 500 Index
In Pabrai's word, Dhandho is a Gujarati word, which means ‘Endeavour that creates wealth’. In simple words, a dhandho investor is a ‘wealth creator. The Idia of the book is to invest in a business that is cost-efficient, less risky and can generate high- returns.

Low-risk high- return- This is the core concept of the book.

Moreover, Mohnish Pabrai’s idea to invest in businesses with low risk and high returns makes perfect sense. Isn’t the main aim of any investment is to get the maximum returns with minimum risks?
Mohnish Pabrai explains this concept with the help of a few case studies in the first few chapters. Here, he explained different successful investor who followed this low-risk framework to get the highest returns.
The case studies include the stories of Patels (who own over $40 billion in the motel assets in the United States), Richard Branson of Virgin Company, Laxmipati Mittal of ArcelorMittal- world’s largest steelmaking company and few more. These stories presented in the book are really inspiring and broadens the reader’s eyes towards low-risk investing.
Dhando Frame Work:

In the book, Mohnish Pabrai describes 9 principles of the dhandho framework for low risk and high returns. Here are the principles:

• Focus on buying an existing business
• Invest in simple businesses
• Invest in distressed businesses
• Always invest in a business with durable moats
• Few bets, big bets, and infrequent bets
• Fixate on arbitrage
• The margin of safety – always
• Invest in low-risk, high-uncertainty businesses
• Invest in the copycats rather than the innovators

I won’t go into detail about these principles here, as it will kill the fun of reading the book. Nevertheless, you have already got the basic idea of this framework.

Key Ideas:

• ‘Few bets, big bets, and infrequent bets’: Here, Mohnish Pabrai suggests that every once in a while, you’ll encounter overwhelming odds in your favor. In such times, act decisively and place a large bet. These are the adjacent scenarios of “Heads I win; tails I don’t lose much”.
•  Heads I win, Tails I don’t lose much: Means taking the bids that can give you super profits but if the bid fails it doesn't cost you much.
• Focus on the business moat, building a strong and long lasting moat can help you sustain your business. 

3. The Warren Buffet Way by Robert G. Hagstrom.

Robert G. Hagstrom presents the secrets of Warren Buffett. In this book The Warren Buffett Way, he covers how Warren became the world’s most successful investor. Hagstrom starts by discussing the early influences in Warren’s life. These include Benjamin Graham, the very first professional analyst to Philip Fisher, an investment counselor, and professor. The key to Warren’s success is that he stuck by his core principles to make investment decisions.

These principles were:

• Stop worrying about the economy
• Don’t buy a stock, buy a business
• Switch off the share market
• Maintain a business portfolio

Hagstrom broke down the concepts of how Warren Buffett invests into four simple easy-to-understand segments. He called it the four tenets and it helps other investors greatly simplify how they could be looking at an investment.

The business tenet
The first tenet is on the business of the company. In his book, Hagstrom wrote that we should be asking three basic questions about a business before we invest. They are:

• Is the business simple and easy to understand?
•  Does it have a consistent operating history?
•  Does it have good long-term prospects?

If we are able to answer “yes” to all three questions, that means the company we are studying is one that (a) we can understand, (b) has a good track record, and (c) bright future growth prospects. All are ingredients that make up a potentially great investment.

The management tenet
Secondly, after we understand what the business is about, we should be looking deeper into the management of a company. Here, we are also supposed to answer three questions about management:

• Is management rational?
• Is management candid to shareholders?
• Does management resist what the industry is doing?

If we are able to find companies that fit the profile above, we would have found management teams that are rational (and not delusional), honest, and have the ability to act independently. Such characteristics are actually quite hard to come by in a management team, especially if they are to appear concurrently. This makes it all the more amazing for you if you are able to find such a company.

The financial tenet
We now move on to the financials of a company. According to Hagstrom, Buffett focuses on a company’s returns on equity, profit margins, and reinvestment track record. A company must have a reasonably high profit margin, and a history of generating good returns on its retained earnings (this shows up partly via a high return on equity) before Buffett would consider it as a potential investment.

The valuation tenet
Lastly, we have to know how to value a company and have the discipline to buy it only when the price is right to us. Do note that Buffett thinks about the quality of a business first before focusing on its valuation. This means that he would only invest in a great company and not buy any company just because it has a cheap valuation.

Key Ideas: 

• Warren Buffett began his investment firm in 1956. The initial investment was just $100.
• By 1993, this amount became $8.3 billion.
• In 1965, he used the Berkshire Hathaway Firm as the holding firm for his investment
• Warren analyses every firm before investing. He doesn’t study the market; instead, he analyses the business.
• Develop the ability to say “no.” Don’t grab a deal even if it is not right. Wait for the right time.
• It’s wiser to buy a small group of the best businesses at decent prices. Don’t opt for a highly diversified portfolio, just for the heck of it.

4. "Value Investing and behavioral finance" by Parag Parikh

This is one of the best books written by an Indian author that I ever read. The book educates the readers about the much-needed topics that are ignored by most financial websites, books, and media.

The Value Investing and behavioral finance book is well structured and contains 12 chapters. Few of the best ones are- Understanding behavioral traits, Behavioural obstacles to value investing, Contrarian investing, Public sector units, Sector investing, Initial public offerings, Index investing & Bubble trap. I particularly enjoyed reading the chapters on Contrarian investing, IPOs and bubble trap.

If you want to get a good insight into value investing in the Indian stock market, then this book is a must-read. You can read the complete book review of Value Investing and behavioral finance book here

The books focus on core ideas like :

• Human Nature and mindset while investing.
• Contrarian Investing 
• Growth Trap 
• The Myth of IPO Investing  
• Commodity, PSUs, and Sector Investing

Key Ideas: 

• Focuses on value investing and manifests that over the long term, value stocks have given best returns to its investors.
• how to judge the keep your emotions in control during media hype and market lows.
• Looking beyond the euphoria and standing strong on your idea and principles.
• People see the end results of your investments, no one cares which way you do it. 

5. " The Intelligent Investor"

The final one on our list is what everyone calls the holy book of value investing.  The book has been a timeless classic. This is the book that Warren buffet proclaims to be the starting point of his investing journey. Buffet never fails to acknowledge the impact of this book and Gram's influence on his life and framing his ideologies. 

This book was written in 1949 and has been hailed by Warren Buffett as the best investing book ever written. Benjamin Graham is considered the "father of value investing." This paradigm advocates the purchase of stocks that appear underpriced relative to their inherent value, which is determined through fundamental analysis.

What’s unique about this book is its lack of "Rah! Rah! Anything is possible and anyone can do it!” rhetoric. It mostly takes the opposite approach, although it’s not without positive encouragement. It won’t tell you how to make millions, but rather how not to lose your shirt. The authors impart must-read basics to get you started in investing and keep you going for a long time, from recommended strategies and how to analyze stocks to a comprehensive history lesson on the stock market.

The reason I have kept this book at the last in the order is that this is the oldest book in my list of 5 Must Read books’, compared to the publication date of other books. As this book was written way back, you might feel like reading the 1940’s story. Further, it might be a little tough to maintain the momentum in the starting as few chapters are irrelevant to Indian stock market (you can ignore those chapters). However, the knowledge gained from completing the book will be worth it.

The other reason is if you follow the line as mentioned above it will be way easy for you to comprehend this massive chunk of knowledge. Basically, the book touches and covers every bit of the books mentioned above.  

Key Ideas: 

• Graham’s impressive “value investing” concepts have already made this best investment book, the bible for stock markets right from its first publication during 1949
• This investment book even comprises of comparison between the latest market trends, recent financial updates and Graham’s financial ratio concepts through examples
• Graham’s key investment concepts in the book even prove extremely useful in the existing market conditions
• The latest commentary of well-known financial correspondent Jason Zweig depicts existing market realities while bridging the ideals of Graham and giving the readers significantly deeper know-how of the application of Graham’s principles
• Stop paying too much attention to the stock market. Emotions influence trading.
• Don’t worry about the share prices on a daily basis. It doesn’t matter much.
• Stop worrying about the economy.
• Buying a whole business and acquiring shares in it are not different.

These books are my top 5 recommendation, they may or may not differ from your list. There are lot many books which can be more informative than these. So the list is limited but now exhaustive. Comment and let me know which of these have you read already and share your experience.