Which Books to Read to Learn Fundamental Analysis and Value Investing?

“What books should I read to learn fundamental analysis / value investing?”

Abhirup Paul from Kolkata recently asked a query along those lines. My reply:

(A) Appetiser (For building interest)
1. One Up on Wall Street by Peter Lynch
2. The Intelligent Investor by Benjamin Graham

(B) Main course (Textbooks for skills)
1. Security Analysis, 6th edition by Benjamin Graham
2. Damodaran on Valuation by Aswath Damodaran (also check out http://pages.stern.nyu.edu/~adamodar/)
3. Financial Modelling by Chandan Sengupta
4. You can also checkout Prof. Pitabas Mohanty’s work (https://sites.google.com/a/xlri.ac.in/profmohanty/)

(C) Dessert (Additional reading)
1. Warren Buffett’s letters to shareholders at www.berkshirehathaway.com
2. Poor Charlie’s Almanack by Charles Munger

These should keep one busy for years. What do you think? Did I miss out on any essential reads?

8 thoughts on “Which Books to Read to Learn Fundamental Analysis and Value Investing?”

  1. Pingback: Aswath Damodaran: Good corporate governance cannot be legislated « Rubber Tyres --> Smooth Rides

  2. Common stocks uncommon profits for connecting the dots and creat a story line well in your mind before swinging your bat. 🙂

  3. Satyajeet Sir,

    As far as i have studied till now, i have got to know two kinds of people i.e. traders who basically speculate and the investors who do thorough analysis of a company. Now traders believe that it is good to move with market sentiments whereas investors believe in fundamentals of a company.

    My doubt is that – since certainly no. of traders are a very large in comparison to investors and if they (traders) all try to move with market unlike investors, then in the end how come they all lose money and only investors gain. I mean, the price of share/stocks in market are decided as per demand and supply, if traders are buying shares/stocks, prices are ought to rise and how come in the end company with strong fundamentals (least debt, more profit etc) which traders have overlooked wins the race.

    1. Hi Jasmeet:

      Thank you for your question! It can be rephrased thus:

      1. Why does a stock price deviate from ‘intrinsic’ or true fundamental value in the short-run?
      2. And why does it then, reflect intrinsic value in the long-run?

      It is a question that Benjamin Graham grappled with.

      In his epic book – Security Analysis, he says that the stock market is a voting machine in the short run. The traders – that you mention – bring in factors like emotions, speculations, along with intrinsic value. Thus, in the short run, a stock price is influenced by all sorts of things.

      In the long run, however, the stock market is a weighing machine. A stock price eventually gravitates towards its intrinsic value, i.e. influences like economic resources (balance sheet) and earning power (profit and loss account).

      You may then ask, Jasmeet, how and when does this switch take place? That is, from short-term influences (trader driven) to long-term influences (investor driven).

      Here’s the interesting thing: Benjamin Graham didn’t know. He was once asked about this in the US Congress (their parliament) and he said, “That is one of the mysteries of our business, and it is a mystery to me as well as to everybody else. We know from experience that eventually the market catches up with value. It realizes it one way or another.”

      Today, there is a lot of scholarly/academic research around this topic. It’s called Market Microstructure. But that’s an entirely different discussion.

      As a Value Investor, here’s all you need to know: In the long run, the stock market is a cold, unemotional, usually correct weighing machine.

      Let the traders keep voting with their emotions.

      Hope that answers your question, Jasmeet.

      1. Thank you so much Sir!

        Very articulately explained.

        I have read only One up on Wall Street and partially The Intelligent Investor till now. I am sure I am going to remember this question when in future I shall be reading The Security Analysis by Ben Graham.

  4. Hi Satyajeet

    I would consider to include the following books.

    1. The New Buffettology7 Oct 2002 by Mary Buffett and David Clark

    2. The Warren Buffett Way: + Website29 Nov 2013 by Robert G. Hagstrom

    3. Contrarian Investment Strategies: The New Psychological Breakthrough: Beat the Market by Going Against the Crowd5 Oct 1999 by David N. Dreman

    I have read Buffettology and Contrarian investment strategy. I liked both of them. Though Contrarian investment is little boring to read. If you read several books, you will come across hint of using contrarian strategy by many people. Only problem is no one is acknowledging him.

    I have question for you. I started reading security analysis, but some reason I feel it is outdated. Are you sure it is still valid book in current time. Sorry it might sound little silly asking hard core value investors like you about security analysis. This is my honest opinion.

    Babu

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