5 Money Books That Changed My Life

March 14th, 2008 · No Comments · Subscribe to this feed

Up until a few years ago, I was a financial idiot. I had heard the term 401k, of course, but I had no idea what it meant. As I began to learn about investing and finance, I read probably 30 or 40 books. Some of them proved to be more useful than others. Here are five of my favorites.

The Richest Man In Babylon
Told as a series of short stories, The Richest Man In Babylon preaches basic money management truths: save at least 10% of your income, own your own home, and insure yourself against uncertainty but also advises not to become so obsessed with acquiring wealth that you don’t enjoy life. If you live a deliberate life and work hard, wealth is sure to be yours no matter your original circumstances. Timeless advice.

The Intelligent Investor
A seminal classic, The Intelligent Investor is a must-read for any investor. Before Ben Graham, there was no such thing as security analysis. He brought sanity and logic to what was before a superstitious profession. Central to his investment thesis is the concept of a Margin of Safety. You should only buy stock in companies selling for considerably less than they can be conservatively estimated as being worth. That way, you have a comfortable buffer if your analysis turns out to be incorrect. This newer edition includes in-depth commentary from senior Money magazine writer Jason Zweig

The Intelligent Asset Allocator
As far as I’m concerned, this is the only book on asset allocation you will ever need. In fact, the title of this blog was partly inspired by this book. Bernstein gives a solid overview of the mathematical underpinnings of modern portfolio theory while keeping it light enough for the non-mathematically inclined among us. If I could recommend only one book on investing, it would be this one. A bit difficult to work through but well worth the effort.

The Millionaire Next Door
The Millionare Next Door proves once in for all what many have long suspected: you can’t tell how wealthy somebody is by the house they live in or the car they drive. In fact, the vast majority of American millionaires are practically indistinguishable from the middle class. They live among us, work among us, and play among us. What’s different about them is their high propensity to save and a low propensity to spend compared to their neighbors. It is unlikely their friends and in some cases even their own relatives have any idea how wealthy they are.

Why Smart People Make Big Money Mistakes And How To Correct Them
The burgeoning field of Behavioral Finance deals with the psychology of decision making as it relates to personal finance and investing. In classical economics, it is taken for granted that individuals and firms always move to maximize their utility and act in their own economic best interest. Behavioral Finance disagrees, countering that households and firms are, surprise, human after all and suffer from the same biases and psychological blind spots you and I do in everyday life. They are suseptible to manipulation, confirmation bias, anchoring, and advertising. They often do things directly counter to their own self-interest for often unpredictable reasons. This book will teach you to recognize these irrational behaviors and hopefully innoculate yourself against them.