COMMENT
Four Books That Could Make You Money

By Ed Bowsher (TMFArkle)
November 28, 2005

My investment life got off to a poor start. I was over-confident, and thought it would be easy to make money. Needless to say, I was wrong.

I wish I'd read a decent book on investment before I started. So here's a review of four of my favourite investment books. You don't need prior investment knowledge to read any of them, but they're not just for beginners either.

The first investment book I ever read was The Motley Fool UK Investment Guide. The style is very accessible, and I learned the basic tenets of Fooldom, such as the importance of long-term investing and the miracle of compound interest.

This book is the best of the four for explaining some of the basic stock market concepts, and it doesn't just talk about shares. It also looks at the property market, bonds and pensions.

But if you really want to get to grips with the nitty gritty of accounts, then have a look at another book from the Fool: The UK Investment Workbook, which contains useful practical exercises.

Yes, I've written about the Fool's books first. That's because I think they're the most accessible of the four. Not necessarily the best!

I also like Investor's Guide to Analysing Companies and Valuing Shares by Michael Cahill.

Cahill is a former City analyst, and his book tries to get private investors to think like an analyst. That doesn't mean he throws lots of complex equations at you.

Instead, he stresses that investors should look at the overall picture first - "top down" investing. He thinks you should first consider which the most promising investment sectors are - for example, maybe, pharmaceuticals or retail.

Cahill points out that some sectors have a poor long-term track record - especially steel, cars, and paper and packaging.

Poorly performing sectors are often highly capital intensive, which means they have high "barriers to exit." If a manufacturer has spent a lot of money building a new car factory, it's going to be reluctant to close it down and let all that investment go down the tubes. So prices may be cut just to keep the factory moving.

Once you've picked some promising sectors, Cahill shows you to how to analyse companies. He looks at the relative merits of the price/earnings ratio, discounted cash flows, and several other methods. Beginners could understand these chapters, but they might also prove interesting to more experienced investors.

Finally, I'd recommend The Penguin Guide to Finance by Hugo Dixon, a former boss of mine. The front cover of this book says it's an "introduction", and it's true that you could read it, knowing nothing about finance or the stock market.

But it would be hard work, as Dixon races quickly through basic concepts so that he can get on to the more advanced stuff. However, the difficult stuff is good. I particularly like the chapters on mergers and investment bubbles.

I've just realised that this book has recently gone out of print. Still, if you can find a second-hand copy somewhere, snap it up!