All sensible investors recommend investing using some mix of the two
techniques. Some recommend a highly value based strategy and some a more
technical based strategy. Both methods have merit: value based techniques
give preference to the fundamentals of a company, its income statement,
balance sheet and various ratios that can be calculated from information
published by and about companies. The technical methods base their
strategies on the underlying psychology of investment decisions and their
affects on price movements. In spite of it's premise, a surprising number
of investors do use technical methods when deciding when to buy and sell
stock (often in conjuction with value based methods). This effect is so
large that many claim that it works because so many people believe in it.
A Random Walk Down Wall Street,
Malkiel, Burton G. This is the bible for
the fundamentalists. If you read only one investment book this is
a good place to start. Some of the specific techniques are a bit dated, but
it is a sound introduction to investment.
Market Wizards,
Schwager, Jack D. This book and the the following one he
wrote: The New Market Wizards,
offer a serier of chapters about successful
investors who use a wide range of techniques. The author then tries to draw
lessons from the interviews and distill it into a trading strategy. The
books provide a good overview of many trading techniques, though there are
few detailed recommendations for particular trading methods. That said, I
highly recommend reading at least one of his books.
Peter Lynch is a popular author for the non-professional trader and one of
the few who actually offer good advice. He has written a number of books
filled with practical tips. Two of his titles are:
For the beginning trader this and the Motley
Fool (see below) are probably the best and most accessible sources of
information.
Investment Psychology Explained,
Pring, Martin, J.
The guru of
the technicians, Pring explains the psychology behind resistance levels
and the other signals used by the technical investors. His most famous book
is Technical Analysis Explained, which is the bible on the subject.
Motley Fool.
http://www.fool.com.
This is a web site started by two brothers
who wanted to test their non-conventional trading techniques. They set up a
web site, wrote a couple of books and have attracted a large following. Their
basic premise is that you should invest in some on the top Dow Jones stocks
based on various ratios that can easily be calculated from their annual
reports and earnings announcements. They claim their methods actually beat
market indexes.
The Alchemy of Finance,
Soros, George. Soros is one of the richest investors
on earth and made most of his money currency trading. He is famous for
'breaking the Bank of England' and getting rich in the process. This book
explains his personal philosophy of how markets move. It is rather abstract
and he attempts to apply it not only to the market but to world politics as
well. You will not learn any specific investment techniques from the book.
In spite of this it is still quite interesting.
Liar's Poker,
A supposedly true account of bond trading during the junk bonds days. Describes
some of the eccentric behavior of bond traders and the excesses caused by
their large bonuses.
Bombardiers,
Bronsen, Po. A humorous fictional account of a trading desk.
Where are the Customers Yachts?
A cynical view of stock trading, in particular
the greed of investment advisors and brokers is exposed.
Anything by and about Warren Buffet. Buffet is a self made billionaire
who made his money using value based investment. He does not follow fad
and only invests in business he can understand. The annual reports of
his company, Berkshire Hathaway (which can be downloaded for free) are
recommended reading by many authorities.
Good luck!
Basic Books
An Introduction to the Global Financial Markets, Stephan Valdez.
While not directly about investing nor providing any advice on investment
strategy, this book gives an excellent overview of how the financial markets
actually function. It covers a much wider range of subjects than most
investors will need, but introduces and explains all the terminology that
you are likely to encounter in other books.
Other Entertaining Books
Reminiscences of a Stock Operator, Lefevre, Edwin.
Is an old (over 70 years)
semi-biographical account of Jesse Livermore, one of the greatest stock
speculators of all time. In spite of its age it describes market psychology
that still applies today. It also desribes some of the dirty side of the
market which also still exists, though in different forms, today.
Some Things To Avoid
Elliot waves and anything related to them. Elliot waves are
'biorythms for the stock market' and are based on the
non-scientific notion that stocks
move in distinct long-term cycles that can be predicted accurately using
relatively simple mathematical formulas
without taking into account any other information. Most descriptions and
discussions about Elliot waves become emotional as Elliot wave proponents
attempt to defend their techniques in the face of contradictory evidence.
There are various more complex Elliot wave spin-offs, that are more
difficult to understand and even less reliable.
Other Basic Tips
Copyright 1997-2002, Alan Hodgkinson. All rights reserved.