2. Charlie Munger
3. Ben Graham
4. Phil Fisher
6. Peter Lynch
You may not consider all their writing “good.” I know some people who’ve told me Graham is hard for them to read. I can’t relate to that (I think he has the perfect textbook writing style) – but I can accept it. The writing styles of these six guys differ a little. Their reasons for writing, settings in which they wrote, audiences they wrote for, commercial concerns, etc., were a little different. And someone like Ben Graham is far removed in time from most of what you’re probably reading today.
A lot of what you’re reading today – this article for instance – is basically being written in the present day. You’re reading things written by people who wrote them quite recently. Obviously, that won’t be true when you pick up something by Ben Graham (the man died decades ago).
For me, Graham’s most important work – and the one you can get the most out of – is 1940’s "Security Analysis." The 1934 edition is the original. The 1940 edition is the rewrite. There are further revised editions. I don’t like them as much. So, I’d say the most important work of Graham’s that you’ll be reading is the 1940 edition of "Security Analysis."
How should you read it?
Not with a pen, notepad, calculator, highlighter, etc. Don’t read good writing the way you read bad writing. Don’t start by trying to cut it up. Don’t analyze it on a microscopic level. You can always do that later.
I remember something interesting in C.S. Lewis’ “Preface to Paradise Lost” (which is exactly what it sounds like). He mentions how students sit down with an epic poem – like Paradise Lost – and start underlining lines. They start highlighting the specific turns of phrase they think are so wonderful. This lasts a couple pages. Then they stop.
They shouldn’t have started in the first place. An epic poem is long. A book is long. "Security Analysis" is very, very long. It’s not a lyric poem or a PowerPoint presentation. Graham isn’t going to sneak in a key concept that hinges on one word and then never refer to again.
Most of what matters in something like "Security Analysis" is the stuff that isn’t said. One of my favorite sections of Security Analysis is about senior securities (bonds). I don’t buy bonds. I have no plans to ever buy bonds. But I like to listen to Ben Graham think about bonds. And I like to see what parts of Graham’s thinking – often not explicitly stated – can be applied to stock selection.
Books – especially good books – can be intimidating for a few reasons. One, you come with expectations that are too high. People have told you “Citizen Kane” is the greatest movie ever. You’ll be disappointed. There’s not much I can do for you there. Try to come to everything with an understanding that tastes differ. The chance that one person’s favorite movie is your favorite movie is low. You may love “The Intelligent Investor” and hate “Security Analysis.” Some people prefer the 1934 edition to (my favorite) the 1940 edition. Some people re-read Security Analysis and skip all the bond talk. Different tastes.
Another reason people are intimidated by books is that they’re permanent. They are products rather than a process. They feel like something you need to mine for information. This is because they don’t feel like “just a chat” when you read them.
A book should feel like “just a chat.” When you sit down to read a book, don’t imagine you are now going to try to extract pearls of wisdom from a tome Graham wrote before the U.S. entered World War II.
Just think: I’m going to have a nice chat with Ben Graham. If Graham came back from the dead and you found yourself at a party with him and wandered over there and he said 10 brilliant things and you only remembered 4 of them at the end of the night – you’d think it had been a good night. You’d tell yourself you learned something.
The same thing applies to reading Ben Graham as would apply to chatting with Ben Graham. Some of the things he says – for now – will fly right over your head. Others will seem super obvious to you. This last point is especially likely for new investors. New investors often think that a seasoned investor is stating the obvious when what he’s really saying is “In my experience, we tend to lose sight of this basic fact in the heat of actual investing.”
There are certain ideas that are very obvious in theory and yet need to be repeated over and over again because they are often forgotten in practice.
Unfortunately, a book of “pure theory” often reads best. It doesn’t teach you the most. But it reads best. It makes you think you know all the rules. It doesn’t get into the nitty gritty ambiguity of specific examples. The more theoretical a book is, the more judgmental it can be. Practical books have to be less judgmental or they’ll throw you out of the work.
One thing I love about Ben Graham’s books – and you should read them all, we’ll get to that – is how non-judgmental he is. Graham has very, very specific ideas of what works for him. But he does not go out of his way to dismiss other ideas. He admits when what worked for him is narrow. He says he doesn’t think some things will work for most investors. But he admits that different people will operate differently. He’s a lot less judgmental than many more recent value investing books.
So think of a book as a chat. Think of it as something disposable. It is not a book to put on a shelf. It’s ephemeral. Like this article. This article isn’t intimidating. Why not?
Because it’s disposal. You don’t have to read it 10 times over and over. Because it’s written – as much as I can manage – just like a little chat would be. And because you know it’s going to end. It may be long (for an article). But when you’re reading an article – you know it’ll end in a few thousand words at most.
This last point is important. Security Analysis is a big book. You need to break it into manageable chunks or you’ll say “I can’t read that. It’s too long.”
Each chapter is short. Look at the table of contents. Clock how fast it takes you to read a chapter (again, if you don’t know your reading speed – I’m guessing you’ll find it falls in the 250 words to 500 words a minute range). Then write down somewhere that it takes you about “x” minutes to read a chapter. Commit to reading only one chapter at a time. But when you do commit, actually commit. Always finish a chapter you start.
You’ll realize how silly the idea “I can’t read something this long” is. If someone published a 4,000 page book – we’d all think: “I can’t read that”. But how often have I read 4,000 pages in a year? Every year I read books that total way, way more than 4,000 pages. And, yet, I admit if you handed me one book with 4,000 pages my first thought would be that it’s not possible to read something that long.
Speaking of manageable chunks, I want to talk about reading a person rather than a book. Just like I said you want to think of reading “good books” as having a chat with the author – you actually want to take all his books together and compose a megachat with the man.
Now, I’ll admit I am guilty of supporting the idea of a canon, because I started my article today by plucking out 6 men (Buffett, Munger, Graham, Fisher, Greenblatt and Lynch) and thereby excluding plenty of other good stuff that’s been written about value investing.
Canons are good in one sense and bad in two others. The bad side of canons is that they exclude a lot of great writing that isn’t well known – they exclude entire people who thought important thoughts. The other bad side is that they often carve up an author’s work. So, for instance, Graham’s Security Analysis would be in a “value investing” canon but his “The Interpretation of Financial Statements” might not be.
A good example of this is Thomas Kuhn. You may have read “The Structure of Scientific Revolutions.” Terms from that book get used a lot. In that sense, we can call it “canon.” I kind of touch on some aspects of that book when I talk about how investors think – or how they ought to think about their own thinking.
Here’s the catch. I’ve read three books by Kuhn. I’ve read “The Essential Tension,” “The Copernican Revolution” and “The Structure of Scientific Revolutions.” This creates a bit of a problem for me discussing his best-known book. I’m probably thinking of things that aren’t in that book. In fact, in some cases, I know I am. And what I read in other stuff he wrote shaded my view of his best-known book in a way that’s different from if I’d only read that book.
And yet, I’ve never seen a reading list that is in any sense a canon and includes Kuhn’s other books. If you were reading canonical stuff, you’d read “The Structure of Scientific Revolutions” and nothing else the man wrote.
A reading list should be a list of authors rather than books. When I hear someone – as I recently did – say they’d read Lynch’s “One Up on Wall Street” but had never read “Beating the Street” – that’s baffling to me.
Here’s why. One plus one is always more than two when you’re reading the same author. You get special dual book bonuses for reading two of Lynch’s books. They aren’t structured the same way. They make different use of practical versus theoretical approaches. Their use of examples and personal history is different. But he’s exploring the same basic ideas (the stuff that has shaped him as an investor) and so he can’t help but really write the same book twice.
So, if you are ever lucky enough to read a really good book by some value investor – or whoever – that wrote other books, you’re next step is to buy those. Buy everything the man wrote. Read them all. This is common sense. It’s the way to get the best return on your investment.
It’s always harder to tackle a totally new author than to read more from an author you already have a rapport with. Once you’ve read three of Kuhn’s books you know how his mind works in a way you didn’t when you were halfway through that first one.
Phil Fisher is a good example of this. I have copies of all his different books. They’ve been collected now. Search for Kindle versions on Amazon. Check which books accompany which editions. It’s not hard to buy them all now.
Anyway, his books are not equally well regarded. The best is definitely “Common Stocks and Uncommon Profits.” But there’s absolutely nothing wrong with reading everything the man wrote. In fact, the more you read his other books the more you appreciate all of them.
This gets back to expectations. You might not want to be let down by reading Phil Fisher that’s less than what you read before. It’s second-rate Phil Fisher or Peter Lynch or Ben Graham or Joel Greenblatt.
It doesn’t matter. It’s more time to chat with the man. More connections to draw between everything he wrote.
You aren’t a critic. And you aren’t a miner. You aren’t digging for specific sentences of immeasurable worth.
You’re having a chat.
You can always go back to the book later and carve it up like a cadaver. But just read it like the author intended at first. He wants to communicate with you. He designed the book to best communicate his ideas.
Lower your expectations. Put down the pen and notepad. Relax. Listen. And let him talk.