For those who have had the pleasure of completing an undergraduate finance program, it is a mild surprise (to say the least) to find that the real world of finance and investing is quite different from the efficiency-laden lessons of academia.
While this is frustrating to those who paid the price in time an tuition, it should be encouraging to the average investor who has no formal education in the subject. The truth is, right now, retail stock pickers have the same tools and tricks available to them as the world's most successful investors.
So, in the spirit of summertime leisure, here is a hot list of books for investors that will get you on par with the very best.
The Classic Text
To recommend "The Intelligent Investor" is by no means a novel idea (pun absolutely intended), but it is, by far, the greatest quick read on the subject of stock picking. Written by Warren Buffett's mentor, Benjamin Graham, "The Intelligent Investor" provides the mental lattice all investors would do well to cling to.
Sure, the book champions value investing, which is not the only way to invest, but it can help investors of all kinds -- even those interested in the next big technology winner.
Graham spells out the difference between speculation and investing -- a concept that is often cited but which few seem to truly espouse. The Columbia professor and investing guru uses the allegory of Mr. Market to describe the battiness of the public markets, and how you can use that to your advantage.
While academic finance touts Efficient Market Theory -- the idea that securities are priced with near perfection at all times -- Graham posits nearly the opposite: Stocks can fall out of favor for reasons that do little to reflect the intrinsic value of a company -- creating a price rift. Graham, Buffett, and the majority of the world's greatest stock pickers believe that stocks drift toward that intrinsic number over time. Their track records support the claim.
With clear explanations of concepts such as margin of safety and defensive investing, "The Intelligent Investor" should be No. 1 on every investor's reading list.
The Everyman Investor's Bible
Peter Lynch, vice chairman of Fidelity's investment advisory and former manager of the Fidelity Magellan Fund -- the strongest performer of its (and his) kind from 1977 to 1990 -- is great at writing simple, actionable investment lessons.
"One Up on Wall Street" is the shining example on the subject of DIY investing.
Though "The Intelligent Investor" is itself a very readable, simple book, Lynch's classic explains in plain language strategies you may already employ. For example, Lynch loves "buy what you know," the art of walking down the street and observing which brands are moving fast and which stores have lines out the door -- and basing your investments on that acquired knowledge.
Lynch doesn't focus on bargain-hunting for stocks, but instead the search for no-brainer ideas. This book is great for the average investor who doesn't necessarily want to spend every off hour reading SEC filings. Instead, Lynch might point you toward the mall -- or today, perhaps Amazon.com (AMZN) -- for a nice, informative stroll; or instead, advise you to just keep an eye out around the office. Any new machines in the copy room that people seem to like?
"One Up on Wall Street" presents a very, very simple methodology for investing -- and keep that in mind. Without doing any further due diligence, investors might have found that airlines, for example, might have fit the description, but those have been far from "10-bagger" investments.
Rough Name, Good Game
The third and final recommendation for your summer investing reading list has a title that's a bit cheesy, but is rich in valuable content. "You Can Be a Stock Market Genius," authored by special situations genius and fund manager Joel Greenblatt, is a slightly more in-depth book of investing strategies than the two books above, and that centers around, unsurprisingly, special situations.
Greenblatt used his own formula (now known as the Magic Formula) for finding hidden investments that were neglected by the market. In doing so, he achieved one of the best records in history -- an average of 50 percent annual gains for a decade.
Readers will learn the art of hunting down spinoffs, restructurings, merger securities, rights offerings, bankruptcies, and risk arbitrage -- all in a way that requires, at most, only high school-level math knowledge and an interest in beating the stock market.
It's not as simple as Lynch's book, or as defensive as Graham's bible, but Greenblatt's is a book I still refer to today for help in generating investment ideas.
Too Good to Be True?
By reading these three books, are you guaranteed to start beating the market and holding the most enviable portfolio on your street? Not necessarily. Investing is far more an art than a science -- one cannot achieve perfection, and it is a constantly evolving practice.
What these books can do is give you one of the best foundations possible for building long-term investing success. And, as icing on the cake, you don't have to spend $200,000 for a diploma to achieve it.
Michael Lewis is a contributing writer to The Motley Fool.