Four Books to Read As The Economy Continues to Fluctuate

Having spent more than two decades as a venture capital executive, many of my friends in other industries often ask me if there are any books that I would recommend to aspiring investors or career professionals looking to spruce up their investment portfolios.

Reading is an excellent way to learn about finance and investment. One doesn’t need a Harvard MBA to start observing market trends and placing investments. Reading the right books can often equip an aspiring investor just as well as a course at a leading university.

As we near our fourth month of quarantine and I find myself with more down-time than ever, I decided to compile a list of the books that I find particularly appropriate for those looking to learn about investment.

Here are four selections from my bookshelf that I would recommend to anyone interested in venture capital, business, or even just economics in general.

The Intelligent Investor, by Benjamin Graham

Published in 1949 by Columbia Business School professor Benjamin Graham, The Intelligent Investor is the seminal work on value investing—the investment philosophy that emphasizes purchasing shares in companies that are undervalued by the market.

Value investing involves buying stocks in companies that, while sound in practice and in leadership, are experiencing some kind of downswing.

Patience is the key to successfully integrating value investing into your portfolio. Successful value investors look for undervalued companies with a plethora of upside, buy stock, and hold onto that stock until things begin to turn around.

Value investing is one of Warren Buffet’s key strategies, and he often credits Benjamin Graham for having developed the theory.

Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets,
by Nassim Taleb

Finance is complex; and the best way to become a shrewd investor is to consider the myriad different academic disciplines and theories that the field encompasses. Fooled by Randomness, which concerns primarily the statistical and psychological facets of randomness, is a great example.

Taleb argues that the world is far more random than we perceive it to be. Sometimes the models and data upon which many investors depend can be impugned by little more than pure random chance.

I like to consider this when thinking about my signature investment strategy – looking toward the markets of the future. By closely watching emerging market trends and the preferences of young investors, I can help insulate my portfolio against randomness not accounted for in many forecasts.

Taleb’s work forces investors to consider the roles data science and psychology play in investment – critical for finding success in this field.

The Little Book of Common Sense Investing, by John C. Bogle

Written by John Bogle, the late founder and CEO of Vanguard, The Little Book of Common Sense urges aspiring investors to place their money into index funds.

Index funds, he says, are low risk, low cost, and track with the markets writ large. By investing in an index fund, your returns will mirror those of the index as a whole, rather than falling victim to the booms and busts of one unique stock.

Picking individual stocks can be arduous and time-consuming. Choosing an index fund means you won’t have to worry about shorting the market – just invest your money and let the S&P do all the work.

In many ways, this is an ideal strategy for a first-time investor or a recent college student.

Capitalism, Socialism, and Democracy, by Joseph Schumpeter

Another post-war investment classic, this book resonates with me for a different reason than what the title suggests. An economist and political scientist, Schumpeter devotes portions to explaining the differences between capitalism and socialism, but I prefer the second half, where he introduces his famed theory of creative destruction.

Creative destruction, he argues, is all about what we today call, “disruption.” Schumpeter holds that technological innovation stemming from entrepreneurs disrupts markets and destroys traditional monopolies, giving way to new firms that take over and reshape the field.

Some of today’s major tech firms, like Google, Amazon, and Netflix, began as startups with an innovative new idea that transformed the tech industry, forcing out the established firms like AOL or Blockbuster, and giving life to new verticals like streaming and on-demand online shopping.

This fits perfectly with my investment strategy of seeking cutting-edge ventures that offer footholds in the future of the economy. Investors should keep Schumpeter’s wisdom in mind when looking for opportunities. Which firms will be the one to dethrone some of today’s industry leaders?