What are the Best Fundamental Analysis Books?
Fundamental analysis is the process of examining a company to determine the intrinsic value of its stock. It looks at anything that could potentially affect a security’s value, from the economy as a whole to microeconomic factors like company management.
Fundamental analysis uses real, publicly available data – such as a company’s earnings, revenue, profit margins, and other indicators – to assess a company’s potential for future growth. This article highlights the best resources to sharpen your fundamental analysis skills.
- Why is it important to learn fundamental analysis?
- Top Fundamental Analysis Books
- Final Thoughts
Why is it important to learn fundamental analysis?
The purpose of fundamental analysis is to help investors correctly identify which companies are strong and which ones are weak.
When investors think that a company is strong and likely to continue performing well, they will typically go long. This means they’ll make a purchase with the expectation that the stock will eventually rise in value – they will hold the stock for a long time.
Investors will go short on a weak company; they’ll sell stock when they believe it will drop in value, with the mindset that they will repurchase after the stock price is lower.
Top Fundamental Analysis Books
Fundamental analysis helps beginner and experienced investors alike make well-planned investment decisions, but it can also be tricky to master. Books by some of the most successful traders are a great way to educate yourself on the ins and outs of fundamental analysis, but there are so many on the market it can be difficult to sift through them.
This list is intended as an overview of some of the most-often-recommended titles to help get you started on this path.
Security Analysis was first published in 1934, immediately after the stock market crash in 1929. It’s arguably one of the most influential books on finance ever written. Since 1934, it’s sold over a million copies and been reprinted many times. Though it was first published over 75 years ago, it still provides a number of useful insights into the way the stock market works today.
This sixth version provides readers with “proven investment techniques” used successfully by Benjamin Graham and David L Dodd. Benjamin Graham is known by some as “the father of value investing,” and for good reason. His teachings have withstood the test of time even across broad market variations. This is a great book for an investor at any level to have in their collection. It’s quite long, and can be dry or inaccessible for new investors, but makes up for this through the breadth of knowledge it provides.
The sixth edition of this book includes extra commentary, including Warren Buffett’s introduction, but it also omits several chapters of important information from the 1940 2nd edition, placing this content instead on an accompanying CD. The modern version is a little more accessible, but experienced investors might find it worth their time to track down the older version for the expanded content or paying for the additional CD.
This book is the second volume in a 3-part investing knowledge series built around “Warren Buffett’s investing strategy.” Though it sells primarily through the name brand recognition (since Warren Buffett is one of, if not the most, well-known successful investors of our time), this particular volume is a great stand-alone read for anyone that is looking to learn more about investing.
The authors provide clear, concise walkthroughs of a variety of valuation methods, focusing on accounting, a key pillar of value-based investing. It goes deeper into specific financial statement analysis (building on what is covered in the first volume of Warren Buffet’s 3 Favorite Books).
They also go into detail about other ways to make money from the stock market, which is especially good for beginners that are looking to get their feet in the door. This book will help the reader have a better understanding of the stock market as a whole and how to get the most out of your investment choices.
It’s best for beginner-intermediate traders with some background knowledge, but who aren’t into more technical methods yet.
This book brings an authoritative approach on credit analysis from the experts at Standard & Poor. Credit analysis is the process of gauging an issuer’s ability to be able to repay interest and principal on a bond issue. Fundamentals of Corporate Credit Analysis provides practical, up-to-date and research-backed information.
This book is great for both analysts and investors alike. It can be used as a handy all-in-one guide book or as a very comprehensive training tool. Its third chapter, which focuses on the less-obvious “qualitative” factors which determine credit ratings, is particularly valuable. It’s sure to provide readers with the knowledge and the tools they will need in order to be highly successful at digging deep and determining an organization’s true value.
However, corporate credit analysis is a relatively narrow application of fundamental analysis; this book will likely be most useful for those already in financial and risk-management roles or students studying finance specifically. It is intended to be a reference and textbook rather than a “fun” read; it’s therefore somewhat dry. This doesn’t overshadow the fact that the information it offers can create an incredibly useful foundation in financial and strategic analysis.
Benjamin Graham was the greatest investment advisor of the 20th century. His “value investing” philosophy shields investors from substantial error and allows them to develop long-term investment strategies. Originally published in 1949, The Intelligent Investor is looked at by many as “The Stock Market Bible.”
Graham’s strategies have proven themselves over the years with market developments. Even in this revised edition, Graham’s integrity is still preserved from the original text. It has a cult following to this day, with many claiming it is the most important book you’ll need in order to reach your financial goals.
Despite being originally written in the 1930s, this book has aged very well. Some sections do read as a bit dated, but the underlying lessons are still valuable. Graham himself has a pleasant, humble voice. The more modern commentary in newer editions does add some helpful clarification but can also be jarring and distracting.
Some readers find it repetitive, but part of this book’s value is in how comprehensive it is. It’s a significant time investment, clocking in at over 500 pages long, but you can learn a lot from reading all of those pages.
The eBook version of this book is markedly less useful, and in fact many of the eBook graphics are poorly formatted and hard to read or even out of focus. You’ll get the most out of this book if you treat it like a college textbook – buy a used, hardcopy version and make notes in the margins, studying investing like a student.
This book, by Matthew Krantz, is a great supplemental book for those who already know a bit about investing and fundamental analysis, or for those just starting their research. It’s a good introduction to the subject and provides the reader with detailed information on the subject of investing.
It can seem a bit repetitive and overly simplified, so if you’re already very knowledgeable about the subject, this may be an issue for you. However, once you’re past the parts that seem to be redundant, there is great information to be found. It’s a good survey and background for those trying to decide whether to invest more time in understanding the subject.
Joel Greenblatt started an investment company called Gotham Capital which famously brought in over 40% in annual return over a 29-year period between 1986 and 2006. Like many of the authors on this list, he’s a follower of Benjamin Graham’s “value investing” technique, and this book provides a concise and clear outline of this strategy.
He claims that he originally wrote this book as a way for his children to learn about investing and earning money for themselves; he wanted to make the book be as simple as possible so that they would understand. However, it became a huge success, with people from all over discovering that his simple approach to investing was easy for them to understand as well.
It covers basic principles for successful stock market investing, as well as a “magic formula” that automates the process of buying good companies. This book is quite accessible and uses plain language and humor to teach investment strategies.
He also offers an online companion website which in many cases is more helpful (and current) than the book version. The book does not offer much in the way of ground-breaking or extra knowledge, but for beginners, or those looking for a humorous, easy-to-read introduction, it can be a great choice.
It’s not a coincidence that the most successful traders are usually the best educated and prepared. Fundamental analysis is a key tool to making educated, well-reasoned investing decisions in any market. Often, even conducting the most basic analysis on a company’s internal measures of success set you apart from the average investor trying to blindly “beat the market.”
Books are some of the best, low-cost methods to learn how to do this – regardless of how far along the investing journey you are, at least one and likely several of the books above can help you advance your knowledge of the stock market. Each book is packed with practical strategies and techniques to help you minimize risk and increase your long-term investing success.