Research 22 min read 5,054 words

Flourishing Tree's Reading List: The Road to "Financial Freedom"

English edition · Adapted from the Chinese original

“In my whole life, I have known no wise people (over a broad subject matter area) who didn’t read all the time—none, zero. You’d be amazed at how much Warren reads—and at how much I read. My children laugh at me. They think I’m a book with a couple of legs sticking out.” ~Charlie Munger

What is the purpose of reading? First, to expand understanding: if reading cannot raise the dimension of one’s understanding, then it is merely low-level repetition at the level of information. Second, to experience, through books, the emotions, thoughts, ideas, and experiences of others, and thereby to grow in one’s empathy for the world and for other people. Third, to enlarge one’s sense of time and space, so that one can think and solve problems from a higher-dimensional vantage of time and space. In short, we read in order to make the mind more hardcore, and at the same time to make the heart more tender.

Books can never be finished, for the new titles published each year are beyond counting. And yet books can be finished, for we need only read the most basic and most classic works of each discipline. Many beginners are greedy for more and for the new: those who study philosophy have read countless histories and introductions to philosophy, yet have never read Plato’s Dialogues; those who study economics have read countless textbooks and popular works, yet have never read Adam Smith’s The Wealth of Nations; those who study biology have never read Darwin’s On the Origin of Species; those who study geometry have never read Euclid’s Elements—and so on. All of this smacks somewhat of chasing the branch while forsaking the root.

Modern people often read the popular book rather than the classic, to say nothing of the fact that reading time has been all but overrun by fragmented information—so that, naturally, there is even less awareness of climbing high to see far and of surveying the path ahead.

We regard reading as an act of investment rather than of consumption. The focus of consumption is the money spent buying the book (or, in the subconscious, a focus on the cost already spent), and so one feels that not finishing it is a waste. The focus of investment, by contrast, is on the time cost about to be spent; so you come to attend to how much time you are prepared to invest in reading, how to find the chapters worth reading, and how to maximize the value.

Reading in itself has almost no value. It is the thinking after reading, the choosing after thinking, and the acting after choosing that hold value.

We have selected a set of investment-related books and present them along two dimensions. One is professional difficulty, from easy to hard—divided into Beginner, Intermediate, Advanced, and Master. The other sorts them by type: Psychology & Emotion, Risk & Crisis, Philosophy & Principle, Lessons from History, Cycles & Volatility, and Figures & Legends.

The standards of classification and the choice of books are limited by personal subjectivity, taste, and level of reading, and so are greatly imperfect; they serve only for reference. We hope thereby to spark everyone’s interest in investment books, along with discussion and recommendation. We will update and add to the list from time to time.

The reason we read the classics of investing is that wealth is the material foundation of an individual’s and a family’s “peace of heart,” the basic condition for our having more choices, and the firm backing for our creating more value for society. We hope that, by learning to invest, we may find a road to financial freedom.

Beginner

A Dog Named Money, Bodo Schäfer
Rich Dad Poor Dad, Robert T. Kiyosaki
How an Economy Grows and Why It Crashes, Peter Schiff / Andrew Schiff

Intermediate

The Art of Asset Allocation, David Darst
Money: Master the Game, Tony Robbins
The Intelligent Investor, Benjamin Graham

Advanced

Principles of Economics, Mankiw
Buffett’s Letters to Shareholders, Warren Buffett
The Simplest Thing in Investing, Qiu Guolu

Master

Security Analysis, Benjamin Graham
Common Stocks and Uncommon Profits, Philip A. Fisher
Pioneering Portfolio Management, David Swensen

Psychology & Emotion

The Crowd, Gustave Le Bon
Irrational Exuberance, Robert Shiller
Nudge, Richard Thaler

Risk & Crisis

The Black Swan, Nassim Nicholas Taleb
Too Big to Fail, Andrew Ross Sorkin
Against the Gods: The Remarkable Story of Risk, Peter Bernstein

Philosophy & Principle

Poor Charlie’s Almanack, Peter Kaufman
Value, Zhang Lei
The Most Important Thing, Howard Marks

Lessons from History

Principles for Dealing with the Changing World Order, Ray Dalio
Civilization, Modernization, Value Investing and China, Li Lu
A Random Walk Down Wall Street, Burton Malkiel

Cycles & Volatility

Mastering the Market Cycle, Howard Marks
The Theory of Surging Cycles, Zhou Jintao
Big Debt Crises, Ray Dalio

Figures & Legends

The Snowball: Warren Buffett and the Business of Life, Alice Schroeder
Reminiscences of a Stock Operator, Edwin Lefèvre
One Up on Wall Street, Peter Lynch / John Rothchild

A small survey: of these thirty recommended books, how many have you read?

We also invite you to share, in the comments, the investment books you think worth recommending—whether on this list or beyond it—with your fellow readers.

Why We Recommend Them

A Dog Named Money

Money has its secrets and its laws, and to understand them one precondition must be met: you yourself must genuinely have the wish. “Europe’s money coach” Bodo Schäfer uses a vivid financial fairy tale to teach you how to learn, from a young age, to command money rather than be commanded by it; how to think as the rich do, and rightly understand and use money; how to invest, find the way to accumulate assets, and reach financial freedom sooner!

Rich Dad Poor Dad

Robert Kiyosaki had two fathers. His “poor dad” was his biological father, a highly educated education official; his “rich dad” was the father of his good friend, an entrepreneur who never finished high school yet was skilled at investing. Through the wealth story of his own experience, Kiyosaki shows the utterly different views of money and wealth held by “poor dad” and “rich dad”: the poor work for money, while the rich make money work for them!

How an Economy Grows and Why It Crashes

To analyze the various phenomena of the economic realm in a way both professional and vivid is a formidable task. To let readers from nine to ninety see through, in a single book, the economic laws behind everyday phenomena is a task all but impossible. How an Economy Grows and Why It Crashes is just such a book. Through illustrations, humorous wording, and the plain art of storytelling, it takes economics down from its unreachably high shelf and sets it back on the kitchen table—where it belonged all along.

The Art of Asset Allocation

Asset allocation is like a navigation system: according to your goals, it sets the target proportions of your whole portfolio to invest in stocks, bonds, cash, real estate, and other assets. Only through careful planning and reasonable allocation can you realize your dream of wealth. This book is the classic work on asset allocation by David Darst, “Wall Street’s foremost authority on asset allocation.” It sets out in detail how to use modern concepts and tools of asset allocation, and the methods for increasing return and controlling risk across various market conditions—bull, bear, and balanced.

Money: Master the Game

Facing a future full of uncertainty, the money earned today cannot guarantee the savings of tomorrow; creating lifelong income is the method one must master. This book will help you: (1) create a guaranteed stream of lifelong income, so that you have income even without working; (2) face economic crises with calm, and safeguard financial security; (3) work not only for money when young, and retire in peace when old; (4) bring personal income to life, and let family income grow of itself; (5) leave your children a reasonable portfolio.

The Intelligent Investor

Graham was not only Warren Buffett’s graduate adviser at Columbia University’s school of economics, but was revered by Buffett as the “spiritual mentor” of his life. An American economist and thinker on investment, an investment master, the “father of modern security analysis,” and the founder of value-investing theory, his standing in the world of investing is equivalent to Einstein’s in physics and Darwin’s in biology. As a grandmaster of his generation, his doctrine and thought on security analysis sent an enormous tremor through the field of investing and shaped nearly three generations of important investors. Dozens of investment managers active on Wall Street today, each worth hundreds of millions, call themselves disciples of Graham—hence his honorific, “the Dean of Wall Street.” If you too are a value investor, this book is one you cannot get around.

Principles of Economics

Economics is a discipline that studies the ordinary affairs of human life. The reasons to study it: 1. It helps you understand the world you live in, for there are many economic questions that will stir your curiosity. 2. It will make you a shrewder participant in the economy, able to make sound economic decisions. 3. It will let you better understand the potential and the limits of economic policy. The distinctive feature of this book is that it stresses the application of economic principles and the cultivation of a way of thinking, rather than economic models. If you would learn the macroeconomics and microeconomics within the principles of economics, this book is the best choice.

Buffett’s Letters to Shareholders

Buffett, now ninety-one, can still “go to work tap-dancing every day”—in itself a marvel worth learning from. A lifetime of striving, weathering wind and rain, riding terrifying waves, treading peril as if it were level ground; his rich experience, his profound reflection, and decades of tempering have made his thinking exceedingly rigorous and precise. As is well known, every year Buffett personally writes a letter to Berkshire’s shareholders, each one running to tens of thousands of words in free-flowing abundance—reviewing the company’s performance and investment strategy, and offering his views on many topics of the day. Buffett’s shareholder letter is a gift he gives investors each year; what reason have we not to open it?

The Simplest Thing in Investing

Investing is in itself a very complex matter. At the macro level it involves a nation’s politics, economy, history, and military; at the middle level, the evolution of industry landscapes, advances in industrial technology, and shifts in the upstream and downstream supply chains; at the micro level, an enterprise’s development strategy, corporate governance, the caliber of management, financial condition, product innovation, marketing strategy, and every other facet. Can we cut through the complexity to the simple, and ask directly what the essence of investing is? Are there some simple, workable rules and tools that can bring us straight to that essence? Since investing has so many complex factors hard to grasp, can we try to grasp only the simplest things that can be grasped, and leave the complex factors that cannot be grasped to luck and probability? In this book we may find some ways of cutting the complex down to the simple.

Security Analysis

Investing is a kind of faith, and for a great many investors, great and ordinary alike, Security Analysis is the “Bible” of their investing faith. They are rational, persevering, and optimistic, because they are value investers. It often happens that a fine old work is supplanted by a poor new one, yet some great works withstand the test of time, and Security Analysis is just such a classic.

Common Stocks and Uncommon Profits

Buffett once said in an interview that his investment philosophy is 80 percent Graham and 20 percent Fisher; but study his later holdings closely and you will find that Buffett is in fact 80 percent Fisher and 20 percent Graham. As a top-tier investment master, Philip Fisher was exceedingly low-key and gave almost no interviews, so his renown among ordinary investors is not high. On its publication in 1959, this book, Common Stocks and Uncommon Profits, became the first investment work ever to make the New York Times bestseller list. Published sixty years ago, its exposition of the standards for growth stocks, of how to select them, and of the timing of buying and selling remains, to this day, a classic among classics, not in the least outdated.

Pioneering Portfolio Management

The Yale endowment, led by Swensen, is one of the best-performing institutional investors in the world over the long term. In this book Swensen sets out in detail the Yale endowment’s investment process and expounds the famous “Yale Model”—oriented toward equity investment, fully diversified in its portfolio, and boldly investing in alternative assets. With a clear and keen pen he analyzes the field of institutional fund management through and through, ranging over topics from the asset-allocation process to active investment management. He also cites a great many real and vivid cases to deepen the reader’s grasp of key concepts, such as contrarian investing, risk management, the selection of investment advisers, and dealing with market traps. Swensen’s investment maxims are both earnestly heartfelt and thunderously resounding, everywhere reflecting his original insight and contrarian thinking.

The Crowd

I recommend this book for several reasons. First, in the field of the social sciences—among all the many and varied books that study social behavior, social phenomena, and the traits of human groups—The Crowd is a very important monograph, worth our reading. Second, the book is very readable: the Chinese edition runs to fewer than two hundred pages, in three volumes of four or five chapters each, so it reads very smoothly. The ordinary social-science monograph is rigorous in logic and strict in inference, chapter and section flowing continuously, so that if you pick out a passage at random without reading what comes before and after, you cannot get into it. The Crowd, by contrast, has in each chapter and section a clear viewpoint and a clear conclusion; and much of the time you can feel the author’s rather fierce emotion coming off the page, so that for the ordinary reader its readability and its difficulty are both quite approachable. Finally, this is a book worth the modern person’s turning to now and then, to think and reflect upon. Though written more than a hundred years ago, to this day we still see, on many occasions, the appearance of the crowd’s group traits; sometimes we ourselves may even fall unwittingly into this psychological state, whether online or in life, and often lose ourselves in it. And this book gives us a key to self-awareness.

Irrational Exuberance

Irrational Exuberance explores the laws of Western financial-market fluctuation across a century of history; grounded in a review of the stock, bond, and real-estate markets, it diagnoses the structural, cultural, and psychological roots of crisis. Professor Robert J. Shiller warns in the book that the signs of irrational exuberance shown among investors have, since the financial crisis of 2008–2009, only increased rather than abated. Irrational Exuberance is far more than a description of the state of the market; it goes further to explain the forces that drive every market up and down. It shows how investors’ excitement drives asset prices up to dizzying and unsustainable heights, and how, at other times, investors’ despair forces prices down into panicked troughs.

Nudge

Economics is a science of choice. It tells you the principles of choosing and the way of thinking, helping you make the optimal choice on the road of life. But in reality, people find it very hard to make the optimal choice—even economists well-versed in the principles of choice. Why is this? How can we help people make better choices, and how can we, as far as possible, avoid errors in choosing? Nudge is the very book that sets out to solve these problems. Its title, Nudge, means to give you a gentle push, to draw your attention and lend you a bit of help; it is a book that uses the emerging discipline of choice architecture to tell you how to live more healthily, more wealthily, and more happily. And the foundation of this marvelous system of choice is precisely an important branch of traditional economics—the theory of behavioral economics.

The Black Swan

A “black swan” is an event that meets three characteristics. First, it has the quality of surprise—it lies outside ordinary expectation, that is, in the past there was no evidence to establish the possibility of its occurring. Second, it produces extreme impact. Third, although it has the quality of surprise, human nature drives us, after the fact, to concoct reasons for its occurrence, making it explicable and predictable. In short, these three come down to: rarity, tremendous impact, and after-the-fact rather than before-the-fact predictability. A few black-swan events can account for almost everything that happens in this world, from the triumph of ideas and religions to the turns of historical events, all the way to our personal lives. Taleb sums up the importance of black-swan events thus: “Almost everything in social life is produced by a few rare but consequential shocks and leaps.” “Life is the cumulative result of a series of major events.” “History does not crawl; it jumps.” In a word, black-swan events determine ultimate success or failure.

Too Big to Fail

As for the financial crisis of 2008, do we really know its true causes, what great events took place, how much it affected us, and what lessons it left us? I think it necessary to do a review of it. And Too Big to Fail is the most detailed book depicting the crisis of 2008. Its essence portrays this: the truth behind the subprime crisis was a liquidity crisis, and in that brutal contest between man and market, only those holding cash had the ability to survive, and only those commanding the lifelines of the national economy had the standing to survive. Summed up in a few words: cash is king; too big to fail.

Against the Gods: The Remarkable Story of Risk

Risk is less a fate than a choice; it depends on the degree of freedom we choose. From the ages of ancient Greece and Rome, through the Renaissance, all the way to the present, the author masterfully renders complex theory into fresh and captivating stories, describing how philosophers, mathematicians, scientists, thinkers, merchants, and scholars strove to make the future serve the present. His aim is to show us that risk is not only knowable but also controllable and masterable; that risk is nothing to be feared, for in modern society bearing effective risk often earns high reward, and managing risk has become a synonym for challenge and opportunity. Thus it is of great help to our better understanding, recognizing, and ultimately controlling of risk.

Poor Charlie’s Almanack

Buffett believes that without Munger’s influence on his investment thinking, he could hardly have risen above the thinking of his teacher Graham to achieve greater things. He said: “Benjamin Graham once taught me to buy only cheap stocks; Charlie changed my mind about that. This is Charlie’s true influence on me. To move me out of the limitations of Graham’s theory took a powerful force. Charlie’s thinking was that force; he broadened my horizons.” Poor Charlie’s Almanack is not merely a book about financial investing; it is, still more, a wise old man sharing with us the thinking and experience of a lifetime of success—how one can attain universal wisdom, how to think and decide better, and how to build one’s own system of thought. Munger was extraordinarily successful in business and was, in essence, a moral philosopher and a scholar. He read widely and was deeply learned, and what he truly cared about was the cultivation of his own morality and an ultimate concern for society. Like China’s Confucius, Munger’s value system worked inward and outward, advocating that through self-cultivation one reach the realm of the sage, and thereby help others. This book is worth reading again and again.

Value

Reading, thinking, practicing, and a curiosity for and exploration of this world made Zhang Lei understand from a very young age that, to pursue a career and a dream, one must make commitments to oneself, fix one’s eyes on the long term, and give it one’s whole attention and full effort. To learn, in different circumstances, the highest standards one can learn, and thereby gain the power of understanding and insight—this is the long-termism he has always held to. Zhang Lei’s thinking on investment, building his own system of knowledge and framework of thought, is the starting point for shaping investment ability. To find insight in a swiftly changing market requires not only mastering financial theory and business laws, but also a comprehensive review of history’s winding course, a thorough understanding of the ins and outs of current affairs, and, still more, an insight into the inner demands of people. Value investing is not mathematics or reasoning, and cannot be done on paper; it must, like the fieldwork of sociology, understand the real scenes of production and life before one can truly grasp what products consumers need and what services truly have meaning. One very important thing in life is to find a group of people you like and truly rely on, and do interesting things together.

The Most Important Thing

Howard Marks is the founder of America’s Oaktree Capital. Founded in 1995, Oaktree has, over twenty years of development, grown to manage more than 100 billion dollars in assets, with an annualized return of over 20 percent every year since its founding—a star and a legend of Wall Street. Howard is sought after not only for his investment performance; rarer still, he is an investor who loves to write. Just as Buffett writes his annual letter to shareholders, Howard has persevered in writing investment memos to his investors, to set out his investment philosophy, explain the workings of finance, and give his views on recent events. His memos have become required reading for many professional investors. Buffett once said: when I see an investment memo from Howard Marks in my inbox, the first thing I do is open it and read it at once. The Most Important Thing is, in fact, a distilled collection of the best of the investment memos he has written over the past twenty years.

Principles for Dealing with the Changing World Order

The development of the natural world follows laws, and everything runs along its own inherent track. People can, by certain methods, come to know it, experience it, and transform it in accordance with objective laws. In this book, Ray Dalio explores the laws and principles by which society and the world operate; he examines the recurring patterns and cause-and-effect relationships behind all the major shifts of wealth and power over five hundred years. He holds that behind these shifts lie timeless and universal laws. By examining many interconnected historical events, one can see the typical patterns, laws, cycles, and causes and effects of these shifts, and on that basis infer the future. The analysis and inquiry of this book are built on Dalio’s original big-debt-cycle and big-history-cycle frameworks; it reveals the timeless and universal forces behind change, looks ahead to the future on that basis, and works out how the world operates—distilling timeless and universal principles by which to respond properly to the present situation.

Civilization, Modernization, Value Investing and China

Li Lu says that from his youth he has been seeking two things: true knowledge and meaning. Later he understood that the two are in fact one. True knowledge is meaning! The meaning of life is to attain true knowledge, and thereby to make the individual, society, and the world more abundant, fair, progressive, and good. So-called true knowledge is not one-hundred-percent truth—there is no one-hundred-percent truth in the world. But true knowledge must have enough correctness to be useful, and it can be continually verified, falsified, corrected, and continually made to progress and improve. This book is his search for true knowledge across the largest possible dimensions of time and space.

A Random Walk Down Wall Street

Malkiel is both an outstanding professional investor and a scholar of deep attainment. In this book he blends investment theory and practice seamlessly, drawing fundamental analysis and technical analysis out of the firm-foundation theory and the castle-in-the-air theory, while recounting the famous investment bubbles and speculative manias of history—at once academic and accessible, at once lucid and convincing, guiding the investor step by step, in full confidence, across the market. The reader learns not only to analyze the potential returns of stocks and bonds, but also those of other investment opportunities, including the money market, real estate, insurance, gold, collectibles, and more. In an age when popular views change almost daily, this classic of Malkiel’s can find, amid the changes, the principles that do not change.

Mastering the Market Cycle

Cycles are extremely important in investing, yet there are at present few books devoted to them; those that exist either lean toward the analysis and explanation of cycle theory or focus on forecasting economic cycles and turning points. Compared with these, this book analyzes cycles more comprehensively and in more detail. More importantly, it tells us how to analyze and judge where in a cycle we stand. Drawing on his own more than fifty years of investment practice, the author systematically sets out the workings of cycles, analyzes nine major categories of cycles, and offers ways to respond to them. Though the book speaks of the cycles of the economic world, I believe that most of its content applies equally to the various cycles formed by human activity, including the shifts of industries, the succession of dynasties, the rise and fall of nations, war and peace, success and failure, and so on.

The Theory of Surging Cycles

The author was a pioneer of Kondratiev cycle theory research in China. As a master-level strategy analyst, from the subprime crisis of 2008 to the annual rebound of commodities in 2016, his grasp of the pulse of large-scale cycles was precise, earning him the title “the King of Cycles.” The main body of this book compiles Zhou Jintao’s important reports and research findings along a timeline, presenting comprehensively and completely his distinctive logical framework and system of thought centered on economic-cycle research and structuralism. Its content covers nearly all the major asset classes, including stocks, commodities, the dollar, gold, and real estate. Relying on a solid theoretical grounding, detailed data argumentation, and rigorous logical deduction, it leads the reader to appreciate the perfect fit among cycle theory, structuralism, and the allocation of major asset classes.

Big Debt Crises

The great majority of things happen over and over again; so by studying the laws of things, people can understand the cause-and-effect relationships behind them and formulate principles for a proper response. In this book, Dalio expounds debt crises and the principles for dealing with them through three parts: the big debt cycle model (the explanatory model); three important cases (an in-depth examination of Germany’s Weimar Republic in the 1920s, America’s Great Depression in the 1930s, and the financial crisis of 2008); and a comparative analysis of forty-eight historical cases and their data. In this way he dissects large-scale debt crises and shares his model, in the hope of lowering the probability of such crises occurring and of helping people better master crisis in the future.

The Snowball: Warren Buffett and the Business of Life

The author of this book is Alice Schroeder, formerly a managing director at Morgan Stanley, who came to know Buffett through writing research reports on Berkshire Hathaway. She was the first to suggest to Buffett that a biography be written recording the real Buffett, and Buffett, admiring her insight and her command of the subject, authorized Schroeder to write the story of his life. To write the book, Schroeder spent five years, spoke with Buffett for two thousand hours, interviewed two hundred and fifty of his friends, family, and colleagues, and pored over countless private letters and archives Buffett had never disclosed. So if you want to understand the Buffett closest to his real state, I think this book is the best choice. In reading it, what I attend to is what shaped Buffett the man and his extraordinary investment ability. None of us can become another Buffett, but he surely has some things worth our learning, to make us better versions of ourselves.

Reminiscences of a Stock Operator

This book is a biographical novel of Wall Street’s “King of Speculators,” Jesse Livermore. It looks back on Livermore’s ups and downs from his entry into the market at fourteen, analyzes the rules of the game of the financial markets, and distills the survival laws of the speculator. As a first-rate classic of investing, this book has not only inspired countless generations of investors but, for its profound portrayal of human nature, has been called “the only book about stocks that people who don’t trade stocks need to read.”

One Up on Wall Street

Peter Lynch, the famous fund manager. Some say his contribution to the fund industry is like Jordan’s to basketball. The Magellan Fund he managed achieved a compound annual return of 29 percent for thirteen consecutive years, and at its peak had more than a million holders—an investment record that broke all marks in the American mutual-fund industry. After retiring, he became a philanthropist. This book was written by Peter Lynch before his retirement, specially for the amateur investor, to teach them how to beat the professionals of Wall Street. It sets out Peter Lynch’s entire philosophy and method of stock selection, including how to pick ten-baggers, how to avoid the traps of stock selection, and how to decide the timing of buying and selling. The book contains a great many real-world investment cases, and may be called a vivid textbook of stock selection.

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