How to Analyse Stocks

5paisa Research Team

Last Updated: 31 Jan, 2023 06:03 PM IST


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Investing in the capital market is a child's play for a handful but a costly mistake for a significant majority. Conservative estimates suggest that over 95% of all investors lose money in the capital market. Hence, it is essential to study hard and analyse the momentum of stocks or other financial instruments before putting your hard-earned money at stake. In this article, you will find information about the five best trading books successful investors read to sharpen their trading skills.

5 Books You Must Read to Become a Super-Profitable Trader

Here are the five best trading books you may study for becoming a successful investor:

1. One Up On Wall Street by Peter Lynch

This is one of the best trading books, having sold over a million copies globally. In this seminal book, Peter Lynch, America's No. 1 money manager, encourages average investors by stating that they have a unique advantage over professionals.

He shows some unique ways how an average investor can beat professionals by following some simple rules. He also shares some foolproof tips to sort the 'tenbaggers' (stocks that can rise ten times from their current level) from the rest and invest in them. He teaches the best way to review financial statements and know which numbers count and which do not.

After reading the book, you can identify which companies are cyclical and which are turnaround or fast-growing. What made this book an epic trading book is Peter Lynch's classic advice urging people to stay invested for anytime between five and fifteen years to make profits from the market.

As an investor willing to make it big in the capital market, you must reserve some time to read this New York Times Bestseller.

2. A Random Walk Down Wall Street by Burton Malkiel

This book is the second on the list of best trading books for a reason. Although this book was first published in 1973 and is presently in its tenth edition, the concepts discussed here are timeless. Through this book, the author introduced the concept of 'Efficient Market Hypothesis,' a theory which states that stock prices are always at their fair value, and hence, technical or fundamental analysis can seldom generate extra returns. He argues that it is nearly impossible for an average investor to beat the market's collective wisdom to make a profit unless the investor has access to exclusive news or can analyse the market perfectly.

The book is also popular for its observation that mutual fund managers do not have a magic wand in their hands to pick profitable stocks consistently. The book received a poor review from Businessweek that termed it as 'garbage.' However, when it started finding takers, it became a bestseller, selling more than one million copies globally.

You must keep this book on your bookshelf if you want to know some unique ways to build a portfolio, as the book can teach you indexing, diversification, bubbles, trends, etc.

3. The Intelligent Investor by Benjamin Graham

This is by far one of the best trading books and is referred to as the 'Bible' of the stock market. The book targets value investors and explains the process of value investing. Incidentally, Benjamin Graham is the mentor of Warren Buffet.

The book clearly explains the difference between a defensive and aggressive investor. It also explains risk management and market behaviour in detail.

After reading this book, you can pick undervalued stocks with a solid growth potential more conveniently. You can also learn to evaluate a company based on its growth potential, management quality, capital structure, financial history, and dividend.

The only downside of this book is that you may find the first few chapters irrelevant for the Indian markets. However, if you are a value investor, this book must be there on your bookshelf.

4. The Little Book That Still Beats the Market by Joel Greenblatt

Although this book is smaller in size than the other books you have seen so far, it is considered a classic and one of the best trading books for conservative and aggressive investors. Here, Joel Greenblatt offers some foolproof strategies and tips, besides a formula, investors can use to spot bargain deals. The formula contained in the book applies to all, including the Indian markets.

You can find information about the recent global financial crisis and backtesting data from 2009. What makes this book one of its kind is the fact that the formula can withstand the test of time, even if millions apply it in real-time. This book is well-suited for investors willing to pick top-class value stocks that can outperform the market in both good and bad periods.

This 147-pages power-packed book is a must-have for all investors willing to make it big in the capital markets but not enough time to research like a pro.

5. How to Avoid Loss and Earn Consistently in the Stock Market by Prasenjit Paul

This 242-pages Amazon India bestseller is one of the best trading books in the market. The book clearly explains why, despite the proliferation of free trading resources in the market, 80% of investors suffer losses. The author shares the tips he uses to make consistent profits from trading.

After reading this book, you can find fundamentally strong businesses at ease. You will also discover ways to buy and sell stocks and minimise losses. As a bonus, you can get a 2-minute strategy for shortlisting or rejecting stocks.

Although this book might not be as extensive as the other books discussed here, it is still a comprehensive resource you should scan before setting your foot in the market.

Read to Know, Study to Make Profits

While the best trading books mentioned above can give you a jumpstart into the field if investing, you can make profits only after mastering the concepts and testing it with real money.

Visit 5paisa to experience low-cost stock trading. You can access the free resources on the website to improve your trading skills and trade like a pro.

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