Classic Finance Books, Reviewed

The Analysis and Use of Financial Statements
by: Gerald I. White, Ashwinpaul C. Sondhi, Dov Fried

There are thousands of books on accounting and analysis of financial statements. I am dozing off just thinking about most of them. But if you need to learn how to rip-to-bits and put-back-together financial statements and come out smelling of ratios, you need this colossus of a book. It is the mother and father of accounting books. No surprise then that the Chartered Financial Analyst Institute has relied on it for so long. Take a well used copy of this into a meeting with a S&P 500 CFO, and he will gulp and cry for mummy. And at over 1,200 pages when you have finished reading it you can use it on a hill to stop your car rolling away. Readers of this book, I salute you.

The Analysis and Use of Financial Statements

Modern Portfolio Theory and Investment Analysis
by: Edwin J. Elton, Martin J. Gruber, Stephen J. Brown, William N. Goetzmann

Attention, Geek Alert! If you ever meet an investment professional who says he has read and understood all the chapters in this book, call the Men in Black as you are in the presence of a mad alien with a brain the size of Texas. For us Earthlings who are merely averagely clever investors, ownership of this book can make you feel like a financial Homer Simpson, as it highlights so much theory and practice we are are unfamiliar with. On a more serious note, it’s not designed for merely good investors and practitioners. It’s for the best of the best. But I am not saying the whole book is beyond practical use. There are many chapters that are excellent, clear and will add enormous value to anyone involved in managing money, but whenever I hold it, I am filled with a deep sense of foreboding in the total awareness that over that next page I could find my intellectual nemesis or my next Homer Simpson impression. Doh!

Modern Portfolio Theory and Investment Analysis

Irrational Exuberance
by: Robert J. Shiller

This is a classic. An unusally readable discussion (for a finance book) of the insanity of markets and how investors collectively push prices to unsustainable levels on greed. It could have been written about 1929, the tech bubble or the latest debt bubble. The issues are timeless; greed, fear and panic. Superbly written and totally thought provoking. It taught me more about real life investing than all the accounting, quantitative and economic textbooks I ever read.

Irrational Exuberance

The Wealth of Nations
by: Adam Smith

If Irrational Exuberance (detailed above) is a modern classic, then The Wealth of Nations is the first classic book on finance and economics. It was first published in 1776 so don’t expect it to be as easy to read as a comic, but it is an absolute must if you want to understand how economics and finance developed to become the backbone of modern society. Take a beaten up copy of this into your finance, economics or MBA lesson and accidentally let your professor see it. Just watch those grades improve. He/she will be in awe!

The Wealth of Nations