Record-setting investor Bill Miller says anyone who wants to make money in the stock market needs to read these 5 books
- Legendary investor Bill Miller continued to outperform the broader market long after his record-breaking 15-year winning streak came to an end.
- Miller said everyone who wants to invest should inform themselves with these five sources drawn from a century of stock trading knowledge.
- His choices give insight into Miller's own value investing style and how markets work.
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Bill Miller's market winning streak made him a historic figure, but he built on the work of previous investing legends to achieve his own success.
With the Legg Mason Value Trust, Miller beat the S&P 500 for a record 15 years in a row from 1991 to 2005. After a disastrous downturn during the Global Financial Crisis, he's back to his winning ways and outperforming his peers.
Business Insider asked Miller about the books he thinks every aspiring investor should read. Some of his picks have informed his approach to value investing, while others lay out key principles about how markets and investors behave.
(1) The value investing classics
Miller said Warren Buffett's shareholder letters and Ben Graham's "The Intelligent Investor" form "The value investing canon."
Buffett is among the world's wealthiest people and perhaps its most famous investor. He's known for laying out his thinking in letters to Berkshire Hathaway shareholders. Many investors prize them as a way to benefit from his six decades of experience.
Benjamin Graham is considered the founder of value investing, meaning Buffett, Miller, and others consider him a primary influence. Graham told readers that they should think of themselves as owners of a business and not just a stock. He emphasized investing for the long term and on valuing companies based on their fundamental performance even the stocks were unpopular.
(2) "Reminiscences of a Stock Operator," by Edwin Lefèvre
Lefèvre's book is based on the words and life of Jesse Livermore, who began investing in the late 19th century as a teenager and made and lost several fortunes over the course of his career. The book is still acclaimed by investors even though it's nearly a century old and Livermore worked in a very different, pre-Securities and Exchange Commission world.
"I used to read [it] every year, but I've had it pretty much memorized and so I don't have to read it quite as often now," Miller said. "It's probably the best book on how psychology operates in the stock market."
(3) "Fortune's Formula: The Untold Story of the Scientific Betting System That Beat the Casinos and Wall Street," by William Poundstone
In the mid-20th century, John Kelly of Bell Labs developed a formula to calculate signal issues over telephone lines. Over time, gamblers, investors and others realized it had important implications for their work because it could help them figure out how to allocate their money based on the amount of money they were risking, their odds of success, and their own track records.
Poundstone traces the history of that formula and other ways of betting and taking risks and profiles Kelly's coworker Claude Shannon, "the father of information theory."
"A much neglected, great book," Miller said.
(4) "A Man for All Markets: From Las Vegas to Wall Street, How I Beat the Dealer and the Market," by Edward O. Thorpe
Building on Kelly's formula and at times working with Claude Shannon, Thorpe's systemic approach was unique in its time: As a card player, he figured out how to beat casinos in the 1950s and '60s using computers, even using wearable devices to gain an edge. He turned his experiences into a successful card-counting book called "Beat the Dealer."
Later he turned his attention to the stock market, and since then he's run two very successful hedge funds.
"Ed Thorpe's autobiography is tremendous," Miller said. "I think everybody should read that."
(5) The works of Michael Maubossin
Miller recommends any book by his former Legg Mason colleague, a former chief investment strategist for Legg Mason, is now the director of Consilient Research for Counterpoint Global. His books include "More Than You Know: Finding Financial Wisdom in Unconventional Places."
"They're academically sound, but written, in a very engaging narrative style," Miller said of Maubossin's works.