Having browsed through six or seven investment related books, I found three to be of greatest value. Peter Lynch encourages us to pick individual stocks. Burton Malkiel emphasizes that we must pick mutual funds instead of individual stocks. John Bogle makes a case for index funds instead of mutual funds managed by a money manager. After reading these books, I was convinced of the value of making a simple portfolio composed of index funds.
One Up On Wall Street
How to Use What You Already Know to Make Money in the Market
This was the very first book on investing that I read. Peter Lynch was the manager of Magellan Fund at Fidelity Investments from 1977 to 1990, averaging 29% annual return every year! He wrote an influential book 'One Up on Wall Street' in which he outlined his investment philosophy. Basically, the idea was to research individual stocks thoroughly and making a personal judgment whether the stock will do well or not. In contrast, Bob Malkiel and John Bogle discourage picking individual stocks for investment — both encourage mutual funds / index funds.
Burton Malkiel is Professor of Economics at Harvard. In his book 'A Random Walk Down Wall Street', he emphasizes that predicting the performance of individual stocks is tremendously difficult. His position is in sharp contrast to Peter Lynch's philosophy. Bob Malkiel demonstrates several strategies for individual stock selection that do not work. He concludes that we should invest in broad market indexes or mutual fund portfolios which include dozens or hundreds of stocks.
John Bogle is the founder and retired CEO of Vanguard, the largest provider of mutual funds. Bogle revolutionized the idea of index investing. Index funds are mutual funds that track a well defined index. For example, the S&P 500. Bogle makes solid arguments in favor of index funds. This book is a must read.
After reading this book, one may wonder, 'Okay, I'm sold on the idea of index investing. What exactly should be the index funds in my portfolio? In what proportion?' There is the problem of "Asset Allocation" and there is no consensus on what constitutes a simple index fund portfolio. Read lazy portfolios for some ideas. Then read up on rebalancing.