The best books to learn systematic stock market investing

Jason Kelly Author Of The 3% Signal: The Investing Technique That Will Change Your Life
By Jason Kelly

Who am I?

I am the author of The Neatest Little Guide to Stock Market Investing and The 3% Signal, among other financial books, and editor of The Kelly Letter. Despite having been ranked by CXO Advisory as one of the best stock-market forecasters, I gave up the practice in favor of price reaction. I realized that nobody knows where stocks are headed, myself included, and set out to find ways to beat the market without forecasting—and succeeded. My readers and I are now much happier and wealthier.


I wrote...

The 3% Signal: The Investing Technique That Will Change Your Life

By Jason Kelly,

Book cover of The 3% Signal: The Investing Technique That Will Change Your Life

What is my book about?

More than half of all stock-market forecasts are wrong, according to a CXO Advisory study. Even when a forecaster claims victory, it’s usually a coin-toss coincidence. What to do? Ignore forecasts in favor of rational price reaction. Instead of guessing the future, make your moves based on price change in relation to a growth target.

By targeting three percent quarterly growth and adjusting allocations to meet that goal, you can level the financial playing field and ensure a secure retirement free from the stress of noisy advice that doesn’t work. The plan’s simple technique cuts through the folly of human emotion by automatically buying low and selling high.

The books I picked & why

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Dual Momentum Investing: An Innovative Strategy for Higher Returns with Lower Risk

By Gary Antonacci,

Book cover of Dual Momentum Investing: An Innovative Strategy for Higher Returns with Lower Risk

Why this book?

I first encountered Gary Antonacci’s strategy in his paper “Risk Premia Harvesting Through Dual Momentum,” in which he called momentum “the premier market anomaly.” He found that combining absolute and relative momentum delivered optimal results. In this book, he shows how to boost performance with monthly switching among three asset classes in the following decision tree: Did the S&P 500 beat US bonds over the past 12 months? If no, own US bonds. If yes, did the S&P 500 beat global stocks over the past 12 months? If no, own global stocks. If yes, own the S&P 500. Just three funds could power this system: SPY (S&P 500), AGG (US bonds), VEU (global stocks ex US).


The World's Simplest Stock Picking Strategy: How to make money investing in the companies in your life

By Edward W. Ryan,

Book cover of The World's Simplest Stock Picking Strategy: How to make money investing in the companies in your life

Why this book?

I liked this book enough to write a blurb for it, as follows: “Any plan that would have led investors to Amazon, Apple, and Google is fine by me—and this one would have. Edward Ryan has created a systematic framework for owning what you know, a tried-and-true tactic.” No less a luminary than Peter Lynch endorses the idea, and in this book you’ll learn five steps to systematize it: list your life activities, extract stock ideas from them, rank those stocks, invest, and manage the portfolio. The second step is the most interesting to me; it’s where you consider which products and services in your life are most likely to keep a stock moving higher.


The 12% Solution: Earn a 12% Average Annual Return on your Money

By David Alan Carter,

Book cover of The 12% Solution: Earn a 12% Average Annual Return on your Money

Why this book?

This monthly approach uses three-month momentum to select two funds from a pool of four stock funds and two bond funds. The stock indexes are the S&P 500, S&P MidCap 400, Russell 2000, and Nasdaq, i.e. US large caps, mid caps, small caps, and tech. It’s not a revolutionary idea but provides a good introduction to major asset class switching, which runs circles around pundit guessing games. If you do nothing but swear off gut-guessing in favor of price reaction, you’ll beat almost everybody—including the supposed pros.


Global Asset Allocation: A Survey of the World's Top Asset Allocation Strategies

By Mebane T. Faber,

Book cover of Global Asset Allocation: A Survey of the World's Top Asset Allocation Strategies

Why this book?

This book traverses the world to find asset allocation best practices, from master investors to lesser-known but equally helpful ones. The main takeaway is confirmation that basic asset classes are all you need, nothing exotic. All of the best systematic portfolios simply rearrange the basic asset classes in slightly different ways. The upshot for you? As long as you confine your portfolio management to these core building blocks, you probably won’t go wrong. It sure beats buying a penny stock everybody’s talking about.


Quantitative Equity Portfolio Management: An Active Approach to Portfolio Construction and Management

By Ludwig B. Chincarini, Daehwan Kim,

Book cover of Quantitative Equity Portfolio Management: An Active Approach to Portfolio Construction and Management

Why this book?

Ready to roll up your sleeves? This book takes work but is worth the mental energy. It’s a departure from most rules-based material in that it advocates applying objective odds when making subjective judgments. I prefer an all-algorithmic approach, but tip my hat to this hybrid strategy—far preferable to mainstream financial-media dart-tossing. Established patterns exist and are exploitable. Big-picture tactics trump lucky breaks. How much better the world would be if more people understood that bonds are less volatile than stocks. This book confirms that tweaking essential portfolio management factors to eke out a slight advantage runs circles around the casino mindset.


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