Financial statements and Excel spreadsheets are useful tools for assessing a company’s or deal’s financial parameters. Despite this, they frequently only communicate half the story due to a lack of important context information.
Context can provide crucial details that aid in understanding the motivation, strategy, and real-world insight behind specific decisions. Complementing your research with books and other resources, such as case studies, is essential for better understanding the complexities of the private equity market. When it comes to technical analysis and financial modeling, there’s only so much you can learn.
One of the greatest investors of all time, Warren Buffett, understands the value of information consumption. “Every day, read 500 pages like this,” he urged. “Knowledge works in this way.” It accumulates in the same way that compound interest does. You all have the ability to do it, but I guarantee that few of you will.”
When it comes to private equity, hedge funds, and venture capital, books provide invaluable insight into the minds of some of history’s most successful dealmakers — their adventures, achievements, and failures.
We’ve put together a list of our five favorite private equity books in this article. These books are jam-packed with fascinating stories, cunning financial dealings, larger-than-life characters, and innovative business ideas. We believe that every private equity investor should read them.
If you’re interested in investing in other asset classes, such as the stock market, we also recommend reading these books. “An investment in knowledge pays the finest interest,” stated Benjamin Franklin.
The Masters of Private Equity and Venture Capital
This book, unlike some of the others on this list, is based not just on the author’s experience working at various private equity firms, but also on the experiences of numerous industry pioneers. Author Robert Finkel interviewed and recounted the experiences of a number of private equity and venture capital heavyweights.
This book is chock-full of anecdotes and thought-provoking stories of remarkable accomplishment, tragic failure, and life lessons. We strongly advise finance professionals in capital markets, private equity, and investment banking to read it.
The featured articles are broad in scope and provide useful context without delving into quantitative analysis or the complexities of valuations, deal structure, and so on. Finkel instead focuses on subjects such as identifying new markets, selecting management, and applying private equity techniques to non-profits.
“A good read for someone desiring a qualitative look into the world of private equity and venture capital,” one reviewer commented. Key elements of an investing thesis are revealed through conversations with reputable investors, allowing the reader to examine and contrast different tactics for success.”
The book takes a new method to defining strategy in Competition Demystified. Authors Bruce Greenwald and Judd Kahn make competitive analysis easier by emphasizing “barriers to entry” as the most important sort of competitive advantage. You will find value in this book whether you are running a startup or working in private equity and are focused on executing leveraged buyouts (LBOs) or doing due diligence.
This book appeals to us because it questions Michael Porter’s “Five Forces” paradigm, which is a standard in every business school casebook. While the five forces model has its place in competitive analysis, Greenwald and Kahn believe it is overly complex and leads to ineffective business strategy.
There are three types of competitive advantage, according to the authors: supply advantage, demand advantage, and economies of scale. The book goes on to discuss how to make the most of each opportunity. There’s no rationale for a private equity fund to invest if a company doesn’t have a clear edge in any of those categories (as evidenced by consistently strong returns or market share).
The authors state, “Either existing enterprises inside the market are protected by obstacles to entry or they are not.” “No other aspect of the competitive landscape has as much bearing on a company’s performance as its position in relation to these obstacles.”
Barbarians at the Gate
Bryan Burrough and John Helyaran’s investigative journalism blockbuster Barbarians at the Gate chronicles the demise of RJR Nabisco. It characterizes the economic atmosphere in the 1980s, when small and medium-sized firms – as well as some larger ones – were bought out for their assets or the real estate they occupied. When the profit from selling their assets exceeded the cost of purchasing, businesses were dismantled and closed.
This book is an excellent resource for learning about RJR Nabisco’s corporate finance strategy, the history of leveraged buyouts, and the importance of junk bonds in LBOs, among other things.
Hundreds of minor characters (all personally interviewed by the authors) and dozens of main characters are included in Barbarians at the Gate. It explains how money, legal maneuverings, and personal ties influence high-level strategy and finance. Hubris, avarice, and egos can be horrible in some circumstances.
This is one of the best books to read if you want a close look at how the sausage is made — an unpacking of corporate interplay, several business deals, and how people make change, even at the sacrifice of profit. This book is for you if you want to learn about the human and psychological aspects of private equity.
The Outsiders: Eight Unconventional CEOs and Their Radically Rational Blueprint for Success
Have you ever pondered how a CEO achieves success? What does it take for a leader to lead a company to success? Is there a secret plan that they stick to? Will Thorndike analyses a leader’s attributes and how they affect the overall worth of a company’s stock in his book The Outsiders (as opposed to short-term metrics like earnings or sales growth).
The book takes you on a journey through the lives of eight “outsiders” – CEOs whose companies surpassed the S&P 500 by a factor of twenty. Each CEO’s name may be unfamiliar to you. Teledyne, Capital Cities Broadcasting, TCI, General Dynamics, General Cinema, Ralston Purina, The Washington Post Company, and none other than Berkshire Hathaway will be familiar to you.
These eight outsiders are exceptional in that they stressed independent thinking over following the newest management or investing trends, rejecting Wall Street and the media. These leaders, on the other hand, possessed certain characteristics that helped them (and their firms) succeed, such as the capacity to distribute money and human resources and a laser focus on cash flow. This book may seem paradoxical at times, but the achievements of these eight industry heavyweights speak for themselves.
Furthermore, specialists in the field have praised this book. “An wonderful book about CEOs who excelled at capital allocation,” Warren Buffet said. It was the first book on his 2012 Berkshire Hathaway Annual Shareholder Letter’s Recommended Reading List. It was also selected one of Business Insider’s “19 Books Billionaire Charlie Munger Thinks You Should Read.”
If you liked The Outsiders but wished each story had more depth, Cable Cowboy is the book for you.
This book chronicles the story of John Malone, a finance person who became the CEO of TCI, a small debt-ridden Denver cable company, at the age of 29. He was hailed as a hero by some and accused of villainy by others. He developed a media monopoly that controlled the cable television business over the following 25 years by executing brilliant but complicated financial arrangements that occasionally flouted the regulations.
Malone was regarded as one of the most astute business minds of his day. His rate of mergers and acquisitions was unrivaled. For 15 years, he averaged one deal every two weeks, increasing the value of his company’s stock from $0.75 in 1974 to $4,184 in 1997. He was, however, a divisive personality who was known for “overpromising” about his company’s capabilities and for using litigation to disrupt competitors and seize markets.
The book’s most important lesson is on value creation. Malone’s success did not come from gimmicks or short-term thinking. He established plans for the next ten and twenty years. He realized that making judgments over a lengthy time horizon yielded the most value.
Malone was also noted for his ingenious financial structures, which many of his contemporaries found befuddling. At the time, his use of debt finance and tax postponement was unprecedented. This book will show you how much of a difference an astute leader can make if he or she has a strong grasp of finance.