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Bill Gates and Warren Buffett's 'favorite business book' offers decades-old investing insights that 'still hold up today'

Bill Gates says this 50-year-old book is still "the best business book I've ever read."

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Billionaires Bill Gates and Warren Buffett speak with journalist Charlie Rose at an event organized by Columbia Business School on Jan. 27, 2017, in New York.
Spencer Platt | Getty Images

Bill Gates has been blogging about his favorite books for nearly a decade, and there's one title he keeps recommending: "Business Adventures: Twelve Classic Tales from the World of Wall Street" by John Brooks.

Just this weekend, Gates reiterated his recommendation to The New York Times, calling "Business Adventures" his "favorite book no one else has heard of." "Warren Buffett loaned me his copy years ago and told me it was his favorite business book. Now it's my favorite, too," he told the Times.

In fact, Buffett gifted Gates his copy when they first met in 1991. Over the years, both luminaries have dubbed it "the best business book I've ever read."

The 52-year-old book is a collection of business articles Brooks wrote throughout the 1960s while working at The New Yorker. It details some of the most important events in 20th-century American business, and many of its lessons remain timeless, according to Gates. "Even though the world has changed a lot in the past 50 years, Brooks' insights still hold up today," he told the Times.

Long before GameStop, there was Piggly Wiggly

One of the book's chapters details a story that bears a striking resemblance to the recent GameStop saga, which saw Reddit users buy up shares from the struggling video game retailer to thwart professional short-sellers. The tactic retail investors used, known as a short-squeeze, sent shares of GameStop surging. The company's share price ballooned to $483 per share, before spiraling more than 90%. The stock is currently trading around $46 per share.

In "Business Adventures," Brooks details the efforts of a Tennessee grocer who attempted to take on Wall Street nearly a century ago. In 1916, Clarence Saunders founded America's first modern grocery store, called Piggly Wiggly. The concept was wildly successful, expanding into more than 1,200 stores across the country.

By 1922, Piggly Wiggly started trading on the New York Stock Exchange, making Saunders very wealthy. But when Wall Street discovered a few Piggly Wiggly franchises were going bankrupt, the company became the target of short-sellers, or Wall Street traders who were betting the company's share price would fall.

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To thwart the short-sellers, Saunders took out a $10 million loan, bought up large amounts of his company's stock, and convinced other investors to buy in — more than tripling its share price. Saunders told the press he was "about to beat the Wall Street professionals at their own game," Brooks writes.

Unfortunately for Saunders, the New York Stock Exchange caught on and suspended trading in Piggly Wiggly, which gave Wall Street traders more time to cover their bets against the stock. Shares of Piggly Wiggly ended up tanking and Saunders was forced to declare bankruptcy.

What you can learn from history's short squeezes

Similar lessons can be drawn from Piggly Wiggly and GameStop. Saunders took the short-sellers' bets against Piggly Wiggly personally, Brooks recounts. But experts say emotions won't serve you when it comes to investing, and you're better off judging an investment by its fundamentals rather than investor excitement.

"You need to recognize that you're wired to do everything wrong when it comes to money and investing," certified financial planner Brad Klontz, a financial psychology professor at Creighton University, recently told Grow. "If your fear of missing out leads you to day trading on speculative stocks," he says, "you're taking an approach that typically results in failure over the long term."

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The two short squeezes also showcase why many experts say that trading individual stocks — and particularly, dabbling in riskier moves such as short selling — shouldn't be part of your long-term plan.

"For somebody who's just a regular investor trying to save for their future, you shouldn't be spending your time trying to beat professionals when it's highly likely you're going to lose that game," Carolyn McClanahan, a certified financial planner and the director of financial planning at Life Planning Partners in Jacksonville, Florida, recently told Grow.

The "get rich slowly" path is probably the right path for the majority of people, Ben Carlson, a CFA and the director of institutional asset management at Ritholtz Wealth Management, told Grow. "People who spend more time messing with their investments, playing and moving around in trading and potentially overtrading, eventually that catches up to you," he says. "It's not a long-term strategy for most people."

Take it from Warren Buffett, who warned against stock picking during Berkshire Hathaway's 2020 shareholders meeting: "I don't think most people are in a position to pick single stocks," he said. "A few [are], maybe, but on balance, I think people are much better off buying a cross-section of America and just forgetting about it."

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