Book Review

The Basics of Value Investing

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The stock market is filled with individuals who know the price of everything but the value of nothing.

– Phillip A. Fisher

*Phillip A. Fisher was one of the greatest pioneers of growth investing. His contributions to investors include Conservative Investors Sleep Well, and notably Common Stocks and Uncommon Profits.

Some investors believe that growth and value are two opposite extremes, be one or the other. But the reality is, as Buffett puts it; value and growth are actually joint to the hip. Growth is always a component in the calculation of value, constituting a variable whose importance can range from negligible to enormous and whose impact can be negative as well as positive. Value Investing: From Graham To Buffett and Beyond written by Greenwald, Kahn, Sonkin and Van Biema greatly captures the framework that is value investing.

f08b2e_d04cf826cfec438ba52c2102c30c8651-mv2The book consists of three parts, this includes an introduction to (I) value investing, (II) three sources of value, and (III) value investing in practice. This book provides a wonderful application of the three sources of value (part II) with a case study of WD-40 and Intel, explaining in detail the valuation process. In addition, it profiles 8 of the very best investors, from Graham to Buffett, to Edwin and Walter Schloss and beyond.

Below I will briefly review some specifics of part II; the three sources of value, as I believe it is critical in investing, and would be highly beneficial for anyone looking into this field. I will generalize the concepts in part II, but I strongly recommend that you give this book a read to truly understand the frameworks and the information it intended to provide. 

Greenwald et al. places emphasis on valuation as follows: The value of assets, earnings power value (EPV), and the value of growth, all in that exact order.

The liabilities are always 100% good. It’s the assets you have to worry about.

-Charlie Munger

The Value of Assets:
Using a Graham and Dodd valuation, we begin at the balance sheet and evaluate the company’s assets. This shows us the health of the company: is the firm loaded with cash or debt? What are the shareholders entitled to if all debt was paid? If we are in a declining industry, we value the assets at liquidation cost. In a stable industry, we must value assets at reproduction cost (which is the cost a competitor or new entrant would incur to reproduce all its assets).

Under the asset side of the balance sheet, we find the two main component of current assets and long term assets. Assuming accurate information of the balance sheet, under reproduction cost we would likely value current assets such as cash, marketable short-term securities without any adjustments. Accounts receivables and inventory should be adjusted depending on allowances and turnover ratios. Longer term assets such as PPE should be estimated based on consistent depreciation rate, market value and reproduction of equipment costs. Interesting accounting entries are goodwill, intangibles, R&D (hidden assets); these all require thorough analysis as their value may range significantly. For instance, Coca Cola’s extensive value lies in its Goodwill. Its years of advertising, customer loyalty are ingrained in its intangibles, for a competitor to replicate Coca Cola (or attempt to), it would pay dearly, in money and time.

Moving away from assets to liabilities, Greenwald et al. classifies liabilities in three categories. Applying a reproduction approach to these liabilities, it is likely to take these liabilities as stated. These categories include (I) Operational liabilities (spontaneous): which include liabilities such as accounts payable to suppliers, wages, accrued taxes and expenses related to operations, (II) Past circumstances liabilities (circumstantial): one time or uncommon charges that would not be pertinent to new entrants, these include deferred tax liabilities and legal liabilities (breaking the law), (III) Outstanding debt: includes long term debt.

Now with the value of asset reproduction and value of total liabilities, we subtract the latter from the first (asset reproduction value – total liabilities) and assess the potential for investment. Clear examples along with accounting entries are provided in Chapter 4.

Earnings Power Value:
The EPV formula is as follows:

EPV = Adjusted Earnings x 1/ R 
R = Current Cost of Capital (usually measured in terms of WACC)

Adjustments to earnings include resolving discrepancies between depreciation and amortization, taking into account business cycle, and applying other reasonable modifications in specific situations. The reason for adjustments is to smooth out one time outlier expenses to arrive at distributable cash flow; money that the shareholders are entitled from the firm while keeping operations intact. This method assumes that earnings are constant (so, there must be a relatively sustainable competitive advantage) and no growth.

There are 3 identifiable cases after applying the formula:  (I) If your calculated EPV is lower than the value of asset reproduction, then the assets are not being used efficiently, (II) when your calculated EPV equates (or is close) the value of asset reproduction, it may be because the industry has no competitive advantage (perhaps no one has a significant “upper hand”), (III) when your calculated EPV relatively exceeds the asset reproduction value, the evaluated firm may have some form of competitive advantage. Chapter 5 discusses EPV, while later chapters will walk you through its application.

Growth Value:
As previously stated, we begin by valuing asset reproduction value, then earnings power value, and lastly growth; in that specific order. The reason the value of growth is prioritized last, according to Greenwald et al. is because it is most difficult to estimate. A conservative value investor is concerned about not losing money, and projections entail a great deal of uncertainty, especially long future projections which are prone to error. Growth itself has to be supported by in increase in assets, sales, accounts receivables or equipment. In order to do so, it must be funded through either new borrowings, retained earnings, or issuing new shares; all which cut into the cash and value to be available for shareholders. For this reason, growth value is not the primary concern for conservative value investors. Chapter 3 and 7 details growth value. 

I highly recommend this book to anyone looking to start with a value investing approach. I liked that it illustrates valuation in a conservative order, starting with the balance sheet, moving onto earnings power (although perhaps free cash flow should be considered too- JMO) then growth. Greenwald et al. thoroughly applies the three valuation process in Chapter 6 and 7 using WD-40 and Intel as case studies, making it clear and understandable. The study of some of the greatest value investors is a valuable plus. You can find this book on Amazon: here.

Thank you for reading 🙂

The most important investment you can make is in yourself.

-Warren Buffett

Must Read: Deep Value Investing by Jeroen Bos

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A cynic is man who knows the price of everything but the value of nothing.

– Oscar Wilde

In 1934, Benjamin Graham and David Dodson paved the road for all value investors with their contribution of “Security Analysis“. Graham went on to publish “The Intelligent Investor“, the book that heavily shaped Warren Buffett’s life. Some decades later, a short practical book on value investing, “Deep Value Investing” by Jeroen Bos strongly compliments the classics by Graham and Dodd.

Deep Value investing is also known as the cigar-butt investing style that Buffett had famously, and successfully practiced during his earlier days. To begin, we compare the stock’s price with its net asset value (NAV), or in other terms, a stock that is selling for less than its working capital. The focus of deep value investing is on assets, particularly liquid assets. Deep value investors look for stocks whose current assets minus its total liabilities are worth more than its current stock price or market capitalization. The logic is that if the company were to shut down, liquidate all its assets, repay debtors and redistribute all wealth to its shareholders; you would still walk away with some profit, leaving you with a substantial margin of safety.

To make things better, we know that the current assets minus the total liabilities is still worth more than the market price. This means that the long term assets (equipment, long term investments, etc.) are essentially “free”. Of course, deep value stocks are rare, and falling prey to value traps is always possible. Therefore, deep value investors must evaluate every detail of the company’s information along with possible catalysts.

Author and fund manager at Church Investments, Jeroen Bos provides 15 exceptional case studies of his own investment ideas in this book. He walks the reader through not only his successful, but equally important, his failed cases of investments allowing readers to learn from his mistakes. For each of the 15 companies explored, Bos provides a company background, an investment case and the outcome of his decisions. He further provides exit reasoning for his stocks; an added value for the reader.

In his writings, Bos explains the benefits of service-based sector stocks. Service firms are flexible, they can contract and expand alongside its economic environment. Well managed service firms are likely to sustain recessions (by nature; unlike manufacturing and machine-heavy firms, their expenses are not fixed, so they just lay off workers to cut their expense in order to survive through economic storms).

Moreover, Bos augments the prioritization of assets (balance sheet), as earnings (income statement) and its expectations can be manipulated (quite legally) which may result to poor valuations. Other interesting aspects the reader will appreciate is Bos’ unique style of deep value investing: occasionally, he holds deep value stocks even after its gone up past its fair value (and he explains his reasonings). Throughout his investment cases, Bos illustrates that the long term is what matters, that deep value investing, at its very core involves limiting the downside while having a substantially high upside potential, and is not as risky as the crowd believes.

Perhaps the most important lesson that Bos reinforces; is that there are no golden rules in deep value investing, all variations can be appreciated and every investment case has its own unique merit. It is virtually impossible to find a “perfect” deep value stock, as they all come with their own distinctive history and, as Bos describes,”their negative baggage”.

All in all, deep value investing involves swimming against the tide, buying stocks that are beaten up, and selling them when everyone else is buying. Jeroen Bos’ contribution is nothing short of exceptional, and definitely and eye opener for newer investors. Of course, deep value is more detailed than this post has intended to explain. Bos’ provides the reader with an invaluable perspective, rather than strict formulas and quantitative valuation methods. I would recommend deep value investing be practiced by more seasoned investors, and not the novice (but it doesn’t hurt to know). You can find this book here.

As I started with a quote from Oscar Wilde, it is only plausible that I close with one. If you are an investor seeking deep value stocks, you will find this particular analogy interesting.

The only difference between a saint and a sinner is that every saint has a past and every sinner has a future.

-Oscar Wilde

Nature,Value and Investing

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“Notice that the stiffest tree is most easily cracked, while the bamboo or willow survives by bending with the wind”.

– Bruce Lee

In our early biology class, we learn about Charles Darwin, influential biologist and father to the “survival of the fittest” theory; Darwinism. We know that in a given environment, when two of the same species collide, the one with even the slightest edge, be it the bigger horn, muscle mass, the quarter inch bigger claw, will emerge victorious over the long run. As the dominant species reproduce amongst each other, the inferior species will eventually become extinct. All species are subject to natural selection, and it isn’t so different either in the economic world; as “The Nature of Value” by Nick Gogerty parallels the science of economics, evolution and ecology.

To begin, Gogerty discusses the most essential aspect of economics and investing; price in relation to value. Unfortunately, the popular belief that equates value with price foolishly assumes that everything is worth its current price. Price is a reflection of perceived value, and is often, poorly reflected. For instance, the daily changes of stock price means that the perceived value by market participants have changed, but frequently, the firm’s “true” value has not altered. Because the day to day price changes occur, investors slowly forget about the true intrinsic value of the firm, ultimately leading to under or over-valuations of equities.

Another important factor for the allocator is the firm’s competitive advantage. Gogerty draws from Richard Dawkin’s “The Selfish Gene” to illustrate the resemblance between evolution and economics. Organisms have different types of genes, organizations have what the author calls “inos”. Inos are like genes, collecting knowledge and changes that are expressed as an organization’s capabilities. It’s an informational unit, capable of innovation and adding value to a company. Of course, not all inos are value adding; for instance, a mattress store may open-up a drive thru section, but that doesn’t mean it will add positive value to the firm. Therefore, not all inos become sustainable knowledge or useful in a firm’s quest for survival. However, inos that do add value can be reflected in the firm’s competitive advantage; creating additional value.

Another argument draws from Larry Keeley’s “Ten Types of Innovation”, inos improve simple capabilities, and little by little compound to competitive advantages. The 10 capabilities are: business model, networking, enabling process, core process, product performance, product system, service, channel, brand and customer experience. Every firm, according to their industry, will excel in some, while averaging or lagging in some other of the 10 capabilities; ultimately creating its unique position within its competitive environment. The serious allocator should pay close attention to these 10 important aspects when making decisions.

The capabilities of the firms will place them in their own clusters. Gogerty describes 4 types of clusters: Lollapaloozas, Cash Cows, Lotteries, and Red Queens.

The investor should seek the rare “Lollapalooza” cluster; firms that are stable and growing, with few competitors and high barriers to entry. Firms in this type of category have a higher ability to grow revenues and margins. The Cash Cow cluster is dominated by already stable participants, usually with high yields, and high barriers to entry, but limited growth. Lottery cluster can be described as newer firms, fast growth but unstable and low barriers to entry, therefore, these firms do not have established moats and competitors can easily replicate their strategies. Finally, Red Queen cluster participants compete amongst each other in industries that are very capital intensive. This cluster requires participants to continuously exhaust their resources on new innovations and strategies to survive, but most of the value flows to the customers instead of the shareholders. An example of a Red Queen could be the evolution of the TV industry; firms must continuously exhaust their capital to create new strategies and innovate technology or will fall behind, but notice how increasing technology and competition, has added greater value for the customers (with lower prices and greater technology-notice how TVs got cheaper in the past decade?) rather than returning the value to the shareholders. A long-term value oriented investor should avoid the last two clusters (Lotteries and Red Queens).

Lastly, investing based on the nature of value rather than price can help mitigate risk; purchasing moated firms at a discount and holding it for the long-run has proven to be rewarding.

The latter paragraphs were just a glimpse of the distinctive knowledge you will gain from exploring “The Nature of Value“. It is exceptionally informative and well-written, unique in its own league, and deserves a spot in every serious investor’s library.

Finally, finding economic value is the goal of all value-oriented investor. Finding true value is the quest of all human beings. Where should one search for such meaning? Fortunately, there is an answer to your quest; as Gogerty puts it:

“Prioritizing the value of friends, family and freedom ensures that the wealth of a lifetime will be correctly measured in the creation of memories, loving relationships, and a reputation for integrity. Never compromise these forms of value for mere money”.

Put differently; money makes the world go round; but love makes the ride worthwhile.

Thank you for reading. As always, JMO (just my opinion).

 

The Fault in Ourselves

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“The fault, dear investor, is not in our stars- and not in our stocks- but in ourselves…”

-Benjamin Graham

Winner of the Nobel Prize in Economics, Daniel Kahneman fascinatingly explains the fault that is in our intuition, biases, decision making, and sheds light to rationality. In economics and finance, we are taught theories that assume rationality and well-informed decision making of individuals, but we must learn these theories with much caution, as Kahneman’s Thinking Fast and Slow illustrates that human decision-making is indeed more flawed in reality, and certainly more than we notice. I will illustrate a few of his examples below that will (hopefully) spark your interest, and likely bend your mind, as it did to me.

To begin, Kahneman explains the mind as two systems, System 1 which is intuition (thinking fast) and System 2, which is your analytical system (thinking slow). For instance, the last time you were mad over something small and had to embarrassingly apologize afterwards, might have been due to your System 1, thinking (too) fast. Your emotions clouded your System 2 (your analyzing system) from working and you acted irrationally. Note that your System 2 is also quite “lazy”, so the majority of the time, you’re on auto-pilot with System 1, and (thankfully) most of the time it’s right. But other times when System 2 is needed, and fails to show up or to properly analyze, decision-making results can be devastating.

Here’s a quick test of your systems.

What’s 2 x 2?                  What’s 2+2?

Right away you knew the answer for both were 4 (that’s your intuitive System 1). Now:

     What’s 28 x 9?               What’s 38 x 17?

Your pupils moderately dilated, your blood pressure slightly increased; your System 2 was engaged into computing the answer, as your System 1 was unable to quickly solve it. For some, it is possible that the latter questions came intuitively via their System 1; they’ve practiced a great deal of mathematics that allowed them to generate the answer automatically. For those who had to employ their lazy System 2, don’t you regret not practicing math a little more when you were younger? I sure do…(252, 646, btw).

Speaking of regret; Kahneman defines it as an emotion and a punishment we do to ourselves. Frequently, we lag in our decision making due to the fear of regret. It stems from a deviation from the norm, or the default position (p.348). For instance, when you buy a stock the default is to hold it, when you enter a relationship, the default is to stay, when you finish seeing your friends, the default is to say goodbye; selling a stock too early, ending a relationship badly and even not saying goodbye can produce regret. Here’s another example: You’re the coach of a team that just badly lost your last game. You’re expected to make a change in players or strategy; failing to do so will produce regret (p.348). Notice how here, a specific action is the default, deviating from that will produce unpleasant emotions. Regret does indeed affect the decision of many, but there is good news: people generally anticipate more regret than they will actually experience, this is because we underestimate the efficacy of our psychological defences (p.352).

Here’s an unnoticeable pitfall people tend to make that may lead to regret, it’s called the The Sunk Cost Fallacy. More often than not, this fallacy makes us stay in things longer than we should. A bad job, a poor performing stock with no turnaround in sight; we would rather continue wasting our resources in a failing project than to stop, admit defeat and have a bad stain in our record .

Somewhat related to the Sunk Cost Fallacy is the disposition effect. A (unfortunately) real example for many investors is the following: when choosing to sell stocks in their portfolio, often times they choose to sell the winning stocks rather than the losers; they want to add a win to their record, instead of closing out losing stocks which would add a loss. Simply put it, gaining is pleasure and losing is pain, and we would much rather choose pleasure than pain. But, pleasure does come with its price, and in this case choosing purely based on a current winner and loser can be irrational and devastating. According to Kahneman, you should have a thorough analysis of your portfolio and sell the stock that is less likely to perform well in the future, not whether it is a winner or loser.

Here’s another pitfall that can significantly influence our optimism or pessimism when decision-making is “Framing“. Consider the following scenario:

How would you feel if I said the following before you entered a life-saving surgery:

90% of the people who receive this surgery survive.

Now If I told you this:

10% of people who receive this surgery die.

Both statements have the same probability of success-failure, but the way it was framed, did indeed give you different mental pictures. Another example of framing within Thinking Fast and Slow is the following:

You receive $70

Would you rather:

Keep $30           or          Lose $40

As you’ve noticed, both options are objectively the same, but most individuals prefer the keeping $30 than the losing $40 option. Being able to reframe this question objectively, and not emotion-bound, takes much effort of your System 2, and since it efforts exhausts our energy, we passively accept decision problems as they are framed (p. 367).

Here’s a final- shortened example of framing that will bend your mind, it comes straight from the framing experiment conducted by Kahneman and his friend, Amos (p.368):

Imagine that the United States is preparing for an outbreak of some unknown disease. It is expected to kill 600 people, but there are two types of action plan that can be implemented to fight this disease:

-Action Plan A: 200 people will be saved.

-Action Plan B: There is a one-third chance that 600 people will be saved, and a two-thirds probability that no one will be saved.

What’s your choice? Think carefully. The majority of respondents chose A; taking the sure option rather than the gamble.

Now the experiment is framed differently. Consider the following options:

-Action Plan A: 400 people will die.

-Action Plan B: There is a one-third probability that nobody will die and a two-thirds probability that 600 people will die.

What’s your choice? Again, think carefully. The majority of respondents chose B, as you may have as well. “Decision makers tend to prefer a sure thing over a gamble when the outcomes are good. They tend to reject the sure thing and accept the gamble when both outcomes are bad”(p.368). Note how you’ve accepted a gamble with a 67% (rounded) chance of failure, even though it’s a bad gamble (numerically), it seemed like a good choice in this case.

Here’s the interesting part: You chose to save 200 lives for sure (Action Plan A) in the first question, and chose to gamble with Action Plan B, rather than accept 400 deaths in the second; there’s an inconsistency in the choices you make. Think about it…

We could go on forever in discussing the biases and faults in our intuition provided in this book (there’s a lot more), but let’s end with the Anchoring Effect. This happens when “people consider a particular value for an unknown quantity before estimating it” (p.119). For instance, if you are looking to purchase a house, you are likely to be influenced by the asking price (the anchor). You would feel a price of $1 million is expensive if the asking price was $700k. On the contrary, you would feel a price of $1 million is cheap if the asking price was $1.3 million. If I said the number 30 and asked you to provide an estimate of Shakespeare’s age at death, you’ll likely give a lower number than if I said the number 90. You’ll be inclined to use the number provided as an anchor and work your way up or down from it. This shows that we are susceptible to subconscious biases from an anchor and recognizing that can help us avoid poor decisions. This technique is used in sales and negotiations, so next time you’re negotiating a price, make sure you don’t get anchored by a number.

When you choose to read this book, you’ll learn valuable rationality lessons such as the law of small numbers, optimistic biases, the possibility effect and much, much more in Kahneman’s astonishing literature. After giving Thinking Fast and Slow a read, your thought process and decision-making will surely be enriched, as mine was.

Much of the recognition of our intuitive faults will seem unnatural to do, and indeed hard to consistently notice when we act irrationally. But nothing good comes easy. By being aware that it is easy to fall into the traps of our own irrational decision-making; we can avoid making potentially devastating mistakes, and make more sound decisions. For the investor, the chief problem, and even his worst enemy is very likely to be himself. You should give this one a read, you probably won’t regret it 😉 Find it here.

5 Must-Read Investing Books

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The most successful leaders always had one thing in common: they never stopped learning. As Charlie Munger, Vice Chairman of Berkshire Hathaway puts it:

“Those who keep learning will keep rising in life“

If you’re looking on improving your investing knowledge, you’ve come to the right place! Here are the 5 must-read investing books:

1. The Intelligent Investor by Benjamin Graham

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Benjamin Graham forever changed the investing world with this timeless contribution. He builds the foundation of value investing by providing the concept of Mr. Market, defensive investing and margin of safety. This iconic book is considered by many the bible of investing, and for Warren Buffett:

“I picked up a copy of The Intelligent Investor. It not only changed my investment philosophy, it really changed my whole life- I’d be a different person in a different place if I hadn’t seen that book…it was Ben’s ideas that sent me down the right path.” 

Pick up your copy of this classic: here.

2. The Most Important Thing Illuminated by Howard Marks

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Howard Marks shares his thoughts on value investing in this mind-shattering book. He gets straight to the point on investing subjects such as second-level thinking, market efficiencies, value, contrarianism, risk, randomness and the other aspects that make up the 20 most important things. To make this book even better, there are even commentaries from other leading investing managers such as Seth Klarman, Christopher Davis and Joel Greenblatt. Marks’ work is even praised by legendary founder and former CEO of The Vanguard Group, John C. Bogle:

“Few books on investing match the high standards set by Howard Marks in The Most Important Thing…If you seek to avoid the pitfalls of investing, you must read this book!”

Find this invaluable book: here.

3. A Random Walk Down Wall Street by Burton G. Malkiel

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Burton G. Malkiel’s best seller is jam-packed with quality investment insights and financial history. It takes a look at stocks and their values, analyzes both fundamental and technical analysis while comparing them to the random walk theory. Furthermore, he explores the concepts of EMH (efficient market hypothesis), smart-beta and rebalancing. He puts much emphasis on indexing and diversification through no-load, low cost funds and ETFs. The later chapters consists of personal finance and investing strategies for different age groups. Whether you’re a starter or expert in investing, this book is a must-read. Find it: here.

4. Common Stocks and Uncommon Profits by Philip A. Fisher

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Known as a pioneer of Growth Investing, Philip A. Fisher’s contribution to the investing world will not be forgotten. In this book, consisting of 3 parts, he lays out the a general description in what to look for in stocks, and when to buy. He opens the book with his concept of “Scuttlebutt”, then puts in 15 detailed points to look for in common stocks, as well as 10 investor don’ts. In the second part, Fisher outlines his 4 dimensions in which he describes cues to look for in companies, such as the company’s superiority in production, research, marketing and financial skills. He notes the importance of employees and management, investment characteristics of certain businesses, conservative investments and much more. Fisher closes the book with his philosophy along with its evolution that has made him one of the most influential investors. Find this book: here.

5. Technical Analysis of the Financial Markets by John J. Murphy

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John J. Murphy provides the fundamentals of technical analysis in simple enough terms for anyone to understand. You’ll learn the trends and essentials of chart analysis. This book gives excellent graphical examples of various price patterns and reversals. Furthermore, it teaches the basic methods of analysis, you’ll learn about moving averages, MACD, RSI, Bollinger Bands, and all the other fancy technical indicator terms. Whether you’re a beginner or experienced investor, this is a classic for the technical investor. Find it: here.

Through chances various, through all vicissitudes, we make our way…

-Aeneid

Those are the first words printed on The Intelligent Investor. I read this timeless classic some years ago and this quote made an impression on me. I’ve revisited it twice since, and every time I read it, not only does it get better, but I appreciate this quote more and more.

If it’s your very first time reading The Intelligent Investor, know that I am envious of you, the feeling of learning new knowledge of this quality is rare, and no words can describe that state of enlightenment. I invite you take your time and enjoy the invaluable information you will gain. I hope you will enjoy it as much as I have, and that you will revisit it in years to come.

The Best Investment Book for Starters

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We’re all aware of the importance of starting early and we all know the costly price of starting late. That last minute 10 page essay, that last minute “studying” (if you even call that studying anymore) before the math exam always ends up with you always asking yourself: “Why didn’t I start earlier ?”

Procrastination is a terrible habit and we’ve all been guilty of it, some more than others     (I, for one, am – you are too, no need to lie). On the other hand, procrastinating on that 10 page history paper isn’t the worst of the last minute bullsh***ing. It’s when you procrastinate on more important things such as learning to invest that you will pay the costliest price.

Starting your investments early will allow you to take advantage of time; giving you the ability to ride out some mistakes and more importantly use compound interest. I cannot stress the importance of compound interest. You can check out the article about why you should start early here.The earlier you learn about investing, the earlier you can start; the earlier you make capital gains. Now, you can’t learn EVERYTHING about investing, but without a doubt you need to learn the fundamentals before even thinking of starting.

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In my opinion, one of the very best investment book ever written (if not, THE best) is The Intelligent Investor by Benjamin Graham (the second investment book I’ve read). Although I strongly recommend Graham’s “investing bible” to anyone, it’s not the book of choice when people ask me what to read as their first book.

The first book I ever read, was “The Neatest Little Guide to Stock Market Investing” by Jason Kelly, and I strongly recommend it for starters as their first book. Now before, I get stoned by the crowd for thinking I’m not recommending “THE best book” first, hear me out first. When I was a beginner in investing, there would have been no way for me to fully understand and appreciate The Intelligent Investor (you need to read it a few times), had I read it first. It’s not an easy read for beginners, especially if you have no background in business. It can be intimidating, and the length can turn people off.

Let’s jump straight into it: Why “The Neatest Little Guide to Stock Market Investing” is the best book for the Jon Snows of investing (those who know nothing):

1. It’s a very easy read. It teaches you the very basics of stocks, what they are, how they work and how you can make money while owning stocks. It teaches you the basics of evaluating stocks and touches upon growth investing and value investing. Additionally, the basics on how to read stock pages.

2. It will briefly touch upon Fundamental vs Technical Analysis. You will learn the basics of fundamental stock measurements such as Dividend Yield, EPS, ROE, Net Profit Margin, etc. You’ll also learn a bit about technical analysis basic measurements such as RSI, SMA, MACD, etc.

3. It introduces you to some of the most successful investors. The highlight of this book is that it summarizes the basic points and strategies of the most successful investors, notably : Benjamin Graham, Warren Buffett, Philip Fisher, Peter Lynch, Bill Miller and William O’Neil. This allowed me to follow up on my investing journey by reading “The Intelligent Investor” which changed my life.

4. The author also gives you a list with a description of numerous resources that provide research on stocks. Furthermore, he describes a few long term strategies. He also suggests ways to get started (setting up an account) and provides a few of his very own strategies he uses/ made.

Again, I cannot stress enough the importance of starting early in your investing journey. For me, this book eased my way into the investing world; it easy to read and has the right amount of important content so I didn’t lose interest (I get bored easily). It was very well structured and the summary of the greatest investors allowed me to follow up on my learning after I finished reading the book.

It will answer most, if not all questions of the beginner investor. All in all, I’m glad it was my first book, and I’m sure you’ll enjoy it as your first investing book too. It will provide you all the information you need to start your investing journey, as it did for me, long ago. Again, like preparing for your math final: start reading (and actually learning) about investing early– not later. In the end, when you’re looking at your account, you never want to say “I wish I started earlier“, instead you want to say: “I’m glad I started early“. Remember, you can bulls**t your history paper, but don’t bulls**t with your investments. Of course, JMO (just my opinion). You can find the book here.

6 Life Lessons from The Little Prince

/ 416Investor / 2 Comments

The Little Prince was written by Antoine de Saint-Exupéry, a famous French writer and poet. It is one of the top translated books in the world and voted one of the best 20th century books in France. This book embodies many conceptual lessons regarding loss, love, friendship and “grown ups”. It was written for kids, but really for adults (you’ll understand when you read it). Here are some life concepts from this book:

1. “All grown ups were once children, but few of them remember it”

Our body may grow old, but our heart need not to: Lose the inner child and you may lose your creativity and without creativity innovation becomes very difficult.

2. Be honest, to yourself and others. If not, it might cost you dearly.

In this book, there’s a rose that The Little Prince cares for deeply. He waters her and protects her from predators. One day, the rose says that she does not need him to survive. Her pride causes The Little Prince, the only one person who loved her, to leave. Be true to yourself, don’t let your pride cloud reality.

3. The essential is invisible to the eyes.

One of the main messages of the book (The Fox’s secret):

“One sees clearly only with the heart. The essential is invisible to the eyes.” 

We see things too much on the exterior, we judge too fast and think too little. There are wonderful people in this world that cannot be discovered simply with the naked eye.

4. Don’t be a geographer, be an explorer.

During his journey, The Little Prince meets a geographer. The geographer states that he knows every place and everywhere but never actually been to any of them. He knows about some distant stars but has even never explored his own homeland. It is beneficial to know something; but to feel, that is something entirely different. We reach towards the stars, but forget the beauty that is underneath.

5. Enjoy the ride, you’ll only get this one.

In the Little prince’s journey, he encounters a worker whom follows his job orders on a planet that revolves every minute. He never gets a moment of rest. Some of us are the same, we work so much that we forget to enjoy the things some others don’t have the privilege to. Appreciation is key to happiness.

6. The person in the mirror.

On his journey, The Little Prince meets a King whom can only speak of others and only knows what he rules. It is easy to speak of others, but it is hardest to judge oneself. This theme is essential in investing. Judging yourself is what helps one grow. Knowing your own limitations may prevent disastrous investments.

*Here’s an exercise to improve your qualities, suggested by Warren Buffett: Take a notepad and write down the greats that you admire, and why you admire them. Then, list qualities of these greats that you find attractive or would like to have. If you think of it, most of those qualities aren’t special skills, and with practice, you can make them your own.

I discovered this book through my father, who has a passion for French literature and education. This book has been a huge influence in my life philosophy and creativity. I highly recommend reading it, it’s very short (you can read it within an hour). If it’s your first time reading this, don’t rush it, enjoy it. You can find The Little Prince here.

Of course, JMO (just my opinion).