A 2-Year Course to Become a Smarter, Independent Investor

Books & Tutorials
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Well, this is not a investing book, rather this is on a blog post from safalniveshak (Vikash Khandelwal’s excellent effort on educating indian investor). I am posting because he has put up a nice 24 month reading list for a 1st time investor.

http://www.safalniveshak.com/2-year-course-in-smart-independent-investing/?utm_source=rss&utm_medium=rss&utm_campaign=2-year-course-in-smart-independent-investing

I think is one of the 1st time someone has tried to actually specify a reading material in a trimestar-by-trimestar approach, that we do in our school days. Seems an excellent idea as it make sense for a first timer to start read from simple concepts and than move to advanced stuffs.

The problem I see with the above link is that it has been compiled by a single person (which is a commendable effort), but we can improve upon it in our collaborative approach, and than post it in a thread, so that all the 1st time investor can learn it by going through it.

I don’t have statistics about how many new folks joining this forum and how many needs such lesson. But from my personal experience with few of my friends to whom I have recommended valuepickr, do have a real good positive feedback of it. They seems to be eager to know the way out how not loose money in stock market (most of them got attracted stock market, thinking it as a money making machine, lost good amount money following dangerous path, now thinking of finding the correct approach for the same)

Donald,

Do let me know if you agree with compiling reading (book/links) list for the 1st timers and for the folks like me who has just started crawling out of investing kindergarten or so.

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2

Thanks Subash,

This is a good idea! I had a look at the the Safal Niveshak Link - pretty nice job. You may like to create a more condensed 6 month course, based on your experience.

At ValuePickr we like to focus more on tangibles - Actionable Advise. So you may also like to include a routine in the same 6 months for things like these, say

a) learn to generate new stock ideas - think about/identify your own investment filters, learn to use something like Screeenr.in - for shortlisting promising stock ideas from the universe of 3000+ actively traded stocks

b) do one in-depth anlaysis by the end of 6 months - Use ValuePickr’s stock analysis framework

c) respond to stock discussions - hep investigate/dig more into existing ideas

I think it will be a swell value-addition if you can give newbies concrete steps on of learning and measuring their own progress!

-Donald

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I will be surely looking forward for something in this space.

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Thanks Donald for your encouraging feedback,

The idea why I put forward to create a new list is that it will have the combined idea of the whole of valuepickr, not just one guy.

Anyway, I will try to create one, which can be used as a basic building block, for further refinement. The issue with me is that I have read very few books, and yet to read few of the must-read books.

5

This is a very interesting thread. Let me put my thoughts on this. Assuming someone can read about 2 books a month.

Month - 1

)- Rich Dad Poor Dad by Robert Kiyosaki > Understand why cashflow is important and why you should be an investor. Creates the personal finance background that is required.

)- $$ One Up on Wall Street by Peter Lynch > Gives you a overview of fundamentals, great frameworks for investment, categorizes stocks into various groups, introduces the concept of circle of competence

Month -2

)- The Five Rules for Successful Stock Investing-Pat Dorsey > Gives you a solid fraework to analyze stocks including basics of financial statements

)- $$ Margin of Safety by Seth Klarman

**Month - 3
**

)- $$ Contrarian Investment Strategies by David Dreman

)- Value Investing Today by Charles Brandes

)- $$ The Most Important Thing- Howard Marks OR all of Howard Marks’ memos from http://www.oaktreecapital.com/memo.aspx

Month - 4

)- Influence by Robert Cialdini > Mental models and the psychology of persuasion.

)- Little book on Behavioral Investing by James Montier > Excellent coverage of behavioral finance.

Month - 5

)- Value Investing by James Montier > Very detailed discussion (sometimes a bit dense) on value investing and its various facets

-** $$ Beating the Street by Peter Lynch** > Case studies of some of Lynch’s best picks. Filled with great insights and wisdom.

Month - 6

)- Financial Shenanigans by Howard Schilit > How companies mess with their financial accounting to make fools of investors

)- $$ Seeking Wisdom by Peter Bevelin > Condensed version (to an extent) of Poor Charlie’s Almanac (if you can get your hands on both these books, buy it).

NOTE:

1). The $$ sign are for books which I read atleast once every 2 years. You may have a different frequency of re-reading them.

2). I have not kept either Intelligent Investor or Security Analysis (although both are excellent books) in this list consciously.

3). This is a guide for beginning the habit of reading. Once you get to an advanced stage, you will know what are the good books to read :slight_smile: {I have to to-be-read booklist that is now close to around 35 :slight_smile: and I still try to average 2/3 books a month, so have stuff a year’s worth already lined up}

4). Read annual reports of companies. Pick your favourite company. Read the last 2/3 years ARs. Then pick a competitor’s AR, read a few years. Read a foreign (I try US) company’s AR (just for the fun of it).

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6

This is shaping up well:) Thanks Abhishek.

What I would like included every month, post the reading, is some practical exercise. Examples - Identifying a typical Lynch kind of business - use screeenr.in - devise/use a Peter Lynch screen, come up with 1 contrarian idea, present a simple Hitesh-like Stock story synopsis - covering positives/negatives/risks/interesting, and the like

Since you have almost presented a curriculum, you & subash may like to offer suggestions for practical exercises - that would be a great addition.

-Donald

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7

This is interesting. A key element should be how people lost money. Study some stocks with huge value destruction. Atleast 4-5 examples in each

1). Hyped IPOs

2). Huge Debt/ Governance issue related stocks

3). Investing in cyclical/ poor businesses at high valuations

4). Impact of govt policy changes

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8

Here is a direct copy paste from the post I have in my blog on the same line. I decided to have it in a modular type, rather than a time bound one, by choice. Hopes it help new investor increase his investing skills.

Books/Links to educate yourself to become a knowledgable investor

954×800 82.7 KB
This is a post inspired by “A 2 year course to become a smarter and intelligent investor”. I have created a thread on the same in valuepickr. The issue with me is that I have read so less numbers of book on investing, and I have a miles to go before I sleep. The most I have learned by going through the gem like thread in 2 of the best stock investing forum in India, TED and valuepickr. So it is less on the book side and more of the thread side.

Rather than creating a time bound approach to investing. I created a module based approach for the same, hope it will help the newbies improve their skills in stock investing

Link to the post in my blog

http://art-of-mental-modelling.blogspot.in/2012/12/bookslinks-to-educate-yourself-to.html

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I have been reading many investing books over the last 15 years or so and based on my reading and experience as small private value investor this is the self study course I would suggest to beginner, intermediate and advanced level investors…

Self-Study Stock Investing Course

Beginner Investor:

Module 1 â Investing Principles

1). One up on wall street By Peter Lynch

2). Intelligent Investor By Ben Graham

Module 2 â Beginner Valuation & Financial statement Analysis

1). The Five Rules for Successful Stock Investing By Pat Dorsey

Module 3- Learning from Masters

1). Money masters of our time By John Train

2). The Art of value investing By Heins & Tilson

3). The Essays of Warren Buffet

4). Art of Stock Picking – A Speech/Article by Charlie Munger (Available on Net)

_
_

Intermediate Investor:

Module 4 - Intermediate level Valuation & Financial statement Analysis

1). Strategic Value Investing By Horan, Johnson and Robinson

2). Accounting for Value By Stephen Penman

3). Value investing: From Graham to Buffet and Beyond By Bruce Greenwald, Paul Sonkin et el (first half of book. Second half can go into module 3 Learning from Masters)

Module 5 â Investing Principles

1). What works on Wall street by James OâShaughnessy

2). Margin of Safety By Seth Klarman

3). Common stocks and uncommon profits By Phil Fisher

Module 6 â Expertise Development (Deep practice principles)

1). The Talent Code By Daniel Coyle

2). Outlier By Malcom Gladwell

3). The Art of Learning by Josh Waitzkin

4). A Lesson on Elementary, Worldly Wisdom As It Relates to Investment Management & Business)-- 1994 USC Business school Speech By Charlie Munger (Available on Net)

Advanced Investor:

Module 7- Advanced Valuation and Financial Statement Analysis

1). Valuation and Financial statement Analysis 5th Ed By Stephen Penman

2). Financial Shenanigans By Schilit & Perler

3). Creative Cash flow Reporting By Charles Mulford & Eugene E. Comiskey

4). Original Research Paper on Piotroski Score - Value Investing: The Use of Historical Financial Statement Information to Separate Winners from Losers âby Joseph D Piotroski

Module 8 â Investing Principles

1). You can be stock market genius By Greenblatt

2). The Manual of Ideas By Mihaljevic

3). The Investment Checklist By Shearn

4). Security Analysis By Ben Graham

Module 9 â Behavioral Aspects

1). Devil Takes Hindmost By Edward Chanceller

2). Thinking Fast, Slow By Daniel Kahneman

Module 10 â About businesses

1). Good to great By Jim Collins

2). The Outsiders By William Throndike

3). Competitive Strategy By Michael Porter

4). Competition Demystified : A Radically Simplified Approach to Business Strategy By Bruce Greenwald

Happy Learning!

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Wonderful guidance sir, thank you.

11

Hi,
Can you pl. send me invite for the blogspot ?
http://art-of-mental-modelling.blogspot.in/2012/12/bookslinks-to-educate-yourself-to.html

-Balaji

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12

Can you pl. send me invite for the blogspot ? my gmail id is sing.bikram43@gmail.com

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For me too my email id is icathene@gmail.com

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Sir, Pls provide access to my mail ID also navneet2005@gmail.com

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Please send me an invite at snnmhjn@gmail.com

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Please send me invite maninder.nitw@gmail.com

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I have a slightly different take on course to become an investor. It does not involve reading books although I came to this conclusion after reading a ton of books :slight_smile: . I used to read a lot thinking that all the smartness that comes from reading books is a shortcut to the hard work needed to research a company. So I read a lot of books. But even after that something in the back of my mind wasn’t giving me the mental signal that I can build my own portfolio (and earn a decent return on it to make all the efforts worthwhile). Especially books written by western authors were not relevant to Indian scene and there are not many books written about Indian markets. Because of this, I was a typical diversified investor investing in 20-30 stocks (sometimes even more) with no more than 3-5% of portfolio in each stock. Traditional investment books stresses on diversification so I was under the impression that I am following this advice. However after few years, I realized that my small allocation to a stock was a result of lack of confidence than any thoughtful diversification strategy as professed in books.

I realized that no amount of books will help me build confidence in a stock. For that, I needed to study the company and that means I have to read annual reports, collect data about company and its competitors, and even study customers and suppliers of the company. Once I started collecting such data about companies, I was able to build enough confidence to risk 10-15% of my net worth in a single company. As it turned out, it wasn’t such a big effort after all. In fact, process of collecting the data itself is half the work. Only after this change in strategy, I was able to boost returns, reduce churn, reduce anxiety, and actually started enjoying investing activity. Prior to that I was only able to earn as much as a good mutual fund ( and that means my efforts were not paying off as I could have earned whatever I was earning simply by buying a mutual fund and spare myself of all the efforts).

So, here is my version of the 2-year plan

  1. Throw away all the investment books :slight_smile:
  2. Buy 5 companies from Nifty 50 whose business you are already familiar with. Who doesn’t know Maruti, HUL, HDFC Bank? You can use the money to buy the stocks instead of buying books.
  3. Familiarize yourself with the activities of the company by visiting their website. This will give you an idea about what the company does. Not everything listed on the website is important from an investor’s point of view as for most companies only a small subset of products or services contribute bulk of the revenue and profits.
  4. For each company, download last 10 years annual reports. These are available on BSE or on respective company website. Download any investor presentations. I generally look only the Q4 presentations as it has information for the whole year.
  5. Starting with the oldest, read annual reports (Director’s report, management discussion and analysis and any glossy pages) where company talks about its products, results of operation, future strategy, expansion plans, risks, why the profits went up or down in a year etc.
  6. For each company, find out the main sources of revenue. This is available in break up of revenue in notes to profit and loss statement, schedule MGT-9, segment information etc. Sometimes it is available in director’s report, chairman’s letter etc. Make a spreadsheet and record this information for each year especially the production volume data (e.g. number of cars made by Maruti, or number of loans disbursed by Bajaj Finance etc).
  7. You need to be able to build a mental picture (or spreadsheet) of where the growth has come from until now and likely to come from in future. New factory, new products, new geography, acquisitions etc. Once you have this mental picture, you will know the risk to revenue i.e. under what circumstances will company’s revenue stagnate or fall? This could be disruption, competition, product obsolescence, changes in laws etc.
  8. Similarly, build a mental picture (or spreadsheet) of main expenses and risk to expenses. Once you do that, you will know how the company earns profits and more importantly sources of growth and risk to profits. Conference call transcripts will give an idea about what analyst are worried about and pain points of investors.
  9. Next step would be to look at the debt and try to find out why company is unable to pay it off. Most common reason is poor cashflow, and other one is low margins. Not all debt is bad but if you are unable to figure out why company is not able to pay it off then stay away from the company.
  10. You don’t have to an expert in statement analysis but you can take a look at the cashflow statement to see where all the profit is going and why the company has to borrow money that it cannot pay off. This is something you will get better at over time and reading more statements is the way to go. Don’t take a shortcut by directly reading analysts reports.
  11. Next step is valuation. Some people use elaborate spreadsheets and some people just use hunch. You only need to be able to find out if company is trading at an exorbitantly high valuation and you don’t need complex spreadsheets for that but at the same time don’t use hunch as a strategy. You need to find something in between that you will have confidence on.
  12. Look at the price chart and try to find why the stock has gone up or down in the last 2-3 years. If you have done your homework, you should be able to answer this question. If you cannot answer this question to your own satisfaction, you haven’t understood the company enough. Ask yourself if you agree or disagree with the market. Most profits come from cases when you disagree and you are more right than the market.
  13. Finally, think from the POV of the person who is taking the other side of the trade. i.e. if you are a buyer ask yourself why the seller is willing to give up the profits and if you are a seller then ask yourself why the buyer could be buying. Believe me, I have reversed my decisions in the past when I saw from other person’s POV.
  14. Recheck the story every quarter. All you need to figure out is if the story has gotten better or worse and if valuations are moving along with the fundamentals. for large companies, price generally move in the same direction as fundamentals but market tend to overreact one way or the other.
  15. Make predictions for next 2-3 quarters. Short term predictions are not very important to the long term investor but ability to make short predictions will help you realize if you have understood the company and the environment it operates in. Ask yourself how will you react if profits drops in the short term especially when it is likely to drop. Sometimes, market will be shocked while you can be calm and profit from market’s reaction while other times you will be the one that is shocked. You don’t want to be in that situation very often.
  16. Have a feedback loop. Check what has worked and what hasn’t and adjust your strategy accordingly. Unfortunately, stock market is not a science lab where you can perform controlled experiments whenever you want. I have had many crash courses during bear markets and corrections. That’s just how it works.

An amateur makes decisions based on changes in sentiments and a professional makes a decision based on changes in information. You will know you have graduated once your decisions are driven more by the latter than former. This process gets better with time. Always try to find out what your edge is and try to improve that. You will also get an idea of what is your hedge when your edge doesn’t work. For me it is being extra conservative when valuing a company.

Starting with Nifty 50 companies will ensure that your mistakes won’t set you back a lot. I wish I had followed this advice myself :slight_smile: . These companies also have more material available for you to chew on. Once you get comfortable, you can expand your horizon to smaller companies which are likely to be less understood and whose prices vary widely giving you an edge and more opportunities to profit.

This is just my take. It may or may not work for you but it has definitely helped me. I hope someone may find this approach useful.

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I think the key to being successful in investing is to know exactly what kind of an investor you are and what path you can take to improve yourself.

Regarding books I realised after having read a lot of books that we need to figure out which kind of books are useful and which are not. If after reading a few chapters we feel that we cannot find anything useful to our growth as an investor then its no use torturing ourselves by reading stuff which isn’t going to help us.

If we find that a book is useful to us then it makes sense to read it multiple times and try to internalise it. If possible read other books by the same author.

Beyond books reading annual reports, listening to concalls and going through company website/presentation etc is very useful. I find valuepickr threads on the relevant companies also very useful as it gives me views from multiple vantage points.

If after all the research we find that we understand the company and can slot it in terms of quality, cyclicality, longevity, predictability, and other relevant parameters and financial data, we can look at valuations and then take a call on investing.

I think its very important to know ourselves as investors so we can read appropriate books, follow appropriate role models and follow proper methodology.

E.g I cannot identify myself with yogesh sane’s style who is a data driven guy while I am more of a feel based guy who likes to look at the big picture and often ignore too much data crunching.

As shown by track records of various big successful investors, a lot of different investment styles have been hugely successful over long periods of time. We as individuals need to identify which style works for us and then get to work on sharpening the saw.

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@hitesh2710 @Yogesh_s ji while analysing a company ,do we really needs to dig deeper to find out small loopholes to avoid investing in the company. What will be your approach if you find a company having huge opportunity size as compared to its market cap , well diversified product and fundamentally good . Will you dig deeper in annual report to find out some issue ,E.g management salary are high ,or unclear data regarding total number of store or some doubtful transaction to subsidiary group. Can we just ignore the small issue and focus on the bigger story for which we have selected the stock to analysis.
Can you share us, which stock has given you highest return and how much in depth you have analysed ?

I am a newbie ,so please don’t mind if I have asked you a irrelevant question.
Thanks,

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I think the books give a framework to hang ideas on. If one didn’t know basic arithmetic, algebra and geometry, calculus isn’t approachable - the same applies for investing without knowledge on accounting, valuation, behavioural economics, psychology and common sense. Throwing away all the investment books may not be the right thing to do but beyond a point, the law of diminishing returns applies to reading on the same topic.

Reading ARs a couple of years back and now, the amount of actionable info that sticks now for me is a lot higher than what stuck few years back. The difference is just books and also sources like VP (Donald’s earlier threads in particular). Acquiring this knowledge is a thankless job because of low contrast in observing the self-development and the lack of immediate payoffs - or the lack of solid correlation-causation link between the payoff and acquired knowledge.

I still believe that without developing the mental framework on business quality, management quality, capital allocation, risk, psychology and spirituality, it is not going to be easy to grasp/throw a bulk of the information that comes our way. It may or may not come only from books but books are an easy source.

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