Friday, June 17, 2011

For Investors, More Important Than English

I’m often told by visitors to the site that this content is rather advanced for the investing beginner. As such, a question I often receive is “Where do I start?” or “How do I become proficient enough to understand what makes for a good investment?” The answer is to learn and understand accounting.

Accounting is a language on its own. It’s not intuitive (at least, it wasn’t for me), but once mastered it is a very powerful tool for understanding a company’s past and present; it can even give the investor glimpses into a company’s future.

Every quarter, management will host conference calls and issue a release which describes the company’s progress. Often, the statements managements make through these media give a very rosy view of management’s progress. But investors who do not understand accounting have nothing else to go on. Meanwhile, an understanding of accounting can actually tell an investor much more about a company’s performance and prospects, both positive and negative.

Short of taking an accounting course, the best place for investors to start is probably a beginner's accounting textbook. Such a publication would cover the necessary elements, giving those with a value investor’s temperament the quantitative understanding necessary to be successful.

6 comments:

gullchasedship said...

Thanks for the tip - it's a fair bit cheaper on amazon.ca - but still close to $200. Any suggestions on where to start for less than $100?

Anonymous said...

Barel,

Would a book on how to read financial statements suffice?

Love your blog. I look forward to it every day.

Lew

Anonymous said...

for anyone serious about investing, the CFA course level 1 will put you about on par with most professionals with <5 years experience, so similar proficiency to your average sell side or wall street analyst. highly recommended

Saj Karsan said...

hi guys, i have no specific recommendations, but yeah i'm sure a lot of different books would work

Anonymous said...

I stumbled upon your site after finishing Accounting 2. The book we used for Accounting 1 & 2 was "Fundamental Accounting Principles." It might be difficult to take on by yourself with no teacher. But for the ambitious autodidactic this book will leave you with a solid foundation. I tried to read short cut books like "Financial Statements." Which I found very difficult, it reads worse than cliff notes.

Great site, it has become one of my favorite blogs. Keep up the good work.

Alistair said...

You can take an online accounting class for free from http://www.kutztownsbdc.org/course_listing.asp

There are a number of other classes that are related. Free is not a bad deal.

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