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[NB: I guess you might call this a companion piece to my February post, ‘Why I Write…’].

The immediate & obvious answer, as with most things in life, is ‘What else would I bloody do…?!‘ But I have to admit, I’m an autodidact – always have been, always will be, ever since childhood – which unfortunately made organized education increasingly intolerable** the older I got. However, when it comes to investing, the odds are stacked in my favour – organized education doesn’t offer you a hope in hell of becoming a good, let alone a great, investor. As people often notice with regard to MBAs… [Again, I can’t resist this classic!].

[** Hopefully, that all changes with the advent of MOOCs, which have the potential to offer interactive autodidactism. But don’t believe all the hype – sadly, most people just aren’t motivated enough to learn & study alone. In fact, they often have different priorities… Of course, if you’re dirt-poor & living in a third world slum, you may be incredibly motivated – I think MOOCs present an amazing business/investment (& charitable) opportunity to bring Western education to emerging & frontier markets. Forget the hollowed-out state of manufacturing…the next generation of US college kids, plus their six-figure student loans, should be bloody terrified of the rest of the world potentially competing on far more equal terms…and far less pay].

Buffett perhaps said it best, as he often does: ‘But ultimately, the key to success is emotional stability. You don’t need a high IQ to get rich‘. He was highlighting EQ, rather than IQ, but also implicit in the quote is that education (at least in the traditional sense) isn’t required to get rich either – this is particularly true when it comes to investing. I scarcely need to argue the point – simply give me a couple of books, and a day or two of your time, and that’s really all that’s needed to teach you the essentials of investing. Seriously..!

While that crash-course would certainly provide a good foundation, it’s ultimately irrelevant – as I guarantee you it could take a lifetime (or never) to become a great investor. Gulp… So, is there anything to help with/change that? Actually, yes – c’mon, you know my answer:

Read, read, read & then read some more (’til you puke..!) 🙂

[And also, the pains of being pure at heart…sorry, being an investor! If you’re a person who learns from your mistakes (and that’s a big IF), you will fortunately enjoy making your biggest mistakes as an investor when you start out, i.e. when you possess the smallest amount of money – now that’s a really cheap education!].

For me, constant reading accumulates three huge benefits. First – I’m looking for knowledge, experience & inspiration:

When you stop learning, you might as well give up the ghost… I’m often stumped by readers asking me what are the single/ten best books on investing I’d recommend. Sure, there’s plenty of them, but what’s the reader really looking for? If it’s facts & figures, formulas & ratios, any dry old textbook (which probably has little else to recommend it) will provide them, usually to great excess. I’d certainly struggle to recommend one such book over all the others. Or perhaps the reader’s looking more for investing tips, experience, advice, etc… Again, I’d struggle – how on earth does one rank the myriad of books on offer? Which book encapsulates the best and/or the most comprehensive wisdom?

Unfortunately, it doesn’t exist – because what works/rings true for an author may not work for you (amongst other reasons). Then you have to realize knowledge is found in the most unpredictable of places – sometimes I eagerly read a much-hailed investing bestseller only for it to leave me cold, other times I pick up some out-of-date & dog-eared secondhand book, and discover a lifetime gem of wisdom in the very first chapter. [Old books (not necessarily classics) can offer marvelous insight into the market’s longer-term context & perspective – which is sadly lacking in far too many modern books. I was recently reading ‘Paper Money’ & was stunned how timely the entire book read]. And often this knowledge will challenge what you’ve learned before – which is a good thing… 😉

So don’t dare dream of restricting your reading material. And I don’t mean read every investing book – I simply mean read everything! That starts with newspapers & magazines, of course – though you need to be wary of the enormously high level of noise. And don’t stick to business, finance & investing either – there’s just as much to be learned from science, technology, current affairs, politics/policy, industry/trade and international journals & publications. To cite a more bizarre example, I’m regularly astonished how much I learn from ‘Vanity Fair’!?

No need for elitism either – if you want to know what the great unwashed consumer is thinking & buying, you unfortunately need to read what they’re reading. [Just move your lips while reading, it helps…] Don’t forget, the Ugg slut look was a celebrity knock-off – and you could have made a ton of money off it, if you were in the know. And where would luxury company profits be without their diffusion lines? Next time you visit NYC, just drop in to the flagship Macy’s (M:US) – what greets you isn’t pretty & it certainly isn’t luxury…

The same holds true for books as newspapers & magazines – a v broad & diverse diet is recommended. Aside from the usual categories, I find history & biographies especially useful. [But I actively avoid business (management) books – 99% of the time, I have to simply marvel at the whole waste of time, money & paper… And the remaining 1% are often a pointless exercise in curve-fitting, as any trader would recognize]. Again, history adds valuable context & perspective to the world & economy we live in today – the fact it rhymes, and is often a blunt reminder of the implacable nature of cause & effect, provides a tentative road-map to cut through the noise of the present & to look into the future. An author who writes equally well about history & economics is especially interesting – Niall Ferguson, for instance.

Biographies are more personal, but the best ones illustrate the power of a single individual’s vision, integrity, confidence & sheer determination. They inevitably teach the inspirational lesson that failures never matter in the end as long as you pick yourself up, learn your lesson, and always try, try, try again. [Just to be clear, I’m obviously not talking about D-list celebrity biographies here…I mean (at least) multisyllable books!]. And Ron Chernow is a wonderful example of a biographer.

Obviously, I also spend large amounts of time reading online. [I tend to discover investment themes offline, and stock ideas online]. Again, I read in similar fashion – in fact, the web particularly suits my usual random reading approach. I definitely encourage you to do the same – just click & read every single link you see, what have you got to lose?! And some bloggers have amazing blogrolls – work your way through them. [Apologies, my blogroll has pretty much evolved from link swaps so far – it’s really just the tip of the iceberg vs. what I actually read online]. You never know what kind of awesome stock idea you might stumble across tomorrow…

Of course, I particularly focus on the major finance & investing websites, a couple of decent forums, and a multitude of finance, economics & investing blogs. Recently, I’ve started to put a renewed effort into tracking down well-respected fund managers for their perspectives, their favourite stock ideas/holdings & their presentations. In terms of looking at individual companies & tickers, I pretty much stick to the LSE, Bloomberg & Nasdaq websites (the latter works for non-Nasdaq stocks too). These were probably accidental choices, originally – they each have their pros & cons – but they all get the job done. Frankly, in terms of further reading & sourcing figures/analysis, I quickly turn to company websites anyway.

Because annual reports are the piece de resistance..! If a company even remotely interests you, I encourage you to read their annual report. If you’re planning to perhaps invest in a company, also read their competitors’ annual reports first! And I really do mean read – cover to cover! The second half (i.e. the accounts & notes) is the really interesting meat of an annual report: The accounts are where you’ll see the real figures, not management’s massaged figures, and in the notes you just might find something that could be a potential game-changer in terms of valuation.

And I can assure you this ‘work‘ is never wasted – it’s the only way you’ll ever build up a mental database of management, business models & strategies, sector metrics, valuation models, etc. etc. And reading back through a series of annual reports really adds depth – it’s a great way to weed out companies & managers who consistently fail to deliver (& who constantly move the bloody goal-posts). [Unfortunately, US investors are sometimes badly served in this regard. The SEC has done a fine job specifying pretty rigid format & content for company 10Ks, but as a result, companies often neglect to publish a (UK/European style) annual report. At best, shareholders are blessed with a Chairman’s letter…which is often short, lacking in hard data, and reads like it was written by the company’s PR flack].

Annual reports also represent my primary source/pipeline for future investment opportunities. I tend to find most cheap stocks aren’t that interesting – they’re cheap for a reason, or they (appear to) offer little in the way of significant value creation, or growth potential. However, I constantly (& randomly) encounter the reverse – companies that are interesting, but not that cheap. [btw I can only tell they’re genuinely interesting from reading the annual report – which is why I rely so little on stock-screeners, they lack that particular feature..!]. I’ll patiently follow an interesting stock – sometimes for even 5-10 years before I finally invest! But as the number of stocks I track keeps increasing, I can always rely on a few to be on sale – and (presuming no permanent reversal/impairment) that’s exactly what I’m looking for – cheap & interesting stocks! 🙂

In summary, what I get from constant & voracious reading is a giant, random & ever-changing mosaic of knowledge, experience & inspiration. I continue to add to that mosaic today just like I did on day one, albeit (perhaps) in a more sophisticated & useful way. If this all sounds like a rather haphazard & arduous task, which never ends…well, yes, it probably is – just like evolution! Which I think is an apt analogy – after all, random adaptation/mutation in an often hostile environment is the real backbone of evolution. Investors also face markets & a world that’s sometimes just as challenging & mercurial. Reading (and learning, of course) is your key offence & defence:

How else can you ever hope to acquire and maintain the necessary flexibility & adaptability (in your investing style, analysis, ideas & perspectives) to thrive, or even survive, in the long-run..?

Now, I also plan to cover a second & third major benefit to reading. These are just as, if not more, important – I believe they can help you to identify & capture substantial gains, and avoid disastrous losses. OK, why don’t we just save them for a Part II?!

To be continued…

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