Does reading make you a great investor? Know the answer to that question here! [Wednesdays: The Independent Investor]
Miles Everson’s Business Builder Daily speaks to the heart of what great marketers, business leaders, and other professionals need to succeed in advertising, communications, managing their investments, career strategy, and more.
A Note from Miles Everson:
Welcome to today’s topic on “The Independent Investor!”
Every Wednesday, we publish articles about great investing tips with hopes to get you on the path towards true wealth and value creation.
Let’s talk about the importance of reading in life and investing, as well as some book recommendations by my friend and colleague, Professor Joel Litman. As a huge proponent of reading, I am happy to share this topic with you.
Are you excited to know more about today’s tip?
Continue reading the article below.
The Independent Investor
Reading is an important activity and skill. As former US President Barack Obama once said:
“Reading is the gateway skill that makes all other learning possible.”
In other words, this activity is essential because it not only helps you learn and gain new knowledge; it also lets you converse with people you might not be able to interact with otherwise.
What are some of the benefits of reading?
- It strengthens brain activity. Reading gets your mind working across different areas. It involves using your analytical skills, stimulating your memory, and activating your imagination to process the words you read.
- It boosts your communication skills. Reading and writing go hand in hand. If you’re looking to become a good writer, many of the suggestions you’ll come across will include reading more as it helps widen your vocabulary.
- It helps in self-exploration. Reading gives you an opportunity to think about things in a new perspective, learn about other cultures, events, or people, and adopt new methods to reshape or enhance your lifestyle.
- It entertains. Reading is a form of entertainment that can take you to different places, points in time, or adventures.
- It enhances your creativity. Reading helps spark new ideas or images in your mind and leads to more creative outputs or expressions.
Overall, this activity is important because it opens doors to new worlds, provides entertainment, and has neurological and psychological benefits.
Besides, it’s hard to escape the need to read! From text messages to signs, emails to business documents, and everything in between, there’s always something for you to read every day.
Reading, Book Recommendations, and Investing
Is it true that reading gives you an edge as an investor?
In fact, some of the world’s greatest investors are known to be voracious readers. They believe reading has a compounding effect—the more they read, the more they know… and the more they know, the stronger and wiser they become as investors.
However, choosing the right book to read isn’t as easy as it sounds.
According to Professor Joel Litman, CEO of Valens Research and Chief Investment Strategist of Altimetry Financial Research, to ensure you’re reading a book that will be an efficient use of your time as an investor, you should first ask yourself these questions:
“Is this book for business or for pleasure?”
“What kind of learning do I want to achieve after reading this book?”
“What kind of conversation do I want to have with my peers or colleagues after reading this book?”
Professor Litman says traditionally, in wanting to learn more about finance and investing, it’s often the books written by the big names in the industry that come to mind. These include:
- The Intelligent Investor: The Definitive Book on Value Investing by Benjamin Graham
- Margin of Safety: Risk-Averse Strategy for the Thoughtful Investor by Seth Klarman
- Reminiscences of A Stock Operator by Edwin Lefèvre
… and more.
For Professor Litman, picking the right book about finance or investing helps fulfill an unmet need. The written work you choose to read must help develop the skills you need to boost your career or enhance your expertise as an investor.
So, the next time you think about what book to read or what to recommend to anyone who asks, take a step back first and assess the unmet need a particular reading fulfills.
Existing Knowledge is Also Important in Making Decisions about Life and Investing
One of Professor Litman’s go-to recommendations for anyone who’s planning to invest is a book by Peter Lynch, the former Manager of the Magellan Fund at Fidelity Investments. Lynch played a significant role in helping Fidelity Investments become a finance goliath that it is today.
Another great contribution of Lynch?
He taught that great investing starts with first understanding what is already known and analyzing the current trends in the finance industry.
His landmark book, “One Up on Wall Street: How to Use What You Already Know to Make Money in the Market,” explains how you can beat the pros by using what you know.
The published work also offers easy-to-follow advice for sorting out the long shots from the no-shots by reviewing a company’s financial statements and knowing which numbers really count. There are also some guidelines for investing in cyclical, turnaround, and fast-growing companies.
As Lynch wrote in the book, your portfolio can reward you if you invest for the long term… and by using your existing knowledge and paying attention to high-performing companies, you’ll find stocks that are worth putting your money into even before other financial analysts discover them.
Wouldn’t that be great?
We bet it would!
Professor Litman says investing is not just about staring at spreadsheets and building great models or frameworks. It is also a matter of thinking through your knowledge and critically evaluating it.
… and like how you should rely on your existing knowledge to identify what books to read, you should also use what you already know to figure out what stocks to invest in.
Apply these tips the next time you make an investment decision!
Additionally, we also hope you’d read some of the investing-related books mentioned above. These will not only widen your knowledge and vocabulary on finance and investing but also let you in on the secrets of some of the greatest investors in the world.
Start making reading a habit!
(This article is from The Business Builder Daily, a newsletter by The I Institute in collaboration with MBO Partners.)
About The Dynamic Marketing Communiqué’s
“Wednesdays: The Independent Investor”
To best understand a firm, it makes sense to know its underlying earning power.
In two of the greatest books ever written on investing, the “Intelligent Investor” by Benjamin Graham and “Security Analysis” by David Dodd and Benjamin Graham (yes, Graham authored both of these books), the term “earning power” is mentioned hundreds of times.
Despite that, it’s surprising how earning power is mentioned seldomly in literature on business strategy. If the goal of a business is wealth creation, then the performance metrics must include the earning power concept.
Every Wednesday, we’ll publish investing tips and insights in accordance with the practices of some of the world’s greatest investors.
We make certain that these articles help you identify and separate the best companies from the worst, and develop your investing prowess in the long run.
To help you get on that path towards the greatest value creation in investing.
Hope you’ve found this week’s insights interesting and helpful.
Stay tuned for next Wednesday’s “The Independent Investor!”
Head of Marketing
Valens Dynamic Marketing Capabilities
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