All,
As several of you may have noticed, I am a newbie in financial matters. I had hoped that I would have learned more than I have, but once I joined P123 my ignorance became quite evident in reading all that is here. In reading the P123 blog, in the very first essay, the tile is “How to Be a Great Investor, Part One: Be Numerate”. My education was as a computer science major, so I did take the usual math courses (thought I’d be hard pressed to remember any of my differential equations courses). I did take an engineering economics course, which was really fascinating, but we talked little about business accounting.
On my own I have read several investing / trading books written for the general public, including Peter Lynch’s One Up On Wall Street, William O’Neill’s How to Make Money in Stocks, James O’Shaughnessy’s What Works on Wall Street, and many books that espoused the buy-and-hope diversify gospel, which I followed religiously until 2009.
So I have the basic understanding of a few financial measurements, such as price-to-earnings ratio, the PEG ratio, price-to-sales, price-to-book, and a few other such ratios that are now widely known (and thus have mostly been arbitraged away.) But there are so many other such financial measurements I don’t,
So my question is this: where can I learn more about these different financial values and ratios so I actually follow Yuval’s advice about being numerate?
Cary
For those who don’t know about Jethro Bodine, search for that name along with ciphering. Here is one such YouTube video: https://www.youtube.com/watch?v=1H8e0MMwUec
I really like Mihir Desai’s book How Finance Works. It really forces you to think through financial statements, but does so in a fun and friendly way. Also, I think the courses offered by the Corporate Finance Institute are quite good. I believe the introductory courses “Reading Financial Statements” and “Accounting Fundamentals” may be free. Also, they’re short. Lastly, read some of Seeking Alpha’s articles on individual stocks (there are thousands of them). Some aren’t as good as others, but most of them give you a really good sense of how sophisticated investors think about various issues that affect stock prices, drilling down into the details one can get from financial statements and earnings calls.
Along with all the books mentioned, I have found Quantitative Strategies For Achieving Alpha by Richard Tortoriello to be profitable. It is on the P123 reference material list and I received a copy for Fathers Day and have been working through it. Few of the rules can be directly implemented as relatively profitable as shown, but with some adjustments and/or change in context work out well.
Perhaps the most important thing I found are the many charts showing factors going in and out favor over the years with many different approaches working out.
Cheers,
Rich
I second How Finance Works, which Yuval turned me on to a while back. Its quite good and very digestible and maybe the most fun one can have reading a book about finance.
I also find creating factors from Business Ratios and Formulas by Steven Bragg good P123 practice, along with trying to duplicate the Seeking Alpha quant system, which is all but spelled out for you on the SA site.
I also liked Warren Buffett Accounting Book by Broderson.
And if you are into rolling your own with Python, there are some very good free machine learning books that have recently been discussed on the forum.
Hi carymac07,
For context, I’m just a retail guy so take me with a grain of salt.
Wanted to mention one of the more interesting things I’ve read is a collection of Warren Buffett letters. I can’t remember the name and can’t find reference online (I think I got it from the library), but someone went through all of Buffett’s letters to shareholders and grouped them by topic while adding commentary and analysis in the process of aggregating thoughts across decades and lines of business.
Buffett’s letters are of course available on the berkshire website, but I thought the way they were put together in that collection made for very good reading.