Warren Buffett has often been quoted to say that the most powerful factor in his financial success is “compounding interest”. I feel the same way, not just about long-term investments but also in the accumulation of knowledge, especially through reading books.
Ironically, for the longest time I have taken the opposite stance, and not without good reason. I practically have never read a book not required by some course or exam, and have done fine in my academic career. If there was something I wanted to learn, online courses and Youtube videos did the job. That is, until the tail end of my studies and I realized how much was missing in my understanding of the world, a gap that only the investment of time could make up. In particular, I wanted to master personal finance, and not just to the degree of your average Robinhood gambler, or to pass an artificial test. I wanted to truly succeed in that subject with minimal missteps, because my competence would have a direct impact on my future. Unlike the countless exams I have taken to arrive at this point, there is no “fair” assessment that can be finessed through simple tricks. The only assessment is one’s wealth and to a degree one’s happiness, a cost too dear for me to pay. As my frantic online searches only brought up more questions than they answered, I realized I had to change my attitude towards learning. To systematically excel in such a historied and multivariate topic as money management, I needed new tools.
As the return on investment compounds to generate a larger gain the following year, the knowledge base obtained from reading rewards with a more profound understanding of future learnings. Moreover, the focused deep dives offer a greater opportunity of knowledge retention, compared against the ad hoc learning of Google searches and Youtube videos. I was also heavily influenced by my mother, who reads abundantly. Her biggest regret was not starting sooner, echoing the many investment advices I have read online, and though I have heard her counsel many times before, this is the first time I listened. Thus, I have set a realistic goal for myself, to read 10 books this year. It is now August 2020, and I have read the following 6:
- money walks 会走路的钱 - Written by an immigrant and ex-engineer, the book documents his journey to grow over $10 million net worth in 10 years. It mirrors my background in many ways, so it piqued my interest. The strategy is mostly leveraged residential real estate in the 2008 depression, which is different than what I hear from most but offers a great perspective on investment, which is that all roads lead to Rome. The most important thing is to know about many, and find one that works for yourself.
- The Intelligent Investor - A classic in the investment genre. Kind of difficult to read as it was rather bland and the language quite lecture-y, But the gist is, if one is unwilling to perform due diligence and read into the financial strengths of companies, one should just invest in a general market index. Also goes over some common sense topics, such as why the need to invest (inflation), why actively managed portfolios suck (fees), and investing vs. speculation. Much of the bond talk is not relevant anymore, as fed interest rates have basically fell to nothing.
- Reminiscences Of A Stock Operator - Read this simultaneously with The Intelligent Investor. Great juxtaposition, seems like Jesse Livermore was using illegal under the table tricks more than his skill of reading the market to make and break his fortunes. Not mentioned was that he died by suicide, and penniless. Day trading wrecks your nerves and no one has beaten long term investments.
- A Random Walk Down Wall Street - Decent encyclopedic book on investment strategies and schools of thought, although peppered with the author’s opinions. Good intuitive and mathematical explanation of Efficient Market Theory, Capital Asset Pricing Model, Beta, and associated financial engineering concepts. Also expounds on fundamentals analysis, and market index investing. Author’s conclusion is that best way is to do dollar cost averaging into an index, although my mother strongly disagrees.
- The Snowball: Warren Buffett and the Business of Life - Biography of Warren Buffett. Explores the factors that made one of the greatest investors to ever live, and showed me many things that were ok to be. Buffett dreads public speaking, finds social interaction exhausting, is afraid of confrontations, all things that I struggle with. Along with the investing mentality, I have picked up some self confidence in this story.
- Financial Statement Analysis (Martin Fridson) - A primer on a series of financial statement books I am planning to read. The first 10+ chapters all warn the reader about the fraud that has occurred with financial statement reporting of public companies, which is useful but not what I was after. The second to last chapter is the gold, explanation of the key ratios that a value investor should watch out for.
As I make more progress towards my goal, I will gradually update the blog section with more content. I am also planning to write some commentary on a few individual books, coming later in the year.