Tag Archives: Learning

A Reader Asks What is the Best Way to Learn Using the Resources Here.

How Best to Learn?

An intelligent reader and I have had an exchange on how to approach using the resources on this blog to learn most efficiently. There are many resources on this blog and in the Value Valut–just email me at aldridge56@aol.com to request a key)–but the orgainization can be improved upon.

Ben Graham was right when he said a conservative investor can do better than average through using a disciplined, rational approach here: http://www.grahaminvestor.com/

Benjamin Graham always tried to buy stocks that were trading at a discount to their Net Current Asset Value. In other words he buy stocks that were undervalued and hold them until they became fully valued.

“The determining trait of the enterprising investor is his willingness to devote time and care to the selection of securities that are both sound and more attractive than the average. Over many decades, an enterprising investor of this sort could expect a worthwhile reward for his extra skill and effort in the form of a better average return than that realized by the passive investor.” Ben Graham in “The Intelligent Investor”, 1949.

The problem is how difficult it is to perform much better than average. You have to expand your skills and circle of competence while keeping the costs of your learning to a minimum.

I will be traveling the next few day (until Tuesday), but I will think carefully on my answer to his question. Other readers, please feel free to offer your experiences, thoughts and suggestions. The quality of readership here is outstanding.


Hi John,

Just a quick question regarding your suggested learning methodology.

I am currently working through your lectures (blog and Value Vault) and there are a number of useful book recommendations. Would you suggest reading the books before moving on, to appreciate and understand the subsequent lectures? e.g. In lecture two, you quote, “The professor (Joel Greenblatt in his Special Situations Investing Class at Columbia GBS) stressed studying carefully the essays of Warren Buffett.”

I do have the book and was wondering whether to take a break from the lectures and study the book, then return to the lectures. Given you’ve been through the learning process already, what would you recommend?

I’d be very interested to hear your thoughts. Keep up the good work, it is really appreciated.

My reply: Dear Reader please tell me about your background, how you became interested in investing and how YOU think is the best way to learn.

What drives your interest in investing? Then I can better frame my answer.


That is a very good question and I’ll try to be as clear and honest as possible.

Background: I am from the UK, 42 years old, married, with one child.

Job: Sales & Marketing Director for a small Manufacturing Company selling custom robotics/automation machines/systems to pharmaceutical and petro/chemical industries.

Professional Background: I am a Chartered Mechanical Engineer.

Education: 2001 – First Class Honours Degree in Mechanical Engineering.

2006 – MBA from XXXXX Business School.

2010 – MSc module Valuation with Professor Glen Arnold at Salford University (10 week semester). Glen is author of “Value Investing” and other related investing/corporate finance titles (FT Pearson).

2012 – Professional Certificate in Accounting (Open University). This was a distance learning course done over two years in financial accounting (year 1) and management accounting (year 2).

Background: Hard to say how I started out, but I invested in Thatcher’s UK privatisation initiatives in the mid 80s. I made a small amount of money on this purchase of UK utility company British Gas and I was hooked. I was 16 years old.

Since then I had limited free capital due to mortgage, pension and so on. About seven years ago, I became interested again and read “The Motley Fool Investment Guide” on investing which basically advocated index/mutual funds. I did this for a couple of years, invested mainly in Fidelity funds, UK, China, India, US index funds and by sheer good fortune sold out near the top of the market to buy a house (May 2007). Shortly after I had a brief spell spread betting (futures), with limited success, actually no success! I wanted to get rich quick and attended numerous trading seminars in London. I shorted one of the worst hit UK banks (RBS) during the banking crisis and still lost money because of the volatility (and my ineptitude). Imagine losing money shorting Lehman! It was that bad.

I managed to stay out of the market for 2008 and started to reinvest in 2009, mainly FTSE100 companies that are mostly popular (by volume e.g. Vodafone, Royal Bank Scotland) but with no analysis or reason to invest other than a ‘gut feel’ that they would go up! They did, but so did everything else…I later sold once I became interested or aware of small cap value.

I’ve read (once only) many classic investment books (Graham, Dreman, Lynch, Greenwald, Glen Arnold, Montier, Shefrin, Buffett partnership letters, Greenblatt, Pabrai etc.). As you know there are many references in these books to the accounting numbers and having read them I realized I didn’t know that much about accounting despite my MBA education. As a side note, I did the part-time Executive MBA and it was way too hurried to absorb the vast amount of information, so my finance learning was minimal. I oculd calculate WACC, CAPM etc., but didn’t understand the context. And so I decided to embark on an accounting distance learning course which I recently passed a couple of months ago.

After reading these books and several biographies on Buffett, I became more and more interested in the value philosophy (low P/E, P/BV etc.). I stumbled across various value oriented blogs such as Richard Beddard in the UK, Geoff Gannon and your own blog. Since reading these blogs I started to follow the UK small cap scene. (John Chew Small-caps have the tendency to be more over-or-undervalued for liquidity and informational reasons). The reasons for this philosophy are mainly based on Buffett’s early days, Greenwald, Beddard and Glen Arnold’s teachings. I can also relate to the idea that they are under researched, too small for the institutions and are a lot easier to understand.

So far my learning process has evolved from trying to understand quantitative financial analysis through books and working my way backwards, i.e. if I don’t understand something in a book or on a blog, I know I have to educate myself rather than think I know what I’m doing. I’d like to think I recognize my behavioral failings e.g. overconfidence, which I hear a lot in investing. My current thinking is to learn financial statement analysis first, along with valuation and then I can focus on the qualitative factors such as competitive advantage etc.

I believe that to buy a company cheap, you should know its intrinsic value and so I have become more interested in valuation and the teachings of Damodaran. I have just started to look at his Spring 2012 lectures. At the same time I saw his course mentioned in your first lecture. Not long after reading your first lecture, my question occurred to me, i.e. if John is recommending these resources – does he suggest that the reader works through those recommendations first before proceeding with the lectures. I realize that if you read and did everything you posted, it would take a lifetime, so although I am definitely not looking for shortcuts, I would appreciate advice on the case study approach to learning. My intention is to work through the lectures and stop at the point a book is recommended. However there are about five or six books mentioned in lecture one alone. I’ve just started, Essays of Warren Buffett by Cunningham. I also understand there is no substitute for getting your hands dirty and reading the financial reports of the companies you’ve either screened or shortlisted for some reason. I suppose I’m at the stage where I’m not sure what ratios are important, profitability vs financial strength etc. Do I look at a company qualitatively first or do I screen based on PBV, P/E, Yield, ROIC, ROE, EV/EBITDA etc.? I’m conscious that I need to avoid value traps, so maybe look at F-Score, Z-Score, solvency.

I realize you can never stop learning, but I just need some direction from a person who’s been there already. Once I have the right approach in mind, I will study and ultimately learn from my mistakes akin to Kolb’s experiential learning theory.

What drives my interest in Investing?

I suppose this could be answered with a quote from the Guy Thomas book, Free Capital:-

“Wouldn’t life be better if you were free of the daily grind – the conventional job and boss – and instead succeeded or failed purely on the merits of your own investment choices? Free Capital is a window into this world.” Guy Thomas – Free Capital.

That quote would sum it up for me. I can cope with not being rich, but being free would be pretty good! In addition, I actually love the game of investing and the intellectual challenge interests me enormously. I read investing books for fun, much to my wife’s disapproval!

I hope the above gives you enough to answer my original question and thank you for your time and help.

Question from a Reader–The Best Way to Improve Your Skill as An Investor

Question from a reader

There seem to be two courses of action in trying to apply the lessons learned via your website to improve your skill as an investor. The first is to do an in-depth study of a single company, its industry and its competitors. The second option is to read as many 10-Ks as possible and do quick and dirty valuation similar to those found in, say, Greenblatt Class #5.

Which option do you see as more valuable? Am I missing a third way?

Great question and I will elaborate more as this blog develops.

Mario Gabelli advises students to pick one industry and study that thoroughly then after 3 to 4 months move on to another industry. Buffett started by pawing his way through Moody’s manuals and Value-Line to find cheap asset stocks like cigar butts. Munger influenced Buffett with Sees Candy to look at high quality businesses.

After you have read the obligatory required materials like Buffett’s shareholder letters, his Buffett Partnership letters, Margin of Safety, The Intelligent Investor, the Greenblatt books and lecture notes, you need to build from there. My interest and suggestion would be to find 6 to 8 compounding machines which can be bought at a discount.  If you can find a few high return on capital companies that are able to redeploy that capital for several years at high rates, you will have outstanding returns. These companies are rare that is why you must be patient to find them and to hold them.  But you must know what to look for.  You should become an expert in how companies develop and maintain competitive advantages. This will help you in searching for great investments and give you confidence to hold them for a while.

For example, if you understand regional (geographic) economies of scale you could focus on service companies like waste hauling and disposal or rock aggregates or health care providers and notice if they dominate their particular regions. Do you see high returns on capital? Study these companies and wait for them to go on sale.  Rather than wait for blow-ups and disasters to study companies, find the best emerging companies you can find, study them regardless of price then wait for your opportunity.

Take a look at the last case study on charlie479.  He epitomizes what I am talking about.  Read broadly and deeply about businesses—10-Ks but books and autobiographies too.  As you learn more about competitive advantages you will see connections in other businesses. You will see companies losing their advantages but look for companies that are successfully entering against incumbents. Look at niche companies that can dominate smaller markets.   Read, read and read.

Next week I will post the best company analysis in the world done by Charlie Munger.  If you can learn how he views business problems then you will grasp what is most important in business analysis.

You can buy cheap assets in special situations where management restructures the debt or assets and you get a nice bump up in price, then you must redeploy your capital like a merchant into another asset play.   This can be profitable and relatively low risk but the big money is made sitting on fantastic businesses that are compounding at high rates.  I would focus there. Few investors study competitive advantages–I mean become an expert at spotting and understanding great companies.

Fire away with more questions.

A Protester Speaks the Truth about the FED.

The purpose of this blog is not politics but self-directed  education, especially in business, economics, and finance.

A recent YouTube video struck me as a great  example of how a person can understand the world and its problems by taking a  vigorous effort to learn. The protester in the video below nails the problems our country is facing. He searched for the answers by reading  Austrian Economics. No one told him whom to study, he did his own research and  thought for himself. I would rather choose him to be an analyst or investor than a PhD. Nobel winning economist anytime.

A protester dares to speak the truth at Occupy  Wall Street:

http://www.youtube.com/watch?v=J0cp_DyfiRU&feature=related      7 minutes

The same protester explaining his position to  end the Federal Reserve Banking System at Occupy Wall Street:

http://www.youtube.com/watch?v=V6mlOzEMd5g       10 minutes

As he says, “In 1913 this country died when we got rid of sound money.”

Thomas Jefferson warned us two hundred years ago that a private central bank issuing the public currency was a greater menace to the liberties of the people than a standing army.

Learning: The Importance of Studying History

The Best Way to Learn?

Is this the best way to learn? Turn up the volume and watch the 61 second video


Immediate feedback is the best way to learn in a command and control situation. If you make a mistake in war, you may endanger your comrades.  Gomer Pyle’s error received swift punishment—slaps across the face. The sergeant may be harsh, but he is effective.

Investing is a more complex endeavor. You may act improperly (buy a stock after Cramer recommends it on CNBC) and make a profit, but lose money in the short-run while executing the proper process. One way to improve your perspective and discipline is to study history. You need a theory to place historical facts into a coherent understanding of reality.  If not, you could end up in hell like Mr. Alan Greenspan testifying before Congress in 2008. Go here and click on minute 49.30 (49th minute, 30th second).

Greenspan in hell http://www.pbs.org/wgbh/pages/frontline/warning/view/

Mr. Greenspan admits that his “model” of reality had a “flaw” in it.  He can barely speak cogently. Gee, I wonder why we are in a mess now. The entire video is worth watching but here again without a theoretical grasp of what causes booms and busts you would be persuaded that derivatives and their lack of regulation were the main causes of the crisis. Derivatives were  a tool used to hide or magnify leverage, but they were not the cause of the crisis. That is like saying machine guns cause murder. No, people who commit the crime using guns cause murder.

Death Therapy

It is too late for Mr. Greenspan. The solution for him is Death Therapy, a guaranteed cure:


You, the reader, have other options. Download A Study of Market History below:


I hope you begin your history lessons.