Tag Archives: Career Advice

A Reader Seeks Guidance


A Reader Asks for Guidance (edited for brevity)

I’m writing this e-mail to ask for advice, as I value your opinion.

I’m 22 and graduated in Psychology. I moved to New York back in March as everyone said this was the place to be to get a job in finance. Since then I’ve been networking a lot, learning, and pretty much bugging every fund manager I’ve managed to get a hold on.

Attached you can find my current security analysis template; in Word and Excel (tables). I’d appreciate any feedback on anything to add. 

I’m writing to you as I’m almost down to the penny (excluding my investing capital which is untouchable) and I need actionable advice. I’ve been crashing at a girl’s place in Brooklyn for the last 2 months and down to $400.

For write-up purposes, looking at equities, I still believe ESV and CLD are among the best plays.

ESV is currently the only driller making a profit and management has proven wise. It’s a good play for both safety and capital gains. The same could be said about CLD.

Looking at bonds, I haven’t analyzed them quite as much as equity opportunities since I can’t invest there yet. However, from a glance at the BTU bonds trading at around 34 cents and maturing on Nov. 15 18, they seem as potentially worth a closer look. BTU’s dominant size, presence and assets makes it unlikely to go through a disastrous formal chapter 11, so if it goes through an out of court restructuring or simply plows through, you’re seeing either full recovery or getting new equity in the restructured entity. It seems as a similar play to the equities I’ve looked at, albeit less secure. Can’t say the same on the BTU equity.

I would really appreciate any actionable advice you have for me. At this point I’m even willing to mow the lawn of whoever takes me in (funny, but true). 

Thanks for reading such a long message, and thanks again for sharing your knowledge. Your advice and the Deep-Value group’s really helped me both intellectually and psychologically as I was feeling a bit bummed out.

John Chew:

Dear D (name withheld)

I am not quite sure what you are asking advice on:

Your investing templates, stocks, and/or job/career advice.


First, I did not post your templates here for others to see and comment on because of privacy, but I do think you put alot of effort and thought into constructing them.   Just remember John Templeton’s advice to his analysts, “We want our analysts to adopt whatever approaches are appropriate to a particular situation.”    Use your templates as a guide but don’t cut and paste.

There are many in the Deep-Value group with varied experiences who could give you their thoughts.   I find it is hard to give advice not knowing the person well.   The key is knowing yourself which can be difficult for a young person starting out.  You seem to have a passion to learn and become an investor, so you are part way on your journey, but you have much to learn (as we all do).   You have met other money managers and what has been the response?   I can promise two things:

No one trains you on Wall Street and you have to show what you can do.   In your case, that would be a well-written research report on a company or an industry to show an employer your through process and skills.  You need time to develop your skills–about five years.

Do you need to be in an expensive city like New York or even work on “Wall Street?”   I place Wall Street in quotes because I mean the investment business.   Could you work as an assistant to a CFO at a small growing company?   Would you think of working as a broker or back office clerk to get your foot in the door.  You could work in a job to keep food on the table while you constantly build your skills and a track record no matter how small and keep networking.  Francis Chou did this while he worked at a telephone lineman (Francis Chou)  But again, easy to give advice while not knowing all your alternatives.

Perhaps think through EXACTLY what advice you want, but other people reading this can also provide their thoughts.

Cheer up, I remember being broke and staring up at the ceiling in an Indian brothel and wondering how the hell would I ever survive?

If you are seeking ways to becoming a master investor/analyst, the road is a long but rewarding one:

Pavel Datsyuk https://youtu.be/gpDdaC1_UGg

Jordan on fire: https://youtu.be/hYntar_qeVk?t=41s

Keith Moon: https://youtu.be/NJH8DmPfVmU



A Young Reader Seeks Advice on Career (Updated)


The above depicts my conversion to becoming a “Goldbug.”
I really appreciate your hard work you are putting in your site and I am an avid reader of it. I would like to seek your advice regarding a decision I am facing. My goal is become a value investor and establish my own asset management firm to manage my own money and other people’s money. Right now, I have the opportunity to pursue partnership in my family business and be able to run it along with my father. I am 23 years old, and I am a freshman student at the American University of Beirut. If I am to be a partner in my family business, I have to drop out from the university and travel to Dubai, United Arab Emirates, where the business is. I am still a freshman student because when I was 19 years old, I dropped out to establish my own business in the same industry as my family in Beirut, Lebanon. I had an experience running a business and I had the opportunity to sell my business after two years of operation to my cousins, and, thankfully, it was a profitable venture.

My family business is somehow facing sales shrinkage and cash flow problem due to low capital (my family made terrible mistakes in managing it) and economic downturn. They are specialty contractors and manufacturers of fenestration products (windows, doors, kitchens, curtain walls, and rolling shutters). If I am to work with them, I can be able to help them in reorganizing the company. It might be risky for me, but if everything worked out well enough, I will have earnings that I believe is better than being an employee.

I am facing a decision that I need to make. You might not be able to advise me, but whatever advice you give me, I appreciate it. If my goal is to manage my own money and other people’s money by establishing my own asset management firm, is it helpful to have a university degree or the experience of having ran a business?  Shall I drop out and pursue my family business opportunity? If I am to continue studying, I will incur student loan debt which I won’t prefer. But, alas, I will do it if it need be to accomplish my goal. Thank you a lot.

Kind Regards,



You present an interesting quandary/opportunity.  I will weigh in tomorrow once others with more wisdom (the readers of this blog) present their thoughts.


John Chew


Since you are young, you have about fifty to sixty years ahead of you. It will take a minimum of five but most likely ten years before you use a style of investing that you can consistently follow because YOU developed it.  I am assuming that you are self-aware in assessing your strengths and weaknesses. After your five to ten years, you will have almost half a century to really compound your capital!

It is my experience that people who lack a business school degree do NO WORSE in investing than those who do. In fact, I wonder if obtaining a CFA hurts. Joel Greenblatt, Jim Rogers, and another great investor have all told me that an MBA is “useless.” Go study Graham, go read history, go trade soybeans for a day—they say.  I am NOT against a business school degree–I just don’t see the relevance or the cost/benefit IF investing is just what you wish to pursue.

What is the purpose of learning “efficient frontiers.”  Institutional investors seem like index-hugging sheep to me.  Yes, you hear of the big-wigs like Loeb, Carl, Icahn, etc. but no one mentions the thousands of over-charging hedge funds.  Buffett only attended Columbia so he could learn from Graham.  You can do the same but you have his books and other writings (right here at www.csinvesting.org).

You can develop yourself like Michael Burry, but you will have to be extremely fanatical and diligent in learning and applying yourself to investing.  Look in the mirror.

Also, your family is important to you and they need your help. Can you just focus on business school?  You can make more money which you could put towards investing to both learn and build a track record. Managing and turning around a business should provide even more of a life lesson and skills for other businesses and investing. As Buffett says, “I am a better investor having been a businessman and I am a better businessman because I have been an investor.”

But you should have a plan. What exactly do you need to learn, what skills to develop and from whom or where or how based on your current/future situation(s)?

Obviously, basic skills in accounting. Can you take a course/audit from where you live or do it on-line?  Order a CPA Test Taking Work book, or get an intermediate accounting text WITH a workbook to do ALL the problem sets.  Talk to your professors or look up others who you can stay connected to who can suggest material to learn. Tell them your long-term goals. Perhaps, you can obtain course material for free or future references.

But, at the end of the day, it is not your degree that matters but what YOU know and apply as shown by your investing results or the quality of your analysis.  Who cares that you have a degree from XXX but what is the quality of your thinking and how can others see that. What have you done that applies to becoming a successful investor? Better to carefully invest $1,000 and keep track while turning around the family business—a great accomplishment if you can pull it off–than obtaining an MBA.

Now back to what you will need to learn……………….

  • You will need to be constantly learning………..
  • Reading financial statements
  • Understanding strategy and competitive advantage.
  • How to value growth
  • Understanding regression to the mean
  • Understanding basic economics (www.mises.org) like production structure, interest rates, Austrian business cycle theory.
  • A vast reading of market history for the past 200 years in commodities, stocks, interest rates, and individual companies. Study the history of rail roads, canals, semi-conductor companies, etc. The history of civilizations.
  • Study the great investors—EVERYTHING by Buffett, Graham, Fisher, Munger, Icahn, Klarman, etc.
  • Expertise in valuing companies that can be valued.
  • Building up a track record with written analysis of each investment entered and exited.
  • Keep a diary of your thoughts and progress. 

Who needs an MBA with www.csinvesting.org and its wealth of materials and suggestions?

 Let me know if that helps and please keep in touch. Good luck and many successes.

Follow up question

I am really thankful to you for your thorough advice. You know, I have been thinking about the industry and how competition is hurting our business.  Our business is related to the construction industry which is cyclical in nature plus we have been dealing with the economic downturn. Our balance sheet is not strong enough, but we have dealt with it in numerous ways. We are low in capital and we have not even spent anything in the last 20 years on modernizing our machines. They are old and obsolete. But we still managed with them, and we have around 3 million dollars in sales.

I know they are too low, but there is a lot to improve on. I will try my best to modernize our business and make it efficient. I will try to control our costs and expenses. I will try to manage our working capital in the best possible way. This industry is not going any where. People will always need windows, doors, facades that would make buildings look nice, and, of course, rolling shutters. We are in the same business as PGT Industries (NASDAQ: PGTI), Permasteelisa Group & Far East Global (both of which are global businesses outside U.S. Stock Exchanges).

The most important of all is sales of which I will do my best to gain customers, and make them loyal and happy. But you know my father been telling me that margins are quite low due to competition and price wars. For us to get a business, we have to provide the contractor a quotation. Our competitors will provide it, also. The one with the lowest bid will win the business. So, for our company to be able to compete, we have to be cost conscious and try to be as efficient as possible. We might be the lowest cost producer, right? Is that a competitive advantage? Is it sustainable? I guess I have said a lot, and I am really grateful that someone would listen. Thank you a lot for your advice. It really helped.



Your business must be as efficient as possible.   Sustainable competitive advantages are very difficult to have.

Your business can be efficient in sales, finance, installation, manufacturing to earn a FAIR return on capital.

But to have a STRUCTURAL cost advantage that your competitors can’t copy you need either economies of scale in a region or product.

So, for example, if you ran a garbage pickup company (picking up trash and then disposing of it) you could have new trucks, well-trained drivers but then anyone could do that. But if you had 95% of all the customers in a small geographic space/region/city/town then your costs per customer and your fixed costs of trucks/permits/gas would be STRUCTURALLY lower.  Even if your crews were drunk and your trucks old, your overall costs would be lower vs. competitors in THAT specific region.

The geographic density of your customers would be impossible to compete against because you would be the lowest cost supplier.  If your trucks were picking up garbage every 30 feet in a city vs. a competitor who has to travel 1/4 mile between customers then you will have more revenues per mile/truck/crew than a competitor.

You see the DIFFERENCE?    Being efficient is not structural. It is important, of course.  Go to blog and type in search box: Strategic Logic

What are you looking for and what problems do you have with the blog–I can try to fix.



Career Advice

Value Around the World (Blue is neglected/Red is popular)Value around the world

Career Advice

A readers asks:

As a brief background, I’ve been extremely interested in value investing since 2008. I decided to make a career switch (from media to finance), and so got an MBA, after which I joined the sell side, covering consumer staples for a great senior analyst in XXXX. My goal was to learn how to do value added in depth research (as well as modeling etc.), and then move to asset management and investing down the line. At this point (I’m 28), I’ve been doing this for 2 years, and have 2 offers on the table.

The first is for a very small fund, which is run by two portfolio managers. They have a concentrated (xx positions) strategy, and focus on buying quality companies with sustainable ROIC at fair prices. They also try to maintain a circle of competence, and only look at a few sectors. They’ve been operating for 8 years, and have outperformed their benchmark by 8% annually, with a sharp ratio below 1.  My feeling was that both managers were very intelligent, and I could learn a huge amount from them (one has a finance background and asset management experience, and the other is a strategic thinker that has more industrial experience at some very high quality businesses). It seems like a risk, but also potentially a great opportunity to do what I want.

The second offer is to join one of the big bulge bracket banks in XXXX in Equity Research,  as a senior associate covering a consumer sector, with a seemingly high quality analyst (top 5 ranking). I would maintain sector coverage whilst the senior analyst is away. So it’s a big increase in responsibility and quite a good opportunity to prove myself at a quality firm. My feeling is that I could continue to learn, enhance my circle of competence, and whilst not doing exactly what I want right away, I still very much enjoy analyzing companies, and it may give me better opportunities afterwards.

What type of advice would you have in this situation, and how would you approach it?

My advice:  Other intelligent readers can lend their tenor to your question since I will give you my biased opinion.   I think you answered your own question.

Go work for the smaller, more entrepreneurial firm doing what you want to do NOW.

You are simply moving laterally if you join the big firm to work for the female consumer products analyst. What great leap are you making there?  If your goal is to become a value investor, then you probably don’t want to work for a sell-side firm.  Your job would be to push stocks or deals.

Also, while young, be willing to fail. If you join the smaller firm there is more room to contribute meaningfully and to learn. What is the worse than can happen? You have two experienced investors who are pursuing a market beating approach–focused investing within their circle of competence. Also, you will be learning other industries. You can learn from two minds instead of one. Big brokerage houses are rife with conventional thinking. Also, the consumer products industry (in general) right now is about as overvalued as I have seen in years so the timing wouldn’t be pretty. Would your bulge bracket firm allow you to put out sell or short recommendations on grossly overpriced companies? I doubt it.

The risk is if the small firm has the wrong approach (short-term trading) with individuals who do not follow consistently a sensible strategy.  Based on what you say that is not the case.

I sense the big bulge bracket firm is more of a security blanket than an opportunity.  Go for doing what you want now since life is short.

Good luck

Hedge Fund Manager on Where the Jobs Are

Inside Goldman Sachs

http://www.economicpolicyjournal.com/2012/07/inside-goldman-sachs_01.html Listen to this interview from the Robert Wenzel Show with Derei Pilecki.  I hope this helps readers who are trying to crack the job search morass. Good luck!

This week’s guest on the Robert Wenzel Show is Derek Pilecki. Pilecki is Managing Member, Founder and Portfolio Manager of Gator Capital Management. From 2002 through 2008, Derek was a member of the Goldman Sachs Asset Management Growth Equity Team. While at GSAM, Derek was the co-Chair of the Investment Committee for the Growth Team and was a Portfolio Manager. He was also a member of the portfolio management team responsible for the Goldman Sachs Capital Growth Fund, and provided primary coverage of the Financials for the Growth Team.

On the show, Pilecki talks about what it is like to work at Goldman Sachs. He also goes into detail explaining where the jobs are now on Wall Street and how to get one.

Editor (John Chew) Pilecki offers great advice for young folks in how to break into Wall Street–head for private wealth management; show what you can do. He gave the example of a blogger who got a job through his work here:http://www.frogskiss.com/  Hint: Study his past write-ups. Learn and then go do it!

Then its on to a discussion of Pilecki’s  investment philosophy and his views on stocks such as Blackrock, American Express and Rouse Properties. Find out what regulatory cloud hangs over American Express and  why Dodd-Frank regulation will likely force small cap bank mergers that will ultimately result in the merged banks being taken over by the big banks.

A Purpose Driven Life

Ask for what you want.

Note the focus and determination in this short video: http://www.youtube.com/watch?v=WGMz8NyXMsU&feature=related

Or especially here: http://www.youtube.com/watch?v=lYOoWCv_PYE&feature=related

Have a HAPPY Fourth of July 2012

A Reader’s Advice

“Models work when they are appropriate for the particular circumstance, but some of the best investment judgments over time have come when people recognized that models derived in other periods were broken or not directly relevant.” –Abby Cohen (Goldman Sachs)

A Reader’s Commentary and Advice

I wanted everyone to see this reader’s post. My point of view is biased, narrowly focused and skewed. I seek other, contrary theses, but we are all human with our foibles. Others make a great contribution for sharing their thoughts and knowledge to help us learn. THANKS.


Hi, I work on wall street and can maybe offer an insight. I worked on the Sell- side (major broker dealers) for several years and now at a hedge fund. As per your note above, don’t consider Wall Street unless you think you will absolutely love it. As you correctly state, the whole business is massively over-staffed. The growth is over, and headcount cuts will continue for years. It’s really ugly. Also, people seem to be attracted to the money and meritocracy, which is nice. People definitely underestimate how much luck is involved in doing well in that environment. I speak as one who has been particularly lucky. You would think, being smart thoughtful and hardworking are prerequisites of doing well. And you would be wrong. It primarily comes down to luck. so as long as you are honestly willing to work crazy hours, often for nasty people who may not advance your cause for 6-7 years, then don’t do it. And most importantly be realistic about what is likely to occur. Working 80 hours a week for horrible people is much easier said than done. Be honest with yourself.

A great book on being a banker on the street is “Monkey Business”. the investment banking side has not really changed since this was written. the sad part is that the trading/sales side has become much more like that also. Most people will not make it to the top. And most of the people at the top you would not admire. I would recommend anyone who is considering the street read monkey business and the opening chapter or two of Einhorn’s Fooling Some of the People All of the Time  which speaks to the same thing.

All that being said, im not sure being on the Sell-side is a great or even good place to start for value investing. The knowledge you get in banking is easily learned elsewhere with self-study. On the trading side, I don’t think you will get anything valuable (except for how to asses and manage liquidity) unless you are trading something complicated in fixed income – but that is dying too. The one place you may pick up very valuable and transferable skills is on a distressed desk. So if value is the route you want to go — and you want to start sell side, a 2-3 year stint  on one of those desks is probably your best.

Just my 2 cents.

valueprax | June 25, 2012 at 5:08 pm 

Hi Shaun,

The knowledge you need may be easily acquired elsewhere. But what is not always easy to acquire, is a list of the needed knowledge!

I am sure you don’t need a homework assignment, but do you happen to have any suggestions from your point of view of “fundamentals you need to know” that a motivated person could then go search out the answers/lessons to on their own time?

Shaun’s reply:

Hi Valueprax,

That is a great point/question. I think you have already done well in finding this site.

I would definitely check out the Greenblatt lecture video’s and all of his books.

Check in @ the Geoff Gannon blog, and do primary reading on accounting. Then I would focus on the negative. It is hard to identify if something is a good/great opportunity. However I have become very good at identifying problem areas and things that can kill an investment. And I have a good sense for good problem (transitory and misunderstood) vs potentially life threatening problem.

Read as much as you can on prior financial crises and financial debacles (be they economy wide, or company specific). For example, Devil Take the Hindmost, The Go Go Years by John Brooks,  BULL (by Maggie Mahar). the March of Folly by Barbara Tuchman about the folly of empire (not finance related).

Try to find books on the worst trades, worst business deals done. Another good book is A Demon of Our Own Design. It’s just so much easier to see very bad businesses. And as with anything we anchor to what we know.

Its so valuable to broaden your exposure to what can go wrong, and to how very bright often brilliant people get it so wrong. Notice what Buffett said when he started hiring people in the last few years as investment officers. He didn’t talk about alpha, or high risk adjusted returns. No, what he focused on was finding someone who could think about situations (from a risk perspective) that hadn’t been seen before. He is focused on losing first and foremost and trying not to get caught out by blind spots.

In my experience the single best way to do this is to have as many prior examples as possible and to generalize them. Someone here noted the Michael Burry commencement address recently. In the introduction they said many brilliant people didn’t spot the real estate bubble. That  is absolutely true. But the real question is why? And why didn’t they consider their assumptions and the total asymmetry of the outcome. They had all the tools and resources (capital, intelligence and computational) to do so. So why did they miss it?   (Editor: This relates to what Greenblatt says in his first class: Why with all the MBAs, PHds, and CFAs can’t people beat the market?)

In particular, how was it missed by traders who have massive resources in terms of data, mining that data and analysing scenarios. In that regard A Demon of Our Own Design (the book)  gives a very good example. The author describes a formative experience @ Morgan Stanley during the height of the Portfolio Insurance, and how a young salesman saw how vols had been pushed close to 0 by all the portfolio hedgers indirect and direct activity. He simply looked at it — asked a friend what the contracts would be worth if the market dropped 20%, then said this is nuts, and put 50% or so of his net worth into OTM options of different tenor.

A few months later the 1987 crash happened and the salesman had made several million dollars. He then retired to manage his own money. That may sound non repeatable. And in equity space those same things may never line up the same way. But if you channel Mark Twain and realise that history rhymes rather than repeating it is very valuable. The lesson from that was portfolio insurers no longer felt need to hedge. Portfolio insurance itself was just program selling on an option model delta basis. But rather than buying puts, they just sold. This behavior massively affected the price of vol, especially out of the money. It pushed it to insane levels.

Now, compare that to the recent crisis with ABS CDO’s. All an ABS CDO is tranche risk. Now, what is the attachment point (where you are at risk, for example for a super senior say 30%) is the strike for where losses occur. if it is a levered tranche, then that is where you sold an option on losses. in the super senior, its easy – you sold an option on losses over 30% of the pool for x basis points per annum. When you look @ it like this, then it looks very similar to the portfolio insurance debacle. I remember reading that book in 2006 I think and making the association. Then I took a closer look. If you looked all the way through to the underlying mortgages themselves and the properties that secured them – you could do simple back of the envelope analysis of what happened with housing down 1%, 10% and 20%, And the results were incredible. Anyone with 15 mins could have done that analysis. But they felt like they didn’t have to.

Likewise, if you read Hull’s book on options, he talked about Metallgesellschaft AG http://prmia.org/pdf/Case_Studies/MG_IIT.pdf. What killed them, in short, was a failure to understand the nature of the posting requirements of a derivative. The trade wasn’t even a bad one if they didn’t have to post. But they did, and they got killed. That was 1993, and it was huge news. Unmissable. And the cause was obvious. So how did investors in AIG stay in it once they found out about the posting requirements on derivatives contingent liability? It’s astounding to me. People will say unforeseeable, but they mean unlikely. and because they don’t study history or prior examples (except near past) they weight the likelihood of events often incredibly poorly.

So I would read a lot about those things first to protect yourself and give a good anchoring in what can go wrong and how. It also teaches you not to trust experts or names, but to think for yourself. Chanos has some good examples. Financial Shenanigans is another good book too.

Sorry if the above is a bit disorganised, but that is where I would start.


Thanks again, Shaun for your wisdom.

Advice to a Reader on Transitioning to Value Investing

A Reader posted his struggle here:http://wp.me/p1PgpH-FF

Other readers generously shared their wisdom below (slight editing for brevity and my comments in Italics)

19 Responses to A Reader Seeks Advice

I, too, am trying to teach myself how to properly value a business. I feel lost as well. I have more finance/investing books than I know what to do with and my time studying may be spread too thin and that I would be better off focusing on the few materials that are really worth it.

So far, the few books that I have found helpful (and always come back to) in determining how to value a company and what drives value are:

“Valuation” (McKinsey), “Accounting for Value” (Penman), and “Financial Statement Analysis and Security Valuation” (Penman). I’ve heard a good intro into accounting and financial statement analysis is “Financial Statement Analysis” (Thomas Ittelson), although I have not read this book.

One thing that I have noticed (learned?) as I read more and more (particularly from this blog), is that valuation may be the easy part. It’s not too hard to find a company that has a high ROIC and good earnings. I think the more important question, is whether the high ROIC and earnings are sustainable and what they will look like 10-20 years down the road. Don’t miss the forest for the trees (I think that is how the quote goes). That said, I think books that help frame this question and focus the analysis are: “Competition Demystified” (Greenwald), “The Little Book that Builds Wealth” (Dorsey), and “Hidden Champions” (Simon), help show what makes a business superior to others (the moat) and how wide/long a competitive advantage may be.

I would love feedback from others, as I am also looking for the few books to know “cold” and so that can get more “value” out of my time reading and studying.

Hope this helps.      It certainly does–good suggestions. I second spending time on focusing on what is a good business.  On this blog are valuation case studies from Greenblatt and Greenwald but they are scattered over 300 posts and the lectures are on video in the vault folders. If you want me to group the cases with the videos in a valuation case study folder, I will. For example, (type in word in blog search box: Munsingwear, Duff & Phelps, Hudson General, Moody’s, etc. for valuation case studies)

Buffett said he would only teach two things: How to think about prices and how to value. I believed he said he would teach about valuing a farm first. How many acres, yields, cost of fertilizer, variability of crops, range of prices, cost to borrow and what cash is left over then discount back to the present. He mentioned to Bernstein the Reporter from the Washington Post, that valuation is like reporting on a story–What’s it worth?

  • Rent the movie, Other People’s Money with Danny Devito (an early post on this blog) and see how he values NE Wire and Cable.

Warren | April 26, 2012 at 12:41 pm | Reply | Edit

Your reader sounds like a smart guy, but doesn’t have a firm foundation on basics of finance.  He could always elect to take NYU’s Damodaran’s free course on Corporate Finance and learn about WACC etc. 

I have spoken to other great investors too, and they will tell you that going to Columbia or Harvard will not make you a great analyst/investor – if that was the case that CBS tuition would not be affordable, because all the graduates would eventual be billionaires.   Insert Ben Graham quote here:  “courage becomes the supreme virtue after adequate knowledge and a tested judgment are at hand”.  They don’t teach judgement or courage at business school.

CBS lets in roughly 40 people into their AVI program out of about 150 who apply.  So the odds are against you and I heard there is no rhyme or reason to how individuals get selected.  As an anecdote, there is always only one person of African descendant in the program! BUT, if you are student at CBS and not in the program, professor will allow you access to their classes as an auditor.

Building a network and finding a mentor are very difficult.  Finding a mentor is hard even if you go  to CBS, most people who find a mentor are lucky in my opinion.  I work in the same building as a famous investor who is an alumnus CBS and asked to met with him.  He wrote back and said, I find meeting with people a waste of my time!

I do find business school, great in terms of building a network, but you can go to any of the top MBA programs, join the investment clubs and build from their.  Another piece of advice, CBS is not very strong in terms of the intimacy of their network, you are better off at HBS or Stanford IMO.

4 years ago, I was accepted into CBS’s MBA program, I could not attend because that was the year the financial crisis destroyed the international student loan program.  CBS was the only Ivy League school they did not backstop its International Students that were admitted in those years.  With no American cosigner, I  was unable to get financing despite trying for 3 years and a Value Investing Need Based Scholarship.

Fortunately and unfortunately, I am on the buy-side, but not at the fund I would aspire to work for.  What I am finding out now is that and MBA from a top school is a good option, if you want to want to move into a better firm.

Ironically,  I am still saving up for CBS’s MBA program and plan to attend one day, so I can move to a place with a mentor and build a network.  I am not looking elsewhere, because I recently moved my family to NYC and my daughter loves it here.

Investing is a continual learning process, business school can only accelerate that so much.

Krishnasinha1 | April 26, 2012 at 12:54 pm | I’d be very interested in any useful advice that readers have here, as i am in a similar boat (although i’m only 26). I’m also struggling with learning effective techniques to do valuations and develop a strong understanding of financial statements and accounting. I tossed Damodaran’s book after he started talking about Beta, and unfortunately i didn’t really get much from Greenwald’s book on the topic either (is it just me or does this guy talk the talk but then not really walk the walk? Everytime i see a pro like Einhorn or Michael Price talk about a valuation i’m thoroughly impressed and they never talk about reproduction values etc. that Greenwald always emphasizes).  Editor: Greenblatt does not believe in using reproduction value since it is hard to do accurately. Also, Prof. Greenwald wants to be the smartest person in the room, not the best investor. You have to read what he says with your own independent mind. I think his book, Comp. Demystified is good, but even there, you need to not take everything on blind faith. Do the concepts make sense to YOU.  What a great value investor (hired by Buffett 30 years ago) told me, “Sit down with a Value Line and segment the great, normal and bad businesses, then choose an industry that you might enjoy learning about to read the 10-Ks of the major companies in that industry. Have your accounting texts alongside to answer your questions of the financial statements, read about the industry and how managers think about the business. Get a sense of good businesses and what you would pay. Try always to apply your knowledge to the real world of businesses–theory to application–it is more fun that way.  If you apply yourself every day intensely on the right things, then within ten years, you will gain a sense of mastery (somewhat).  See books on the steps to mastery on any difficult subject–race car driving, chess, martial arts, etc.

On that note, The only advice i can give you as someone who is completely self-taught and basically only started reading about value investing 3 years ago is the following:

READ EVERYTHING: When i first started, i read a lot of the books that talked about the psychology and theory of value investing. I started with “The Little Book of Value Investing” by Chris Browne. That is an excellent primer, and then i built from there, reading Margin of Safety by Klarman (Free in the VALUE Vault–just email aldridge56@aol.com with Margin of Safety in Headline, and interviews with a lot of top hedge fund guys. Even if i didn’t understand everything they were talking about in terms of specific financial jargon, having the main theory hammered into me for a few years really prepares you for the turbulence in the market. Now, when one of my stocks goes down, i always have enough confidence to double down on it if i truly understand the stock. (Side note here, i still haven’t actually read Security Analysis or Intelligent Investor all the way through, everyone hypes those books but they are not for a novice and i always found myself in over my head when trying to read them, start with other more recent books, the same concepts are covered but are often explained more clearly and concisely).

In addition, look for articles where respectable hedge fund managers discuss their thesis on an investment (Einhorn, Ackman, michael price, etc.) Read the Graham and Doddsville Newsletter from Columbia business school (free on their website) where these managers get interviewed and read their “Letters to the Investors” when you get the chance. You’ll notice that they don’t necessarily spend a lot of time talking about specific accounting numbers, they have a lot of understanding of the businesses themselves and the business models. You’ll rarely see them get into an esoteric conversation on how accurate the GAAP Earnings figure is, but you will see them discuss why they think earnings are depressed or why they will rebound and why the market is overreacting. That is far more fundamental to value investing than knowing a lot about accounting in my experience. When you read Buffetts letters (i highly recommend reading his partnership letters), you’ll see that even then, he doesn’t talk about the specifics of the balance sheet, but rather, the few simple reasons about why the stock is cheap. It is MUCH easier for me to grasp those principles than to learn the minutiae of financial statements, and you can even successfully pick stocks by applying simple techniques.

Speaking of simple techniques, there are 2 books that really stand out (besides Greenblatt’s magic formula, which is a good book but i can sense you want more than that). The first book is Why Do Stocks Go Up (and Down)? It was recommended by Michael Burry and i recommend it whole heartedly to you, it’s very very simple and illuminates most of what you need to know in terms of financial statements. The second book is the 5 Keys to Value Investing (found out about it from this site actually!), The reason this book turned me on was because Michael Price is my biggest influence (my goal is to work for him at MFP Investors) and the author of this book worked for him when he was at Mutual Series. He sets out very clear and basic criteria for investing in stocks and shows you exactly how he does it, there is no guesswork involved, and the explanations are very clear and detailed. I highly recommend that book. Again, it doesn’t require that much in terms of financial statement knowledge to grasp the concepts, and you’ll learn all you need to know from the Why Do Stocks Go Up book anyways.

By the way, i highly recommend reading up about successful value investors and picking a few whose style you admire, for me that’s michael price, for you it may be someone else. Read their 13-F’s, read their explanations, and then go to EDGAR online and try to put together the same stories that they tell using your own intuition, it will be slow and painful the first few times but you will learn exponentially.

I think the most important advice that i can give though is to remember that it is a marathon, not a sprint, i struggle with this a lot myself because i always think i should be learning faster and that i’m so far behind other people.  True! True! The fact of the matter is if you keep reading and keep doing your own research you will soon find that your brain starts making a lot of connections and things slowly become clear to you. Like i said, i’ve only been studying investing for 3 years, and i still haven’t learned even a fraction of what i could know, but i get up every day and read SOMETHING investing related, every single day.

So again, i hope that advice helps, and i’d be interested to hear what people recommend to learn about accounting and financial statement analysis.

Regards, Krishna

Editor: Let me mention two books for helping you start your journey:

Logan James | April 26, 2012 at 2:11 pm | Reply | Edit

Perhaps it would be instructive to work on a more comprehensive valuation case study as a group. I would be willing to participate. Anyone else?

We’ve briefly covered valuation a few posts back when we were going through a few Value Line case studies. That could serve as a good starting point.   Editor: Dear Logan, please see comment at top of this post.

I have a question. How much do each of you rely on gathering data/information in spreadsheets on companies? Does it depend on the complexity of the investment? For example, David Einhorn, Ackman, etc. usually have 50+ slide deck presentations for the investments they present to the public. Do you think that much work is necessary? I know some private investors that deeply analyze complex investment situations (i.e. Sears Holdings), These guys go through and essentially look at everything. For a person working on their own, this task seems very cumbersome. Other investors think more about the businesses they are analyzing, so their spreadsheets and models are less complex.

Would appreciate feedback.


Ankit Gupta | April 26, 2012 at 3:45 pm | Reply | Edit

I think the reader who emailed you will be *far more* successful than most value investors, simply because he is cognizant of the existence of things he doesn’t know about. I tell people that the less they know about finance, the better, because calculating numbers is just a very small portion of it, in my opinion.

I don’t know that I can recommend how to get started, but I would consider the length of what you’re doing. For example, let’s say that you’re writing auto loans. If you write a 1 year loan, then you’ll know how you did after just 1 year. If you write a 5 year loan, then it will take a little longer, and it’ll be 5 years before you know how you really performed.

Stocks? Buffett has called these “100 year bonds” in a 1977 Fortune article that he wrote. It takes a much longer time.

I still have a ton of work to do, but I will say that I started out with the shorter-term views by focusing on things like liquidation value. As I’ve progressed, I’m now looking around trying to find companies that I would be comfortable owning in their entirety and never selling them. The finance aspect can be handled, but the tougher part is just finding businesses that I really like and am willing to own for 20-30 years. (Editor: OK, if you hold a business for 25 years, you will receive the return on equity over that time. If you can find companies that can compound their capital at high rates–not easy to do–then hold them!)

Today, I start with understanding business and business strategy before valuations. Using historical data has many benefits, however requires a lot of discretion and judgement when projecting anything out into the future, and so I let that almost be a secondary aspect of what I’m doing.   ASTUTE!

I could be wrong too though – we won’t know for a long time.

PT | April 26, 2012 at 3:58 pm 

I would also like to make a humble contrarian comment, within the frame of the transformation from a trader to a value investor.

I do know most people who are reading this blog are interested in ‘value investing’ so it is natural to only consider this path of investing on this blog. In my opinion however, I think investing is about allocating money to get a certain (ex-ante) return versus risk award. How you define return and risk is of course subject to the personal interpretation of you as a capital allocator.

In a broad sense this capital allocation can take any form. You can work with  ETFs, you can trade commodities, you can invest in bonds, you can have your own start-up in whatever business, you can invest à la Buffet, etc. As long as your investment approach satisfies your needs and you stick to it, you should be fine.

By this I mean…I don’t think you should consider value investing as the only possible investment approach. For me it makes sense since I always want to understand situations and a big part of value investing for me is to understand the business you are investing in. I think this should be the starting point why you pursue a ‘value investing’ approach. So first I believe you should write your goals and beliefs on a piece of paper, and then you could see this type of investing fits you.

Just some random comments of course:)

Excellent comments. There are successful momentum traders/investors, etc. Value investing (search for bargains, paying a discount, etc.) is just one method that has to fit YOUR personality. Also, do not just think of equities; there are debt markets, tax liens, burial plots, art, etc. where value can be found.

I would agree with you – sometimes value investing takes form in many places, like the startup world, commodities, bankruptcies, etc. That said, I think you can take the same thing, even Coca Cola stock, and it can be speculative to one person while a value investment to another. I’m not sure what we invest in matters nearly as much as how well we know the item we’re investing in… and, of course, price :D

(Sometimes… I think the price we pay is actually going to modify the actual business outcome. If we invest in a startup at a very low price and management ends up with a miniscule ownership in the business, they may be demotivated, so price alone isn’t the only thing I personally look at, just as an example)

PT | April 26, 2012 at 4:02 pm 

Something else that helps me (I’m still at the beginning of my investment path so) is to look at history in terms of inflation, bond yields, equity returns, bankruptcies, etc. And by history I don’t mean the history of bond yields as available in Bloomberg as of 1962…go for example to Shiller’s website and look at data from 1900.

PT | April 26, 2012 at 4:04 pm | Reply | Edit

Btw, if you would go in the fund industry…also read the latest GMO and Research Puzzle article.

valueprax | April 26, 2012 at 6:55 pm | Reply | Edit

The best advice we can give others is usually the best advice we can give ourselves, so, in that vein, I offer this:

Spend more time looking at actual companies and their actual financial statements and historical data, and less time reading theory. The theory all backs up and becomes gobbeldy-gook if you’re not continually applying it in a practical manner to REAL companies.   (Well said and great advice–your goal is to apply what you have learned and then learn from what you have applied.)

There are THOUSANDS of companies with financial data out there, waiting to be examined. You will not find a bargain every time you look at one. You WILL learn something each time, however, and that’s invaluable.

Part of Buffett’s humongous advantage is the great VOLUME of companies, deals, trades, etc., he’s considered and actually looked at. When you do so, patterns and one-offs start to jump out at you. You scratch your head less and go “a-ha!” more.

How is business school going to do that work for you? It won’t. If you’re going to be a great value investor, you’ll find a way to do it on your own, as you must. Business school, generally, is for people who want to go work for others, not for themselves.

Summed up, “Put down your value investing books, pick up your Value Line tearsheets. Start digging.”

Man, if I just could learn to take my own advice, Buffett himself might have to look out! :D

I am im the same boat as op, in that i am trying to teach myself and i find it all very confusing.

I also find it that having only a high school edu. Makes learning that much slower. Thats why i respected walter schloss so much.he found and applied a system and it worked very well.

The best advice i can give anyone in a situation like mine is to rewrite the concepts and simplify them so that they make sense to you.

Editor: One of the best investors I have ever known dropped out of high school, worked odd jobs while spending all night in the public library; he skimped and he saved $5,000 dollars and over 9 or 10 years took his account to about 2 million $ (yes, he used options and leverage, but he was very selective, and he didn’t put everything on just one bet. He would admit he was lucky in part, but he stayed humble too. Anyway he lives with his wife like a king on $800 a month in Central America near the mountains and beach. Retired at 32.

Roy | April 26, 2012 at 9:43 pm |

+1 for valueprax. If you have already read The Intelligent Investor, Margin of Safety etc. Spend your time on reading financial statements and not more books.  When you go over a statement and you are not clear about something simply search it on the net.     Editor: That is the exact same advice I gave. And don’t be intimidated by lack of MBA, CFA, ZZA, etc. Just start and humbly move forward step by step each day.

As you can see excellent thoughts, suggestions and wisdom shared!

Where Do YOU Fit? Visit at the Bunny Ranch

“He knows nothing; he thinks he knows everything – that clearly points to a political career–George Bernard Shaw

Not in the right fit? know your aptitudes?

There is a private research institute, Johnson O’Conner Research Foundation, that studies human aptitudes. An interesting article here:  http://www.profutures.com/article.php/746/

Podcast on Johnson O’Conner Aptitude Testing: http://www.insidepersonalgrowth.com/2010/10/podcasts/podcast-234-johnson-oconner-research-foundation-with-anne-steiner/

A Book on Your Natural Gifts: http://www.amazon.com/Your-Natural-Gifts-Recognize-Self-Fulfillment/dp/0939009560/ref=sr_1_1?ie=UTF8&qid=1331574008&sr=8-1

Just remember–aptitudes are natural gifts (you may even take them for granted) versus interests. I may want to be an accountant but my low aptitude for graphoria (working quickly and accurately with pen, paper and numbers) will make me less likely to be happy or to succeed at the profession.

Articles of Interest

Stock Market Warnings? http://www.hussmanfunds.com/wmc/wmc120312.htm

More on the Hussman Funds: http://www.hussmanfunds.com/index.html

When Did the Constitution Cease to Mean Anything: http://brontecapital.blogspot.com/2012/03/when-did-us-constitution-cease-to.html

John Stossel on legalizing prostitution: http://www.lewrockwell.com/blog/lewrw/archives/107425.html

So, money is legal in America; sex is legal in America; ergo, sex for money is illegal. Logic?