Value Investing Book Recommendations for Accounting Students

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Mkt Cap to GDP

Investing, when it looks the easiest, is at its hardest. When just about everyone heavily invested is doing well, it is hard for others to resist jumping in. But a market relentlessly rising in the face of challenging fundamentals–recession in Europe and Japan, slowdown in China, fiscal stalemate and high unemployment in the U.S.– is the riskiest environment of all.–Seth Klarman

Read more on Buffett’s market indicator flashing red:


Reader #1: To give you a bit of an introduction about myself, I am based in Singapore and a third year accountancy student. Have been researching Asian equities for quite a while and would like to seek your opinion on my analysis process.

I have read many books on value investing; Greenwald, Graham, Fisher and also accounting books like Financial Shenanigans. However, this is what I noticed whenever I am about to start working on a company.

Financial statements: I am able to pinpoint out the basic stuff like gross margin, ROA, ROIC, balance sheet ratios etc. But to be able to paint the full picture of a company, I am still not quite certain of my ability to do so yet. I have seen how some investors are able to tell a story using the financial statements (Have seen in newsletters of funds, books). Like picking out the nitty-gritty stuff.

Qualitative aspects: I start out first by reading the past few years of annual reports to get an idea of the corporate structure of the company and the business model. This step is generally OK. However, I am kinda unsure how to proceed on from here. What I usually do is that I just google the business model. Etc this company sells jewelry. I google jewelry business/how is jewelry manufactured and sold…you get my point.

But somehow, I still feel kinda lacking when I compare my analysis with the fund managers here. I read their newsletters, download conference calls transcript to see what questions they ask etc. And their level of understanding of the business simply astonishes me!

Not sure how you go about doing it but would like to hear from you!

My reply: You may need to learn more about analyzing an industry/business. As you first look at a company you want to answer several questions:

Does the company have a competitive advantage as shown by fairly high and consistent profitability and/or market share? If yes, then what is the source of competitive advantage? Patents/Copyrights (Disney), Unique Asset (Compass Minerals) , economies of scale coupled with customer captivity (Coke), etc. Is the moat weakening or strengthening?   What price will you pay for growth?

You could draw up an industry map to understand the business better. Read Bruce Greenwald’s Competition Demystified or (Use search box on and follow links to download cases on Coors, Coke, etc.).

Read: Strategic Logic by J. Carlos Jarillo and The Curse of the Mogul, What’s Wrong with the World’s Leading Media Companies by Jonathan Knee and Bruce C. Greenwald.  Also, The Profit Zone: How Strategic Business Design Will Lead You to Tomorrow’s Profits by Adrian J. Slywotzsky.

If the business has no competitive advantage–95% of most businesses–then can management earn a fair return on the company’s assets?  Does management allocate capital effectively; do they eat their own cooking?

Always try to find a thesis for a variant perception. Is there hidden value in this company like shutting down a losing subsidiary, NOLs, underutilized assets, etc. Where can I develop an understanding that will give me an edge?

Read with a purpose. Develop a checklist of your own. Try to determine the key metrics of the business. What are the risks in the business?

Try to read biographies of business leaders in a particular industry. You can find  books about the cruise ship industry, steel, beverages, sports, media, and airlines. Also, try to speak to people in the business and industry once you have a basic understanding of the business. Read about the history of the industry–its booms and busts–what are the opportune times to buy and sell such a business?

But until you spend about ten years studying hard, it is difficult to develop proficiency in anything, so patience.  Good luck.


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