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The Importance of How to Invest. Not What to Invest.

May 02, 2013 | About:
I am a fan of Tim Ferriss and his obsession with doing things better, smarter and more efficiently.

Reading through some old material related to The 4 Hour Chef, it is amazing to see examples of ordinary people doing extraordinary things.

  • A 132lb girl deadlifting 400lbs
  • Shinji Takeuchi, a Japanese man who started swimming at the age of 37, is the #1 watched swimmer on YouTube and blows Michael Phelps and Ian Thorpe out of the water. But why?
The theme throughout Ferriss’ book is that ordinary people can excel beyond the pack and achieve phenomenal tasks by knowing how to train instead of what to train.

I found myself thinking how relevant this information is for people wanting to learn or get better at investing.

A lot of investing blogs, books, papers and other materials tell you what to learn, but not how to learn it.

This simple concept can be the difference between struggling for years to break through a learning plateau and leaping through it into newfound confidence.

Too Many Big Ideas

As much as I admire Buffett, the only difficulty that I have with his letters, speeches and books about him is that there is no real practical information on how to invest for the small investor.

This goes for a lot of the value gurus. It is understandable because gurus have moved onto a different level and have different agendas. They don’t have the luxury of writing weekly newsletters or blogs to explain every detail.

This is why, when they do put out reports, books, paper, interviews etc, it is all based on big ideas. There's nothing small and actionable enough for people like you and me to handle easily.

The Investment Gurus are Cursed

To really improve your investing, you have to understand that Buffett was going to be successful no matter what happened. He was born with investing and businessman blood.

Ask the most muscular guy in the gym how he works out and do the same routine. It won’t work for you. The gym guy was born with great genes, while some people gain weight just drinking water and others find it difficult to gain and maintain muscle unless they consume 4,000 calories a day.

Same concept with the gurus. They may be gurus but they are cursed.

They have the curse of knowledge. They forget what it’s like to be a beginner.

I once listened to my vet talk for one hour about the structure of my dog’s teeth and the surgery involved. All I realized at the end was that my wallet was $1,000 skinnier.

Buffett is a great role model for analysts and investment managers, but not a relevant role model for retail investors who are trying to get to know more about their own stocks. He was born to be an investor, as this timeline of his life shows.

His words are gold, but it can confuse and mislead you unless you know exactly what context he is talking about. After he says something, there is still great debate about what he meant.

You need to find the Shinji Takeuchi’s of the investing world because you will learn exactly how to invest through these people.

There is no confusion. It’s just clear.

It’s people like Joe Ponzio ofF Wall Streetthat you need to identify and cling to.

My Personal Story

If you are fairly new to old school value, you may have the wrong perception that I’m some smart numbers guy. That couldn’t be further from the truth.

I didn’t study in the USA, and if I converted my academic score to a GPA, it is probably between 2.5 – 2.8.

As you can see, I didn’t thrive in my studies. The world is full of people smarter and better than I.

Combine that with never having taken any finance, business, accounting or economics classes and it’s amazing to see how I got here.

It just turns out that the educational system does not suit my style of learning.

It was only after I figured this out, that things started to turn around because I found a method that worked for me.

So What’s my Secret?

First, take a look at this familiar question from Quora.
:

I’m 18 years old and want to learn how to invest my money. How do I get started?
Here is the top rated answer.

949323355.jpg

Great advice?

If I was that 18 year old, would I follow that advice? Absolutely not.

Although the very first investing book I read was the Intelligent Investor, it was a horrible experience. I didn’t understand anything, the text was extremely dry and there was no practical advice that I took from it. The only thing I remember is the concept of Mr. Market. Nothing else.

My secret?

It all came down to how I learned. Not what I learned.

I realized I needed to write notes to organize and clarify the jumble of information I had been reading. I started with this blog and publicly posted notes, articles and analyses for critique. I got slammed and chewed in the beginning, but it helped with learning and growing a thicker skin.

The second vital part was realizing that investing is extremely tedious and redundant. Being an efficiency nut, I needed a way to simplify and speed up repetitive tasks.

That’s when I started making excel spreadsheet models like the ones you can download for free by signing up with your email. In the process of building financial models, I combed through books and technical papers to understand how a specific model worked.

Figure out what your strength is and twist it in a way so that you can apply it to investing.

Know Your Strengths, Weaknesses and Situation and Take Advantage of It

Make investing relevant to your interests.

Just want get better at writing investment analyses?

  • Find a stock analysis style that you like, break it up into manageable sections, find the information and fill up the sections.
  • It will get better the more you do it.
Are you a small business owner?
  • Think of your business as a public company instead of a small family business.
  • Find public companies in the same industry and see how they run the business.
  • What key performance indicators are important?
  • Learn the strategies and competitive advantages
  • Go through your accounting books and try to convert it to a full set of financial statements
In no time, you’ll be an expert in your industry and will be confident in analyzing and investing in such companies.

Same thing applies to any day job. Don’t just do it. Think of yourself as the CEO and look at the bigger pictures.

Do You Handle the Money in Your Home?

  • Personal finance is just like a business. Think of your household as a business.
  • Go through your bank statements and try to create your household financial statements.
  • Budgeting, projecting, allocating, depreciating is something you do everyday already. Why not think of it like managing a business?
Here’s what I did to monitor my household cash flow using a cash basis method.

494068844.jpg

Are You a Programmer?

  • Why not try to program simple tasks? That’s what I did with my spreadsheets.
  • Create an easy investment game or just a simple stock portfolio spreadsheet
Don’t Have a Good Memory or Weak with Numbers?

  • Don’t try to improve your memory.
  • Investing math is just simple addition, subtraction, division and multiplication.
  • Create a simple glossary of the terms that you hear and use all the time from investopedia. Keep it as a cheat sheet. This isn’t school. It is encouraged.
Never Have Enough Time?

  • I recently hired a part time virtual assistant for $300 a month. A part time employee for $300 a month is a steal.
  • My virtual assistant goes through company reports, writes up point form summaries which I can read and analyze quickly.
Do You Travel Regularly?

  • Get some audio investing books and listen to it on the road.
  • Convert Khan Academy YouTube videos to MP3 format and take it with you.
  • Download podcasts like Sound Investing by Paul Merriman that are short and focused on specific topics.
  • There are lots interesting people at the airport. Find someone reading investment news and talk to them.
Or Start Your Own Simple Business

  • By starting even something small and insignificant like selling on ebay, you will learn about an entire industry.
  • Try to import something cheap and sell it on ebay. You’ll learn what companies have to go through in the import/export business. Or just try to sell things around the home.
  • Selling on ebay requires that you know how to position your product, market it, word it and make a successful sale.
  • Shipping multiple items gives you insight into the shipping industry.
  • Starting your own business opens a can of worms and you will be a better investor for it.
There are Countless Possibilities

I don’t know everything about your situation so it’s difficult to try and come up with a recommendation for every scenario, but you get the point.

No matter what your skills are, there is a way you can benefit from learning how to invest. And best of all, doing it your way will make it stick.

Make Use of How to Tutorials

Still not sure? Then start with these topics and keep filtering down.

Summing Up

  • Learn the how, not the what.
  • Follow and learn from people who are like you but managed to make the jump to elite status. These are the people who will understand your situation and can help you get to the next level.
  • Gurus are not good role models for the layman.
  • You know what you are good and bad at. Use it to your advantage and make it relevant to investing.


About the author:

Jae Jun
Founder of Old School Value (http://www.oldschoolvalue.com) dedicated to offering the most complete and detailed stock valuation and analysis spreadsheet. Investing made easy by importing 10 years of financials and 5 quarterly statements directly to excel for your analysis needs. Save time, make smarter decisions and make more money.

Visit Jae Jun's Website


Rating: 3.4/5 (21 votes)

Comments

John Huber
John Huber premium member - 1 year ago
Excellent post Jae. I think starting a business is a great way to learn how to become a better investor. It's one thing to learn how to read a financial statement, it's a whole other thing to actually produce your own balance sheets and income statement from the assets, liabilities, profits, and expenses from your own business.

Another great thing for a beginning investor to do is to buy a small piece of real estate that produces cash flow. With that small rental property, put together a simple spreadsheet that tracks the cash flow. Keep track of all expenses (including depreciation, mileage, time, etc...). Expense everything. Do your own taxes.

I've done that with a few small apartment buildings and it's a great way to learn. I think Munger has said similar things regarding real estate.

It is a simple way to learn business, and will likely lead to a change in thought process regarding how to value businesses (stocks).

I started reading Buffett's letters in 2005, and that remains my greatest learning experience from an academic standpoint. But operating property helped me learn how to value stocks in other industries.

Thanks for sharing your ideas.
AlbertaSunwapta
AlbertaSunwapta - 1 year ago
Yes excellent points. Commentary after commentary fails to actually discuss the business and how exactly it makes its money. Instead we get top down reverse engineering and ratios and earnings growth numbers. Rarely does anyone try to break down the cost of production or COGS or to track, trace and distribute a dollar of revenue.

Please leave your comment:


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