My second baby step into the investment universe

I learned to invest by reading online materials, listening to podcasts, and watching videos, all available free online. I seldom buy books although I have read many that I have downloaded.

That was more than 15 years ago. Today there are vastly more resources available online so it should be easier to learn from online resources.

Is this correct? Not really because unless you learn to focus, you are likely to be overwhelmed. Let me guide you on how to successfully learn to invest from freely available online resources.

There are several dimensions to investing

• Technical vs fundamental.
• Stock picking/active vs passive.
• Quant or purely quantitative vs traditional.
• Stocks vs other assets

This article is about traditional stock-picking using fundamentals. You are here to learn how to be a value investor, to be able to decide for yourself what to buy, how much to buy and when to sell.

To do this well, you need to develop two skillsets:

• Analytical — how to analyze companies and value them.
• Behavioural — how to minimize human errors.

The Second Baby Steps here covers the analytical component and provides the learning steps. There is also a selected URL to get you started but you have to access this from the original article.

I also have a Third Baby Step on Medium that covers the risks and behavioral aspects.

The First Baby Step is a more beginner’s view of investing and was also published on Medium.

How to learn

How did I learn?

• Step 1 — Gain some knowledge.
• Step 2 — Practice to gain experience.
• Step 3 — Repeat steps (1) and (2).
• Step 4 — Only move on to the next level after you have mastered a particular level.
• Step 5 — Repeat (1) to (4).
• Step 6 — Start to Invest when you reach learning level 3.

According to a study by technology giant Microsoft, the attention span of people has fallen from 12 seconds to 8 seconds — thanks to the mobile revolution and an increasingly digitized lifestyle.

To learn successfully, it must be done in small chunks — bite-sized learning. This is the practice of delivering training in smaller, more focused chunks or bites that can be easily learned without committing large amounts of time.

The best analogy I can give is infographics — yes this is bite-sized learning.

Anyway, the point I am making is that first, you read one or two articles to gain some background knowledge. Then explore one or two case studies and repeat the learning cycle until you have completed everything at a particular learning level.

I have the links to the necessary free online resources in my blog so that you can gain background knowledge for each level. To gain experience you have to learn from case studies and try to answer all the questions that I posed in my case studies.

There are 4 learning levels to go through.

• Level 1 — Foundation
• Level 2 — Intermediate
• Level 3 — Advanced
• Level 4 — Expert

I am assuming that you start at the Foundation level and will provide some pointers on when you can move from one level to the next.

If you have been following my case studies posts eg Asia File you ought to be able to create a similar analysis and valuation by the time you finish the Advanced level.

How long will it take?

Realistically and assuming that you can spend at best an hour a day, I would think that you would need to spend about 4 to 6 months at the Foundation level and another 4 to 6 months at the Intermediate level.

I think it will take another 12 to 18 months at the Advanced level before you are ready to go to the Expert level.

A long time? Remember that you are learning how to invest a lifetime.

The difference between self-learning online compared to a classroom setting where there is a teacher is that with self-learning you need the self-discipline to go through all the materials and to do the worked examples and case studies.

The biggest challenge will be the “practice” part as you are not able to discuss with other students or a lecturer/teacher.

My advice if you are stuck — pose the questions online. What I did was skip the part and then come back after you have learned a bit more. It has worked most of the time.

Secondly, when you read the case studies online, they generally present the situation and analysis together. Effectively you get the “solution” as you read the case.

This is not as good as a case study in a classroom setting where the case study has been prepared in such a manner that the solution is not provided. You first read the case and then discuss the issues and solutions in class.

Unfortunately, you don’t have this “discovery” dimension when covering case studies on your own.

One way to get around this predicament is to try to do the analysis yourself and then compare it with the one presented. Of course, to do this, the “solution” has to be presented separately.

You ought to be able to use the case studies in my blog in this manner. If you have the discipline to take this step, it will accelerate your learning.

Learn in stages

I think there are several levels to go through to reach a stage where you can confidently analyze and value companies:

• Foundation level where you focus on concepts.
• The Intermediate level is where you can start valuing companies using multiples.
• The Advanced level is where you seriously start number crunching and picking companies.
• The Expert level.

Once you pass the Advanced level, I am sure you will know what to look for to progress further.

For each of the first 3 levels, I will provide you with a list of the online resources for 3 mediums — reading materials, podcasts, and videos.

The reality is that each site may have lots of other articles so I will point to the key articles to cover for each of the listed sites.

What I suggest is that you initially focus on what I have recommended. Once you have gone through all of them, by all means, go back to the various sites and go through all the other materials.

By then hopefully, you would have learned to identify whether the article is directly relevant or something nice to know only.

BTW I stop listing the resources after the Advanced level since as an Expert you would have your niche and know where to go and what to look for.

Analytical Skillset

If you accept the premise that in investing you are not buying pieces of paper, but rather a part share of a business, then not only must you learn about valuation, but you also need some working knowledge of how businesses work.

Warren Buffett has famously said:

“I am a better investor because I am a businessman, and a better businessman because I am no investor”

Some of you may not have business experience so I have tried to compensate for this by also listing resources on business topics including case studies and simulations.

Remember that there are 2 basic skills you need to acquire:

• How to analyze the business
• How to value the business

To develop the skills for each of them, you need to go through a repeated process of acquiring knowledge and then having some “practice”.

Accordingly, the list of online resources will cover both the skills as well as follow the learning steps.

Learning objectives

The learning objectives for the various levels are as follows:

Foundation level: mostly conceptual

• Intro to investing.
• Intro to business analysis.
• Understanding financial statements.

You can move to the Intermediate level when you can go through Annual Reports and understand the financial statements and see whether the Chairman Statements and/or Management, Discussions, and Analysis is a public relations exercise or they provide information for you to analyze the company’s performance.

Intermediate level: a bit of quantitative analysis

• Intro to value investing.
• How to analyze the business.
• Intro to valuation.

You are ready to move to the Advanced level when you can identify undervalued companies using multiples as well as assess whether the company can sustain its performance over the next couple of years.

Advanced level: — number crunching, more emphasis on case studies

• How to value companies.
• Business strategies.
• Value investing spectrum.

You can move to the Expert level when you can perform the analysis and valuation as presented in my case studies with equivalent details and depth. When you reach this stage, you can be assured that you have successfully learned to invest.

Expert level:

• CAPM and Modern Portfolio Theory.
• Options.
• Other investment approaches — Technical, Smart Beta.

What to learn

There are tons of material on the web. It is like going to school. There are lots of textbooks on the same subject for a particular school level. This gets worst the higher up the education level you go.

But the schools don’t make you buy all of them. There is a booklist that specifies what you ought to read.

Along the same lines, I have narrowed down the resource list for each level to the extent that for some sites I list specific articles, podcasts, or videos.

The analogy is that you don’t read all the books in the library.

For each level, I have attempted to narrow the choices to the top 5 for each of the media so that you can be focused on getting the appropriate background knowledge.

I would expect you to go through all the recommended material in the top 5 lists. Of course, not all at once. Maybe one or two articles, podcasts, or videos a day.

I would suggest that for each medium, you start from the top of the respective list. However, you should cover the reading material, podcasts, and videos for each level concurrently as they can help to reinforce the learning.

How did I select my list? Firstly, I am recommending those that I have read, listened or watched over the past 15 years. Then if there are not sufficient sites to fill up the respective resource list, I do a Google search.

• For each search criteria, I run through what Google has identified.
• I did not select them based on Google page ranking. Rather I try to identify those that complement my historical lists.
• For transparency, there are annotations in the resource list on whether these were materials I used or found through a Google search.

Pulling it all together

• This is not a how-to get rich quickly site.
• There is also no secret investing formula.
• The learning process and skillsets to be developed are based on my experience in learning how to invest, running companies at C-suite levels as well as being the Director of Studies for a renowned MBA programme.
• There is selected a resource list for you to successfully teach yourself how to invest.
• I have arranged the resources into 3 levels — Foundation, Intermediate and Advanced and hope that you become proficient at each level before advancing to the next.

URL to resources

The list of resources for the Foundation and Intermediate levels can be obtained from the original blog article.

Originally published on i4value.asia on 12 July 2020

Master value investing

If you found the article useful, I have a value investing book that has more investing insights titled “Do you really want to master value investing?”

The e-book is now available from Amazon, Kobo and Google Play.

PS: If you are in Malaysia or Singapore, the e-book can only be download from Kobo and Google Play.