Warren Buffett Accounting Book: Reading Financial Statements for Value Investing
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- Create Date：2021-06-19 09:55:51
- Update Date：2025-09-06
- Status：finish
- Author：Stig Brodersen
- ISBN：1939370159
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Summary
This book is the second volume to the Amazon Bestseller Warren Buffett's Three Favorite Books。 In this book， you will learn how to: Pick stocks like Warren Buffett Calculate the intrinsic value of stocks using two methods During the second half of the book， readers will learn in-depth methods for: Read an income statement Read a balance sheet Read a cash flow statement Calculate and interpret key ratios
Reviews
Chenthil
，
Excellent book。 Nicely explain about financial concepts。。。。
Ulio
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You won't necessarily get any ground breaking insight from this book but it will definitely help your fundamental analysis of companies。 Preston/Stig also have a great youtube channel and podcast。The book is a great read to anyone who has no account expertise but wants to learn how to read s1s 10ks， 10qs。 The book doesn't go too much in depth in valuation models but they do a great job of giving some basic ratios new investors should look for。 I do think following Benjamin Graham or Warren Buffe You won't necessarily get any ground breaking insight from this book but it will definitely help your fundamental analysis of companies。 Preston/Stig also have a great youtube channel and podcast。The book is a great read to anyone who has no account expertise but wants to learn how to read s1s 10ks， 10qs。 The book doesn't go too much in depth in valuation models but they do a great job of giving some basic ratios new investors should look for。 I do think following Benjamin Graham or Warren Buffet's ratios to a T is a bad idea。 One of the funniest part of this book is Preston/Stig taking Apple as a type stock that Warren Buffet wouldn't invest in。 When actually Apple is considered one of Warren Buffet's great trades of the last decade and he is one of the largest owners of Apple stock。I think developing your own investment thesis/philosophy is the most important thing but no book will teach you that。 But this is a great intro to corporate finance and few macro things at the start such as ir/bond yields etc。 。。。more
Tom
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Excellent book a must read along side Buffetts Three favorite books also by Preston Psth
Ektor Nikolinakos
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good introductory book
Margaret Kanini
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This review has been hidden because it contains spoilers。 To view it， click here。 100%
Curtis Dejesus
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Awesome book to read for the novice investor
Cian
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Explains the DCF model。 Goes through each of the main three financial statement quite detailed。 Shows how to analyse them and what you look for in them as a value investor
Hamid Erfani
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A great simple start to understanding the market and finance。
Maaz Ahmed
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An easy to read guide on Warren Buffett's accounting methodology - covering how he looks for companies that make up good investments （consistent and increasing earnings， good management， competitive advantage， etc。）。 The authors also do well to explain basic value investing concepts such as the behaviour of the stock market and buying when the market is "cheap" rather than "expensive"。 A good accessible read for anyone looking to get into value investing。 An easy to read guide on Warren Buffett's accounting methodology - covering how he looks for companies that make up good investments （consistent and increasing earnings， good management， competitive advantage， etc。）。 The authors also do well to explain basic value investing concepts such as the behaviour of the stock market and buying when the market is "cheap" rather than "expensive"。 A good accessible read for anyone looking to get into value investing。 。。。more
fawaz
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Well written and interesting bookVery well written book that take you step by step to understand financial statements。 I highly recommend this book for people with basics。
Victor Antonini
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I really like how patient Brodersen is explaining financial statements line-by-line in this book。 He goes beyond of what is easily found on the internet and grasps what people generally gets wrong when trying to read financial statements and answer questions effortlessly。 Although the book is very informative and well written it falls far from its objective by focusing too much on the analyses of Equity。 Things as ROE， Book Value， P/E， P/B， D/E， ROA and many sorts of stock multiples are distorte I really like how patient Brodersen is explaining financial statements line-by-line in this book。 He goes beyond of what is easily found on the internet and grasps what people generally gets wrong when trying to read financial statements and answer questions effortlessly。 Although the book is very informative and well written it falls far from its objective by focusing too much on the analyses of Equity。 Things as ROE， Book Value， P/E， P/B， D/E， ROA and many sorts of stock multiples are distorted and will only and mainly contribute for investors making bad decisions。 。。。more
Archit
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One of the best books I have ever read on Finance & Investing。 The author has distilled complex financial concepts in a simple language。 This book could have been made even better had the author thrown more light on practical investing decisions to be taken based on analysis of the financials。 But it， nevertheless， is a compelling read。1。tChapter 1 – how to look at the stock market•tValue investors believe that stock market fluctuates in the short-term due to emotions and in the long run due to One of the best books I have ever read on Finance & Investing。 The author has distilled complex financial concepts in a simple language。 This book could have been made even better had the author thrown more light on practical investing decisions to be taken based on analysis of the financials。 But it， nevertheless， is a compelling read。1。tChapter 1 – how to look at the stock market•tValue investors believe that stock market fluctuates in the short-term due to emotions and in the long run due to value•tBubbles – dotcom bubble in 2000 took place due to an overly optimistic faith in technology companies。 In 1637， we had the first recording of an economic bubble。 It was in the Netherlands when “Tulipmania” occurred。 At the peak of the bubble， a tulip bulb was traded at the price of 10 years’ annual income for a worker， far greater than the value of a tulip bulb。 Today we might have a laugh at the expense of the poor Dutch people who went into economic ruin， but as we have seen twice in the last decade， humanity has learned very little from historic economic bubbles。•tThe market doesn’t offer value， it offers price – you determine the value。•tSome investments do not generate profit like gold， silver。 Their value is based on people’s belief & perception 2。tChapter 2 – concepts every investor should know – •tInterest rate – its like gravity i。e。 it’s always there， having an impact on people & businesses。 Interest rate is like the PRICE OF MONEY。•tThe FED determines the interest rate in a similar way。 They look at risk and how to adjust financial behavior; however， they do it on a much larger macro scale。 The FED is not only looking at you， but at the whole economy。 In times of recession， the government wants us to spend more money。 It achieves this by lowering the price of money。 In other words， it lowers interest rates。 This is an incentive to spend more money。 When more money is spent， it will increase consumption， which in turn will lead to employment and higher wealth in the economy。 When interest rates are low， companies can borrow for less。 This makes new investments more attractive， which again leads to more employment and higher wealth。 When money is cheap， typically stocks are too。 This is the most important time to accumulate as many shares as you can。 When times are good， the government wants it to continue。 They achieve this by trying to avoid a bubble in the market—so they increase the price of money， or increase interest rates。 When things get expensive， we tend to buy less。 That is not only true for TVs and houses; we adjust our financial behavior to all consumption。 As with the electronic store that is lending you money for a TV， the risk and thereby the interest rate is high。 Citizens really do not want a bubble， and even less a bubble that bursts， because it creates instability in the economy。 As a successful stock investor， bubbles and interest rate swings present enormous opportunities。 If you want to master the stock market， start with a firm understanding of interest rates。 It’s truly the foundation to the entire economic cycle and value of everything on the planet。 There’s a big difference between price and value， and interest rates are the key ingredient to their disparity。•tInflation （value） – nominal dollar does not adjust for inflation whilst real dollar adjusts the inflation。 Government likes inflation for 3 reasons:•tReason 1 – you start purchasing more， generating employment & wealth in the society。 Side note – if you earn $1 per hour in 1913， & $23。94 in 2013， then a way to say this is nominal $1 in 1913 is equivalent to real dollar 23。94 in 2013•tReason 2 – you are taxed on nominal dollars•tReason 3 – debt is issued in nominal terms。 •tBonds - We have also learned that the interest rate was the price of money。 So when the interest rate is high， the price of money is also high。 That means that if you’re the lender （or bond purchaser）， you will receive more money from the borrower （or bond seller） if interest rates across the market are generally high。 We have also learned that the interest rate was the price of money。 So when the interest rate is high， the price of money is also high。 That means that if you’re the lender （or bond purchaser）， you will receive more money from the borrower （or bond seller） if interest rates across the market are generally high。3。tChapter 3 – a brief introduction to financial statements•tProfits/ earnings/ net income all mean the same•tIf equity is “own funds”， why is it not grouped under “assets”？ Because equity does not belong to company， it belongs to shareholders。 Hence， it’s a liability。 Equity is referred to as “book value”4。tChapter 4 – principles & rules of value investing•tPrinciple 1 – VIGILANT LEADERSHIPotRULE 1 – LOW DEBT – analyse the debt-equity ratio。 Ratio below 0。5 is preferable。otRULE 2 – HIGH CURRENT RATIO – current ratio of between 1。5 and 2。5 is preferableotRULE 3 – STRONG AND CONSISTENT RETURN ON EQUITY – ROE ratio is akin to a first impression。 Net income/ total equity。 In general， look for companies with a consistent ROE of >8% over the past 10 years。 DEBT-EQUITY RATIO IS A METRIC FOR RISK， WHILST ROE RATIO IS A METRIC FOR RETURN。 Both are equally importantotRULE 4 – APPROPRIATE MANAGEMENT INCENTIVES – principal-agent problem。 You， as investor， are the principal & the Board of Directors is the agent•tPrinciple 2 – LONG-TERM PROSPECTSotRULE 1 – PERSISTENT PRODUCTS – will technology/ internet change the way we use the product？ In case of， say Coca Cola， answer is no。otRULE 2 – MINIMISE TAXES•tPrinciple 3 – STOCK STABILITYotRULE 1 – STABLE BOOK VALUE GROWTH FROM EARNINGS – EPS， ROE， dividend rate， book value， debt-equity， current ratiootRULE 2 – SUSTAINABLE COMPETITIVE ADVANTAGE （MOAT） – 3 hints of recognizing a moat – presence of intangible assets （patents etc。）， low cost （Walmart）， high switching costs or “stickiness” （for eg。 – shifting from Microsoft will be very troublesome for Windows users）•tPrinciple 4 – BUY AT ATTRACTIVE PRICESotRULE 1 – KEEP A WIDE MARGIN-OF-SAFETY TO INTRINSIC VALUE – MOS is the difference between Share Price & Intrinsic Value。 otRULE 2 – LOW PRICE-TO-EARNINGS RATIO - Since this number is a ratio， we must always remember that the denominator （or number on the bottom of the fraction） is always 1; therefore， a P/E ratio of 10 is actually a 10/1 ratio。 This means that every ten dollars of price towards the stock should give you one dollar of earnings （for one year）。 So if we want to understand this relationship as a percentage， we need to look at the inverse of it —or in other words， the E/P ratio。 By taking the inverse of the P/E， we get a percentage yield; for example， the previous situation had a P/E of 10。 Therefore 1/10 = 10%。 That’s the annual yield。 Let’s try it again but with a different P/E ratio。 If you negotiated a lower price of $800 for the juice stand and the business still produced the same earnings， you would have a P/E of: $800/$100 = 8。 Or a return of 1/8 = 12。5%。 As you can see， a low P/E is preferable to a high P/E。 GENERALLY， BUY STOCKS WITH A P/E RATIO OF 15 OR LOWERotRULE 3 - LOW PRICE-TO-BOOK RATIO - As equity and book value are the same， Price to Book value or P/B also measures how much the investor pays for every $1 of the company’s equity。 So let’s demonstrate this idea with an example。 Looking at the $38，000 of equity from the chart above， let’s turn it into a P/B ratio。 Let’s assume that this company is broken down into 100 shares。 Based on that number， we know that the book value would be $380 per share （the math is $38，000/100 shares）。 We also need to assume a market price for one share， so let’s use $570 per share。 In order to calculate the P/B ratio， we will simply conduct the following math: P/B = $570/$380 = 1。5。 As you can see， the ratio has no units。 So what does 1。5 mean？ This means that if the P/B is 1。5， you pay a market price of $1。5 for every $1 of equity on the company’s books。GENERALLY， P/B RATIO OF 1。5 OR BELOW IS GOOD。otRULE 4 – SET A SAFE DISCOUNT RATEotRULE 5 – BUY UNDERVALUED STOCKS – DETERMINING INTRINSIC VALUE – 2 approaches – Approach 1 is Discount Cash Flow calculation。 2nd approach is a variant of the 1st but it treats stock like a bondotRULE 6 – THE RIGHT TIME TO SELL YOUR STOCKS5。tChapter 5 – Financial statements•tPrior to 1987， companies did not report cash flow statement， they reported only P/L & Balance sheet6。tChapter 6 – income statement in detail•tRevenue – from Primary activities， from secondary activities （other income） & gains （sale of asset gain） •tExpenses – Primary （COGS）， secondary （SG&A， other operating expenses）， losses （loss on sale of Fixed asset）•tGross profit aka Margin or markup – measures organization’s efficiency to control direct cost of revenue while simultaneously increasing sales•tNet income from operations aka EBIT•tGross Profit Margin ratio – gross profit/ revenue•tOperating margin ratio = EBIT/ revenue （considers secondary expenses like SG&A）•tNet income margin ratio = PAT/ revenue （what amount of sales will translate into Profit）7。tBalance sheet in detail•tProfitability ratiosotReturn on equity – tells how much company has been able to grow the owners’ money during the yearotReturn on assets – if company has no debt， ROA = ROE。 ROA will always be lower than ROE if company has debt•tLiquidity ratiosotCurrent ratio – ideally between 1 to 1。5。 Too high a ratio indicates bad cash management as cash could be put to better useotQuick ratio – excludes inventory。 Assuming we don’t sell any inventory， do we still expect to receive more than we pay over the next 12 months•tEfficiency ratiosotInventory turnover ratio – otDebtors turnoverotCreditors turnover•tSolvency ratios otDebt to equity – below 0。5 is goodotLiabilities to equity – another variant of debt-to-equity –below 0。8 is good8。tCash flow statement in detail•tA stock issue is like a perpetuity loan （never-ending loan）•tTo determine if stock issue as a financing mode is good or not， look at the ROE & the Price-to-book-value （P/BV） & then you will get a fair idea of the effective perpetuity interest rate•tAs a CFO – 3 options of availing funding – bank loan， bond issue， stock issuance， •tPayout to shareholder options – dividend， treasury stock buy back•tFree cash flow – operating cash flow excluding PPE•tFree-Cash-Flow to revenue ratio – 13。2% indicates that of every 100$ of revenue， 13。2$ is available for the shareholders as cash。 Generally， at least 5% or higher is good•tInvesting-cash-flow to operating-cash-flow ratio 。。。more
Rodrigo Salazar
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Good book， great after reading “warren buffet three favorite books” by same author。 Explains perfectly accounting， the 3 financial statements and how the connect with each other。
Ravi
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One of of the best investment books I have ever read。I am already a big fan The investors podcast and found the book also to be equally great。 The language is simple and its uses examples with almost every topic to help readers understand the concepts。 If that’s not enough， they have also have a big online big community to help you address all your unanswered queries。 Totally recommended。
Mohammadreza Khedmati
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پادکست "پرسه زنی در بازار" به شنوندگانش توصیه کرده بود که برای آشنایی با قواعد حسابداری که لازمه فعالیت تو بورسه، این کتاب رو مطالعه کنند。 من دانش حسابداری داشتم اما باز از سر کنجکاوی، کتاب رو خوندم。 توضیحات کتاب به زبان ساده و روان هست و به غیر از مقدمات حسابداری، مسائلی مثل نرخ بهره و همینطور دو مدل از انواع ارزشگذاری سهام رو دربرمی گیره。 برای افرادی که سواد مالی از قبل دارند اما تو بورس فعال نبودن، این بخش هایی که بهشون اشاره کردم مفیدن。در کل کتاب خیلی خوبی برای شروع هست。 ترجمه فارسی （عباس اح پادکست "پرسه زنی در بازار" به شنوندگانش توصیه کرده بود که برای آشنایی با قواعد حسابداری که لازمه فعالیت تو بورسه، این کتاب رو مطالعه کنند。 من دانش حسابداری داشتم اما باز از سر کنجکاوی، کتاب رو خوندم。 توضیحات کتاب به زبان ساده و روان هست و به غیر از مقدمات حسابداری، مسائلی مثل نرخ بهره و همینطور دو مدل از انواع ارزشگذاری سهام رو دربرمی گیره。 برای افرادی که سواد مالی از قبل دارند اما تو بورس فعال نبودن، این بخش هایی که بهشون اشاره کردم مفیدن。در کل کتاب خیلی خوبی برای شروع هست。 ترجمه فارسی （عباس احمدی） رو استفاده نکنید که از زیانکاران خواهید بود。 خیلی بی دقت و سرسری ترجمه شده。ضمنا نویسندگان سایتی رو طراحی کردن که فایل های ویدیویی متعددی داره که همین مطالب آموزشی رو در برمی گیره。 فروم پرسش و پاسخ هم داره。http://www。buffettsbooks。com/لینک پادکست پرسه زنی در بازارhttps://mehdi70501002。podbean。com/ 。。。more
Avery
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Helpful and concise book。 For me this was a lot of basics and review of things I already know （being an Accounting Major）， but I’d say for anyone who is not a Finance or Accounting person this book is a good intro into value investing and basic concepts of Accounting that affect that。
Stelios peterson
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Great in-depth review of the most important accounting metrics needed for analyzing financial statements。 The author goes step-by-step and does a great job explaining the material。 Great in-depth review of the most important accounting metrics needed for analyzing financial statements。 The author goes step-by-step and does a great job explaining the material。
Sander Van Der Maas
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Great book for anyone who wants to know more about accounting， finance and basic valuation of a business。
Sean Goulding
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Amazing book for explaining financial statements in detail。
Mike Ncube
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This book is for any investor that’s serious about learning financial statements like income statements and balance sheets。
Toe
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Objective SummaryBrodersen and Pysh’s book explores accounting concepts and financial statements using Coca Cola as an example company。 The book focuses on principles the authors derived from following legendary investor Warren Buffett’s spoken and written words。 Buffett’s investment style is one of “value investing，” which seeks to buy the stock of solidly performing companies when their intrinsic values fall below their market values。 Buffett has written an annual letter to the shareholders of Objective SummaryBrodersen and Pysh’s book explores accounting concepts and financial statements using Coca Cola as an example company。 The book focuses on principles the authors derived from following legendary investor Warren Buffett’s spoken and written words。 Buffett’s investment style is one of “value investing，” which seeks to buy the stock of solidly performing companies when their intrinsic values fall below their market values。 Buffett has written an annual letter to the shareholders of his company， Berkshire Hathaway， every year since 1977。 They can be found here http://www。berkshirehathaway。com/lett。。。。 By following Buffett’s principles， the authors believe they can enjoy above average investment returns。 These are some of the lessons of this book。1。tInvest in assets that generate cash flow back to you。 Precious metals， wine， and art generally do not create consistent cash flow。 Stocks generally do。2。tGovernments like inflation because （1） it increases current consumption， which generates employment; （2） taxation generally occurs on nominal dollars; and （3） debt， of which the government has a lot， is issued in nominal dollars。 Inflation is a constant drag on an investor’s ability to make returns。3。tBonds are preferred over stocks only when inflation is low and interest rates are high。4。tWarren Buffett invests according to 4 principles:（1）。tVigilant leadershipi。tLow debt – a debt-to-equity ratio （debt / equity） < 。5 is preferred。ii。tHigh current ratio – （current assets / current liabilities） > 1。5 is preferred。 iii。tStrong and consistent return on equity – （net income / shareholder’s equity） > 8% for the last 10 yearsiv。tAppropriate management incentives – Managers are shareholders’ agents and should not be compensated only by salary or short-term stock price increases。（2）。tLong-term prospectsi。tPersistent products – Buffett’s favorite holding period is forever， so he prefers products like Coca Cola， trains， banking， real estate over high tech devices like smartphones and tablets。ii。tMinimize taxes – Hold investments for at least one year， and preferably longer to minimize taxes， which reduces overall return。（3）。tStock stabilityi。tStable book value growth from the owner’s earnings – a graphing tool on the authors’ website has 6 inputs—EPS， ROE， Dividend Rate， Book Value， Debt/Equity， and the Current Ratio—that can be graphed for 10 years to show stability。 The website is: http://www。buffettbooks。com/intellige。。。。ii。tSustainable competitive advantage （moat） – Invest in companies with durable competitive advantages like brand value or other intangibles， low-cost structures， and high switching costs or stickiness。（4）。tBuy at attractive pricesi。tKeep a wide margin of safety to the intrinsic value – your intrinsic value calculation should be lower than the market price at the time you purchase， and the wider the margin the betterii。tLow price-earnings ratio – generally should be less than 15iii。tLow price-to-book ratio – generally should be less than 1。5iv。tSet a safe discount rate – should never be less than the 10-year Treasury Bond rate， and should reflect the risk of the businessv。tBuy undervalued stocks by determining intrinsic value – use either the Discounted Cash Flow method （using assumptions of free cash flow for 10 years and then into perpetuity， estimated discount rate， and then convert to a per share price） or the authors’ intrinsic value calculator available at: http://www。buffettsbooks。com/intellig。。。 （using estimated future book value growth based on past change， and estimated dividends）。vi。tKnow the right time to sell your stocks – sell stock that breaks one of the 4 principles， is too large a percentage of your portfolio， or you can get a better return from another investment。a。tCalculate the expected annual return for stocks A and B based on the current market prices。b。tSubtract the cost of capital gains tax from Stock A。c。tCalculate whether stock A or stock B yields the highest expected annual return based on a given timeframe。5。tNet income margin ratio = net income / revenue。 Higher is better and there should be a trend of a high net-margin ratio。 6。tInterest coverage ratio = income from operations / interest expense。 Higher is better， but a ratio of 5 or greater is generally safe。7。tReturn on equity and return on assets are equal if the company has no debt。 If you’re buying a company with a lot of debt， you probably want to refer to ROA rather than ROE。 8。tDebt-to-equity ratio = （long-term debt + notes payable） / equity。 A lower ratio signifies a less risky company。 Buffett generally does not like a debt-to-equity ratio above 。5。 Liabilities-to-equity ratio = total liabilities / equity。 It is similar but even more conservative than debt-to-equity ratio， and it should generally be below 。8。 9。tFree cash flow = operating cash flow + net property， plant， and equipment。 Many value investors believe this figure holds the key to determining the intrinsic value of a business。 10。tFree cash flow-to-revenue ratio = （operating cash flow + net property， plant， and equipment） / revenue。 A higher ratio is better， and it should be at least 5%。11。tAccounting information is contained in 10-Ks and 10-Qs。 All publicly traded companies are required to generate these reports。 Use the information in these reports to filter companies through the accounting ratios discussed。 The ratios are just a starting point and guide。 Stock selection is ultimately both science and art。 Subjective ThoughtsValue investors like Buffett， Brodersen， and Pysh implicitly—if not explicitly—reject the efficient market hypothesis， which states that the market value of stocks reflects all publicly available information。 If the efficient market hypothesis is true， individual investors should not be able to consistently outperform the market。 Investors may outperform the market in the short run， but they should not expect to do so in the long run。 Furthermore， individual investors who do outperform the market are either lucky or using insider information。 The investing strategy suggested by the efficient market hypothesis is to hold a broad index of funds and minimize transaction costs to maximize overall returns。 This strategy was pioneered by John Bogle of Vanguard based on the academic work of Burton Malkiel， and it has been adopted by countless investors。 Buffett himself even famously bet a hedge-fund manager （the supposed cream of the investing crop） that an index fund would outperform a basket of hedge funds that his counterpart to the wager selected。 Buffett won the bet。 It’s strange to me that Buffett has stated that low cost index funds are the best investment for 99% of investors under the logic of the efficient market hypothesis， but he himself selects individual stocks and has outperformed the market during his tenure at Berkshire Hathaway。 How do we square that circle？The answer is that Buffett believes himself to be in the 1% or less of people who can outperform the market， and he has done so since taking the reins at Berkshire Hathaway in 1962。 There is an open question to what extent he has been able to outperform the market since 2000。 Buffett has an incentive to discourage people from analyzing and investing in individual stocks as it decreases his competition。 But most people， by definition， are not in the upper echelon of investors。 I think the market is largely efficient， and it becomes more so with improved technology。 Arbitrage opportunities， to the extent they appear， vanish at an increasingly rapid pace。 Most people do not have the time or expertise to invest as Buffett does， and they truly are better off investing in low cost index funds。 Brodersen’s and Pysh’s book is just the tip of the iceberg in terms of the knowledge and time required to try to outperform the market on the basis of skill rather than luck。 And this book itself is just ok。 It seemed repetitive and strangely organized。 Chapter 4， for example， is 84 pages， while Chapter 5 is 10 pages。 A little balance in the scope of chapters would be nice。 Chapter 3 is a brief introduction to financial statements that are then explored in more detail in Chapters 6， 7， and 8。 Why not just eliminate Chapter 3 altogether rather than repeat the same information？ It felt at times as if the authors were stretching to meet a 250 page minimum rather than conveying useful information efficiently。 The use of analogies was distracting and overdone。 There were a few noticeable typos。 This book is in need of a strong editor。 There is useful information buried in here， but it could be both shorter and more logically organized。 Mike Piper’s “Accounting Made Simple” is a great example of how to cut fluff。I don’t personally invest in individual stocks， and I don’t intend to start doing so with any significant portion of my total portfolio。 I am satisfied with the returns provided by Vanguard’s index funds。 I’d view any individual stock selections as more akin to gambling or a fun hobby than a serious investment strategy。 But I don’t currently derive any significant pleasure from wading through financial statements and estimating the future cash flows of large companies。 It sounds more like a chore than an enticing way to spend an evening。 Fortunately， the index funds are out there， and Joel Greenblatt’s “Little Book that Beats the Market” offers a stock screening strategy with just slightly more work than index funds。 His website （available here: https://www。magicformulainvesting。com/） prioritizes various financial information and ratios to yield an investment strategy。 In terms of the effort-to-reward ratio， which I always consider in life， index funds and Greenblatt’s stock screener appeal to me more than the approach from Brodersen， Pysh， and Buffett。 But， as I said， less competition from me and people like me should be good news to them。Revealing Quotes“As your knowledge increases， your confidence improves and your understanding of truth and facts becomes clear。 Financial education removes the time and impulse element found in novice investors。”“Intrinsic value can be defined simply: It is the discounted value of the cash that can be taken out of a business during its remaining life。” – Warren Buffett“Warren Buffett strongly believes that concentration of your portfolio actually diminishes your risk。 He compares this strategy with having Michael Jordan on your team: would you substitute him because he is scoring all the points？”“When I am in doubt as to whether something is an asset or liability， this is the definition I think of: Can it make money for the company？”“Goodwill only occurs during the acquisition process; it is not something companies can create by themselves。” “When you look at five-year trends on the company’s cash flow statement， nothing spells trouble faster than a company that continually raises cash outside of the company’s operating activities。” 。。。more
Alex
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Good introduction to reading financial statements。 It explains different ratios and calculations to assess a company based on its 10Ks & 10Qs。
Pureum Kim
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Good book for rookie investorsLove their podcast。 Super helpful and insightful。 The book is great for beginners。 It explains accounting， FSA， and investing well。 Also， it does explain Buffetts approach reasonably well。 However， I disagree with their assessment about leverage mostly being bad。 In fact the high return from private equity comes from optimal leverage。 Also， the book does not do a good job of explaining finding good moat。 You really need to know the industry and the business model。St Good book for rookie investorsLove their podcast。 Super helpful and insightful。 The book is great for beginners。 It explains accounting， FSA， and investing well。 Also， it does explain Buffetts approach reasonably well。 However， I disagree with their assessment about leverage mostly being bad。 In fact the high return from private equity comes from optimal leverage。 Also， the book does not do a good job of explaining finding good moat。 You really need to know the industry and the business model。Still the book is a great book for beginner investors。 Also， it is a good book for those who just started studying FSA。 。。。more
NIRAJ KUMAR
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Great book to understand AccountingThe author has done good job while explaining the financial statements with respect to Value Investing。 I have gone through their educational videos and they are bonus after reading this book。
Đạt Tiêu
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Excellent book for rookie investors。 Some notes:A。 Must-know Concepts 1。 Interest rate-> [when contraction] Low: easier to borrow money -> demand up -> spending up -> supply up -> GDP up tt-> unemployment down -> wealth up -> inflation up -> price up -> currency downtt-> bubbles on the waytt-> stocks are cheap -> buy stocks-> [when expansion] High: discourage in borrowing money -> demand down -> spending down -> supply down -> GDP downtt-> unemployment up -> wealth down -> inflation down -> pric Excellent book for rookie investors。 Some notes:A。 Must-know Concepts 1。 Interest rate-> [when contraction] Low: easier to borrow money -> demand up -> spending up -> supply up -> GDP up tt-> unemployment down -> wealth up -> inflation up -> price up -> currency downtt-> bubbles on the waytt-> stocks are cheap -> buy stocks-> [when expansion] High: discourage in borrowing money -> demand down -> spending down -> supply down -> GDP downtt-> unemployment up -> wealth down -> inflation down -> price down -> currency uptt-> Buy bondstt2。 Inflation-> more money in the circle -> consume more -> demand up -> spending up -> 。。。ttttttt-> more （hidden） tax to governmentttttttt-> pay debt （use real inflated currency to pay off nominal debt）-> stock return down-> bond interest downttttttt3。 Bonds-> good when interest rate is high and|or inflation is lowB。 Core principles of value investing1。 Vigilant leadership- Low debt: -> low debt-2-equity （<= 1） -> good solvency -> OK in long run- Big working capital -> high current ratio （>= 1。5）-> good liquidity -> OK in daily business routine- Strong and consistent return -> high and consistent ROE （>= 8% in 5-10 years， depends on specific industry） -> good profitability - Appropriate management incentives -> management board is good and dedicated to business2。 Long-term prospects- Persistent products: -> do technology advance affect somehow on products？- Tax efficiency: -> Long-term investment cost less tax3。 Stock stability-> Business: understandable and stable- Stable book value: -> high and consistent owner earning -> EPS growth， FCF growth- Economic moats: -> durable competitive advantages -> overcome competition in long run4。 Buy at attractive prices- wide margin of safety to intrinsic value -> buffer for any error in value estimation and risk assessment- Low price multiples: low P/E （<= 15）， low P/B （<= 1。5） （depends on specific industry）-> likely undervalued stocks- Set a safe discount rate: -> a kind of risk coefficient -> the riskier the investment， the higher the discount ratetttttt -> also equivalent to the ROI （required rate of return）tttttt -> use a benchmark like bond interest- Estimate intrinsic value: -> DCF model or Buffet adjusted DCF model- Sell if stocks break any core principle 。。。more
Dr。 Cock'n Ballz
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Pretty good book。 Quick read。Two authors and basically two parts to this book。 The first half is an overview of how Warren Buffet invests and looks at companies。 What kind of metrics he focuses on， and how he reads financial statements。 If you've followed that topic before， nothing new here。。。 I do like to see when people show the math for their intrinsic value calculations。 That's the highlight of the first half。Second half is all about accounting and financial statements， which for non-account Pretty good book。 Quick read。Two authors and basically two parts to this book。 The first half is an overview of how Warren Buffet invests and looks at companies。 What kind of metrics he focuses on， and how he reads financial statements。 If you've followed that topic before， nothing new here。。。 I do like to see when people show the math for their intrinsic value calculations。 That's the highlight of the first half。Second half is all about accounting and financial statements， which for non-accountants， can be very confusing！ But - as investors， is also very important。 I liked the way they presented the material。 Just the right amount of depth for me （a beginner）。 Quick read。 I took a lot of notes and will come back to them later。I'd recommend this book - but I certainly wouldn't call it a 'must read'。Misc thoughts。。。 Does Warren Buffet own his own name？ Can anyone who wants to， write a book claiming to explain his methods。。。 and just capitalize on Warren's success？ Obviously hundreds of authors have done so。。。 and I'm guessing he isn't giving them permission？ Or receiving a cut？ Interesting。。。 and maybe a little crooked？PET PEEVE TIME！ - This guys have a website with some 'tools' on it。。。 who gives a fuck？ I went to the library to read a book - don't fill it with links to your website！！ I CAN'T CLICK ON THEM。 And I'm sure as hell not going to t。。。y。。。p。。。e。。。 them into a browser。 Is the website even still up？ How would I know！ It's not a blog fellas， don't treat it like one。 I know they aren't the only ones， and its probably somewhat common。 It's just insulting to my intelligence。 I know how to use google。 I could find your stupid website if I wanted to - but I didn't， I got a book instead。 Don't embarrass yourselves。On a lighter note - I checked out this book without noting the authors。。。 turns out I used to listen to these guys' podcast。 So that was a fun coincidence。 The podcast was OK - but far from top notch。 Production quality was so-so， and ultimately the topics and guests just weren't cutting it for my tastes。 And nothing against Stig， but his accent is tough。 Maybe stick to the books？ 。。。more
Mir Mostafa Ahmad
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Great Book ！ Great Book for beginners， I enjoyed reading it， although I was confused in some chapters but overall now I have better understanding of the stocks and value investment。Thank you
Saumik Chakrabarti
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Crisp and InsightfulA very dumbed down version rxplaining all relevant high finance concepts necessary for a layman to start value investing。 The best part is that the advice applies to all markets and is not limited to American markets alone。
Dreslan
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Actaul examples from a value investors vantage pointThis book uses accounting statements from real companies and dives into them from the vantage point of a value investor。 I love the discussion around key ratios for each of the three accounting statements， and relative comparison examples to competitors。 I'll likely use the latter half of this book as a reference going forward。 This is a great book for investors new and old。 Actaul examples from a value investors vantage pointThis book uses accounting statements from real companies and dives into them from the vantage point of a value investor。 I love the discussion around key ratios for each of the three accounting statements， and relative comparison examples to competitors。 I'll likely use the latter half of this book as a reference going forward。 This is a great book for investors new and old。 。。。more
Priyank
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