How To Grow As An Investor

Money tree 2

Singapore’s stock market barometer, the Straits Times Index (SGX: ^STI), was at 834 points at the start of 1988. Close to 26 years later, it’s now sitting at 3,200 points.

That’s an average annual compounded return of close to 5.3%. Tack on 2-3 percentage points for dividends, and we’re looking at total returns of around 7% or more per year. That seemingly small return, when given decades to compound, can help generate great wealth.

Some individual companies have done even better. For example, in the 16 years ended Nov 2013, shares like Noble Group (SGX: N21), Boustead Singapore (SGX: F9D), Keppel Corporation (SGX: BN4), and Sembcorp Marine (SGX: S51) have had average annualised returns (excluding dividends) of 13.4%, 10.6%, 9.8%, and 9.5% respectively.

The problem is, despite the long-term growth of the stock market in general, many still choose to stay away. That’s a real pity.

And, from my anecdotal observations, I’m beginning to think that there are a large number of potential-investors who keep their distance from stocks simply because they don’t know where to start learning more about it.

Take The Intelligent Investor by Benjamin Graham for example. It is widely-touted as one of the most important books that an investor will have to read, and rightly so. Problem is, its prose can be dry (in my opinion at least), and it can get overly technical at times, leaving novices overwhelmed by the amount of information that needs to be absorbed.

Because of that, I’ve lately been thinking about all the books I’ve read in my investing journey and how my life would have been so much easier if I had read them in a particular order, instead of being thrown into the deep end of the sea with some of the heavier texts.

The following list of three books, in my opinion, contains some of the most easy-reading material for potential-investors to help them take the first step in their investing journey.

And though they might be easy to digest and understand, their lessons are by no means any less useful and can actually help lay a good foundation for more knowledge to be built upon.


1) How To Read A Financial Report: Wringing Vital Signs Out Of The Numbers by John A.Tracy

One of the best investors around, Warren Buffett, once said:

You have to understand accounting and you have to understand the nuances of accounting. It’s the language of business and it’s an imperfect language, but unless you are willing to put in the effort to learn accounting – how to read and interpret financial statements – you really shouldn’t select stocks yourself.”

Buffett’s quote shows how important it is for any investor to be able to understand accounting. While Tracy’s book would not turn any of us into an Accounting PhD in three weeks, it can help any layman obtain a much better grasp of what accounting is all about, and in the process, make someone a better investor.

Also, it might be a good idea to start with an accounting book before delving into a more investing-themed one. The understanding of accounting will aid a reader greatly in understanding what the investment-authors are actually writing about.

2) One Up On Wall Street by Peter Lynch

Lynch is a legend in investment folklore due to his success with the Magellan mutual fund (the equivalent of a unit trust in Singapore). He clocked returns of 29% a year for 13 years when he was running the fund from 1977 to 1990; every $1,000 entrusted to him at the start of his tenure would have become $27,000 when he retired.

In One Up On Wall Street, Lynch shares his market-beating secrets and the book contains some of the best charts I’ve seen that show you just how important a company’s profits are in determining its share price in the long run (hint: it’s very, very, important).

3) The Little Book That Beats The Market by Joel Greenblatt

Greenblatt’s a money manager who has allegedly established a phenomenal track record of 50% annualised returns for nine years from 1985-1994. That kind of performance would make his words well worth noting for any investor, even fellow professionals.

With this book, Greenblatt translates one of the basic (but most important) tenets of investing – buying good quality companies on the cheap – into an easily understandable story.

He describes what successful investing is all about; why buying quality companies on the cheap can work almost indefinitely; and packaged a great investing approach into a simple formula.

And, he managed to do it all by writing it in a way that even a 10 year old primary school student might not find it daunting to understand.

Foolish Bottom Line

One striking and common trait amongst the best investors in the world would be their habit of reading, reading… and reading.

Let’s take their cues from them and whip out our reading glasses!

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chong Ser Jing doesn’t own shares in any companies mentioned and is in no way connected to any of the authors mentioned.