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The Importance Of Reading Widely For Your Investments

Reading is an essential activity for any investor. The more we read, the more knowledge we gain which we can use to analyse our investments and do our due diligence.

Investors should always find some time to read and keep up with business developments, not just of the companies they own but also of general industry trends.

Reading is a habit which should be cultivated as it helps to focus our mind and sharpen our thinking, but note that what we read is almost as important as how much time we spend on this activity. Reading the wrong material not only wastes time, but may also mislead the investor and provide them with wrong information, resulting in erroneous investment decisions.

Why Should We Read?

The very basic question of why we should read leads to a very predictable answer – we read for knowledge, and we also read to ensure we know what’s happening in the world around us.

Reading exposes an investor to trends in businesses, corporate developments and also changes to industries which are occurring on a regular basis. The Chinese have a saying “do not be a frog in the well” – this relates to having “tunnel vision” where one only has a fixed point of view due to under-exposure to different areas of knowledge or different viewpoints.

What Should We Read?

We should ideally read a wide range of material and not just stick to business-related topics.

Charlie Munger, Buffett’s right-hand man, advocates the use of a “latticework of mental models” in investing, which requires knowledge of many different disciplines to come up with a holistic view of an investment.

As most of us are not as smart as Munger, I would recommend reading topics which are somewhat more relevant to investing for a start, such as business models, industry news, accounting topics, psychology and general business news. If an investor can handle the load, then he should start reading from more diverse disciplines as time goes by.

How Should We Absorb Knowledge?

Investors may end up reading a lot but retaining very little, which throws a spanner in the works when it comes to using the information for investments.

Make notes while reading and try to summarise important information in a few lines to enhance the knowledge absorption process. There is no short-cut to this and practice makes perfect.

The Foolish Bottom Line

Reading widely is one of the pre-requisites for successful investing. Munger himself remarks that he knows of no great investor who does not read a lot, so investors should heed his advice to read widely to continuously improve our skills as investors.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice.