Relearning How to Learn About Investments
The following article is meant to start a discussion on the best practices to learn about the investment industry. By offering my personal investment habits, both past and present, I hope to find the most efficient and effective ways to learn about the markets and make good investment decisions.
So how do you learn about the markets?
Do you read the Wall Street Journal? Do you listen to financial podcasts? Do you learn from the successes and failures of famous investors through investment books or biographies? Do you endlessly scroll through financial articles in search of that nugget of information that will lead to a perfect investment strategy?
While I have learned from all of the above methods, I would like to offer a healthy skepticism of the final option - scrolling through financial articles like an Instagram feed - as I have often found this strategy to be far less valuable than what most make it out to be. Allow me to explain.
Over the summer, I read countless financial articles in an attempt to expand my knowledge on the investment industry, but after a few hours of going from article to article, idea to idea, my father asked me at dinner “so what did you learn today?” and I blanked, unable to come up with any tangible learning points.
This moment was especially hard because it made me realize that this problem - reading about a financial event simply to have it slip into oblivion - has plagued me for years. I care about investments, and want to learn as much about them as possible, but this mindset of “absorbing” financial information in the assumption that it would “bubble up” when prompted later on was simply unfounded. It’s like sitting in a lecture without taking notes or studying for a test without doing practice problems; it’s just not how you learn.
So why was I learning this way?
I hate to say it, but I think this “absorption” mindset came from almost everyone I respect in investments telling me to “read the Wall Street Journal daily.” I was given this advice so often, whether it was from upperclassmen, my finance professors, or world class investors, that I just blindly followed it, not really pausing to question why or how this was the most effective way to learn about investments.
Upon reflection, I realized that not only was the quantity of financial articles I was reading adversely impacting my ability to remember them, but the relevance of articles I was reading was also up for question. For example, while reading about how Nissan was trying to find a new CEO one morning, I couldn’t help but thinking: “how am I learning anything about investments from this?” Well, there are several lessons one could take from this article, including how stock prices adjust to account for new information, the importance of good management to the future stock price, or even how the current turbulence in price could offer a good buying point, but the sad truth of the situation is that none of these insights were mentioned in the article. I mean, it’s an article, not an investment guideline. But these key insights were what I so deeply wanted. I realized that the reason so many experts told me to read the Wall Street Journal daily was because they already had the experience necessary to derive the important insights from the article.
I’m not saying that the Wall Street Journal isn’t worth reading, it most certainly is. I just want to take a moment to explain where my thinking went wrong so that the next generation of investors won’t spend several hours a day using a strategy for a goal it cannot provide.
Problems with the well intentioned advice: “Read the Wall Street Journal Daily”
It assumes that simply reading a few journal articles a day is sufficient to understanding investment strategies - it is not.
There are several articles, even in the “Markets” section of the WSJ, in which I’ve derived very little value in terms of gaining a higher understanding of how markets work, creating massive inefficiency if read without a very selective mindset.
Reading the Wall Street Journal daily can easily lead to overconsumption, therefore reducing retention, and creating a false sense of accomplishment when little has actually been learned. Yes, in some cases, reading the Wall Street Journal daily can hurt you.
Therefore, although the Wall Street Journal is an interesting source to see what’s going on in the world of financial markets, business innovation, and economic policies, I would suggest only using it as a playground to test your actual learning, which should be learned from investment books, podcasts, classes, and the management of a personal account.
Ever since that fateful summer day where I realized the way I was learning about investments was wrong, I’ve done a lot of thinking about the best ways to learn about investments.
Here’s what I’ve found.
First, learn the basics really, really well. Like Warren Buffett reading 10K’s all day or Stephen Curry perfecting his free-throw each practice, to be an expert on anything you have to have a strong foundation in which to build upon.
Although simple, I think this is one of the core reasons why “reading the Wall Street Journal daily” can be misleading advice for those just getting started. While reading the Wall Street Journal might be extremely informative for the well-versed investor, it means relatively nothing to someone just starting out. Tim Urban put it perfectly in his June 2nd, 2015 blog post:
“I’ve heard people compare knowledge of a topic to a tree. If you don’t fully get it, it’s like a tree in your head with no trunk—and without a trunk, when you learn something new about the topic—a new branch or leaf of the tree—there’s nothing for it to hang onto, so it just falls away. By clearing out fog all the way to the bottom, I build a tree trunk in my head, and from then on, all new information can hold on, which makes that topic forever more interesting and productive to learn about. And what I usually find is that so many of the topics I’ve pegged as “boring” in my head are actually just foggy to me—like watching episode 17 of a great show, which would be boring if you didn’t have the tree trunk of the back story and characters in place.”
To reiterate, without a foundational understanding of what’s going on (the trunk), you will never be able to retain the details (the leaves).
So what are the best ways to get a solid foundation for investments?
Over the summer, I had the opportunity to intern at a hedge fund in Boston. Although I learned an incredible amount through the research and analysis I did valuing single name stocks, I also vastly expanded my investment foundation by listening to investment podcasts each day on my way to and from downtown Boston. I realized that podcasts are one of the best ways to really learn the basics for several reasons. First, podcasts literally force you to slow down and contemplate what is being discussed because the average talking speed is roughly half that of reading. This means that I often find myself debating the topics in my head in that additional space in the conversation, drastically improving my retention of the topics. Secondly, podcasts reiterate the same topic over and over again for upwards of an hour. When’s the last time an article took you more than five minutes to read? This increased depth further leads to higher retention. Third, spoken word is far more engaging than a linear form of communication such as text. You have different tones, speeds, and can often hear the passion in which the host and interviewer discuss the topics, adding further opportunities to connect with the content. Finally, podcasts are inherently less binge-able. Whenever I listen to a podcast, I think about it all day. I can’t always say the same for the articles I read. A podcast that was recommended to me by a few investment professionals and which I would highly recommend to anyone starting out is Patrick O’Shaughnessy’s Invest like the Best. Working through all of his old podcasts will certainly give any investor a strong investment foundation.
But maybe you’re not interested in podcasts and would prefer to form your tree trunks through reading - how do you do that?
I personally believe it takes about four to five good investment books to form a solid investment foundation, which, all things considered, is quite an achievable goal. The books I’ve derived the most value from and would suggest to any up and coming investor include: Jim Cramer’s Real Money by Jim Cramer, A Random Walk Down Wall Street by Burton G. Malkiel, Unconventional Success by David F. Swenson, The Warren Buffett Way by Robert G. Hagstrom Jr., and my personal favorite, One Up On Wall Street by Peter Lynch. I would recommend Peter Lynch’s book for all levels of investors not only because Peter Lynch is one of the most respected investors up there with Warren Buffett, but his writing style is super accessible seeing as he loves to tell stories about the stocks he’s invested in and the lessons he’s learned in the process.
There are also countless books that are not entirely about investment philosophies, but are always included in the best-books-to-read-for-investments conversation such as Thinking Fast and Slow by Daniel Kahneman, Principles by Ray Dalio (this one is a mix of life advice and investment advice), Zero to One by Peter Thiel, and a personal recommendation The Third Door by Alex Banayan. This last one has little to do with investments, but everything to do with achieving your dreams by finding more opportunities. If you’re on Georgetown’s campus I’d gladly lend any of the above books to you.
I also have a huge list of investment books I’m constantly working my way through, so if you want more recommendations, send me an email and I’ll send it your way.
Also feel free to sign up for more analytical newsletters, such as Aswath Damodaran’s (highly regarded NYU finance professor) blog “Musings on Markets,” which offers higher level valuation examples and clear explanations behind them. His courses can all be found recorded on his website for free along with his own textbook. I also subscribe to Farnam Street, which gives you mental maps to think better and SumZero, which combines the best stock pitches from buy side investors. Wall Street Oasis is also a treasure trove of answers to ANY question you have about jobs in finance as its basically Reddit for Wall Street. I’d also recommend reading the white papers, or research reports, that bulge bracket banks and larger asset managers create as they are usually higher level and offer worthwhile insights for those starting out.
“Okay, but I really just want to learn as much as possible from the financial articles I’m reading,” you say. “How can I read something then retain it for weeks?” I’ve thought about this a lot too, so let’s dive in.
First, pick an article you actually care about. When people say “read the Wall Street Journal daily,” they really mean just skim the headlines of about ten articles, then read the one or two you would actually derive value from. I usually read anything related to ESG investing (because I fully believe in its increasing importance), actively managed mutual funds (because I hope to work for one in the future and the industry isn’t doing too well), growth equity (as this is a recent interest of mine that I want to learn more about), and current events in Hong Kong (I studied abroad there and hope to return). Being more selective with your time will allow you to read with intention, while also not overloading yourself, both of which will dramatically increase your ability to remember what you’ve learned.
Research also suggests that taking notes with the intention of teaching others also works quite well for retention. This is honestly why I wanted to create GCI’s blog in the first place.
A personal goal I have while reading articles which I’ve found to increase retention is to become conversational on a topic. If I can have a conversation about whatever article I’ve read, I’ll probably be able to retain it for the long term. But once again, this is really just another way of saying “know the basics” because you can’t have a conversation without knowing the basics.
So let’s recap: 1) Know the basics! It’s the only way you can truly compound investment knowledge, 2) build this foundation with high quality sources such as introductory podcasts and books, 3) expand your knowledge base by reading articles and blogs you actually care about, 4) do it every day - you can’t remember what you don’t practice.
In conclusion, instead of passively reading articles, you should strive to learn the basics of investing from those who know it best. Whether it’s a book or a podcast, learning from the best of the best is the most efficient and effective way to form a solid investment foundation. Whether it’s learning faster, retaining more information, or using your time more efficiently, learning the basics and sticking to what you care about will pay dividends for years to come in any career you pursue.
Continue the conversation with James at jem365@georgetown.edu