How to learn to read financial statements?

**ffreedom** Tue Sep 20, 2005 7:44 pm

How to learn to read financial statements?
Hi, Blast,

I'm interested in learning to read financial statements. Lacking background in finance, especially accouting knowledge, I was lost most of the time when trying to read a company's report.

Do you have any book suggestions on reading financial statement? Or good book on financial accounting?

My two thumbs up for your great work!

**blast_investor** Tue Sep 20, 2005 9:20 pm

Hi chihwei_chang,

Thank you for praising my newsletter service.

Understanding balance sheet and financial statement is not a trivial thing.

If you want to do value investing yourself, you pretty much have to understand accounting in general and tricks behind those statements. Those published PE and earning etc are many times misleading to inexperienced investors and they can not be relied upon for value investing purposes.

I do not know what is best way for you to get into this. My path has been real life business experience earlier on coupled with studying books of Ben Graham. I was landlord many years ago and I handled all the accounting and tax myself: studying real estate economics, filing tax using Turbotax, and understanding how much I made from either rents or house appreciation from landlording. Although right now I no longer do landlording and I am focused only on stock investment, the past real estate business experience was certainly worth the time and effort, and that gave me first hand knowledge of the real business world behind financial statement and business profitability.

In hiring, real work experiences are always reqired for good professional positions. I think this would be same for value investing. A solid experience in landlording business or other small business would count as good experience for value investing because value investing is more about business rather than speculation or math modeling or trend following market timing etc. Without experience, it is very hard to know what's going on behind those financial statement.

Of course, if you rely on BIRTP newsletter for investment, you would not
need that much effort because I do this value investing work for the newsletter. If you want to do your own pick and value investing, you really have to understand those financial statements in my opinion.