Saturday, November 8, 2014

The Art and Science of Investing

Stockpicking is both an art and a science, but too much of either is a dangerous thing...If you could tell the future from a balance sheet, then mathematicians and accountants would be the richest people in the world by now. - Peter Lynch, Beating the Street
The Astronomer, Vermeer
One of the traits shared by the investors I admire is an insatiable thirst for a wide range of knowledge. (Look no further than Charlie Munger on this point.) For every investing book they read, they might read two or three non-investing books if not more.

While it's absolutely critical to understand the science of investing -- accounting, valuation, analysis, etc. -- ultimately, the numbers reflected in a company's financial statement and the ones that go into our spreadsheets are by-products of human behavior. Without context, the numbers don't amount to much.

The art of investing is understanding why people do the things they do, especially the things we ourselves do. The better control we have over our own emotions and actions when other investors lack control, the better our returns should be in the long run. Further, it's important to read on a variety of topics as the market is a complex system and the more strings we can tie together, the greater our potential for identifying value-creating opportunities.

I'm curious to know what non-investing books you've read that have made a big impact on your investing strategy. You can let me know on Twitter @toddwenning or in the comments section below.

One of my recommendations is Tao Te Ching by Laozi (Lao Tzu), which has had a tremendous impact on my philosophy on patience, even if I don't always practice it as well as I should.

What I've been reading and listening to this week:
Stay patient, stay focused.