Should You Learn Investing By Reading or Doing? - Geoff's Advice to a College Junior

by Geoff Gannon

A reader sent me this email:

Hi Geoff,

I am a junior in college who only recently has stumbled upon the realm of value investing.  At this point, I have read Margin of SafetyYou Can Be A Stock Market Genius, parts of The Intelligent Investor, and have recently begun Warren Buffett's essays.  As a part of my schoolwork, I have taken basic courses in corporate finance, financial accounting, and capital markets.

What I am wondering is how I can best allocate the free time I devote to learning about investing in order to maximize its learning potential, as I am a busy college student now, and will hopefully be a busy employee in the future.  But far from not knowing where to turn, I am rather overwhelmed by the wealth of good resources there are out there concerning value investing, between books, articles, and blogs such as yours.

So my question is: what activity would best serve my education in investing right now, given my elementary exposure to the field?  I am under the impression from my research that the best way to learn about value investing is to do it.  However, value investing is a long and tedious process, involving a lot of searching and reading, often times about company-specific knowledge that in themselves don't really teach much in terms of the art of investing.  Would it be more educational for me to simply pick good ideas from books and blogs and try to "reverse engineer" the thought process at this point?  Or have I gotten ahead of myself, and should read more classics / take more advanced courses in corporate finance before going further?

Best regards,

Learn by doing.

Don’t worry about abstract theories. Start work on specific stocks. Steal someone else’s ideas and study those stocks. I wrote a post about four microcaps: Birner Dental Management Services (BDMS), George Risk Industries (RSKIA), Solitron Devices (SODI), and Bancinsurance (BCIS). Three of those four companies are still around.

Pick one of those three companies. Go to EDGAR and find their latest 10-K. Print it out.

Take the 10-K, a pen, a calculator, and a highlighter to the library. Highlight any phrases that sound worth remembering. Don’t overdo it. Be honest. Just highlight the stuff that sounds like it could swing you one way or another on buying the stock. A good way to do this is to imagine you’re running a conglomerate that is considering buying this business in its entirety. You’ve asked someone working for you to study the company and present the acquisition opportunity to you – in conversation, not a written report – tomorrow morning. What would you want him to highlight?

That’s what you highlight.

Use the pen to write notes in the margin. For me, these are usually questions or calculations.

Don’t take random notes. Follow a thread. Like an interviewer. Imagine the 10-K isn’t just written text but a real person sitting in front of you. What would your follow-up questions be? Write them in the margins.

When you finish the last page of the 10-K, head back to your dorm. Don’t look at the 10-K. Don’t think about the stock.

Ask yourself if there’s anyone from those accounting and finance classes you could bribe into listening to you talk for 5 minutes.

There is? Good.

Tomorrow morning you’re going to buy him a coffee. Or more plausibly, tomorrow evening you’re going to buy him a beer.

Once he’s got a free drink in front of him, you tell him about the stock. You don’t need a stopwatch. But you do need to finish your story before he finishes his drink. And you need to respond to anything he says. Those are the rules.

If you can do that, you’ve learned a lot.

Imagine you show someone your portfolio and they ask: “What’s the story with that stock?”

Here’s how I answered that question for 2 stocks I owned:

George Risk Industries

The stock was stupid cheap. So I expected to find George Risk’s actual business was worthless. I looked at the 10-Q and the past 10-Ks. I saw the business was worth a lot. The stock price was 95% covered by George Risk’s stocks, bonds, and cash. If you bought the stock: you got the business for free. So I bought the stock.


The CEO was offering to buy the company for $6 a share. That was 0.7 times tangible book value, 4.9 times pre-tax earnings, and 6.2 times after-tax earnings. Bancinsurance had operated at a combined ratio below 100 in 25 of the last 28 years. I didn’t know of any acquisitions of adequately capitalized property/casualty companies with underwriting histories like Bancinsurance’s done at multiples that low. You could buy the stock at the same price the CEO was offering. So I bought the stock.

You need to learn how to do this.

I don’t just mean you need to learn how to tell the premise underlying your stock purchases. You need to recognize a great premise when you see it.

That won’t come from general reading.

Joel Greenblatt’s “You Can Be a Stock Market Genius” is great because it gives you specific stocks Joel Greenblatt bought and explains the premise behind each purchase. 

But you’re really only going to learn by doing.

The best thing for you to do right now is take a stock idea from this blog – or Greenbackd or Street Capitalist or Variant Perceptions or Cheap Stocks or Interactive Investor – learn its story and then tell that story to someone else.

Do one stock a week. It won’t take much time. Just read one 10-K every Thursday and tell one stock story every Friday.

You’ll learn.

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