Most young investors (myself included) start by learning key financial ratios and valuation multiples.The benefit of such an approach is its objectivity (you cannot argue that 5x PE is lower than 10x). But its main drawback is that the business is viewed as static, you get its snapshot at a single point of time, maybe you get an idea of the historic development, but it does not help you much in understanding the company's future cashflow. It does not help you to understand where the company would be in 3, 5 or 10 years. And this ultimately determines the share price performance over the long term.
For a company with a 100-year history (like Coca Cola), past performance could be a reasonable indication of its future, but even then, there could be issues (e.g. Coca Cola has been facing declining sales of its main product for many years now as customers switch to healthier drinks).
Researching a stock through external observation, getting a deep understanding of its top management, of the product, why customers buy it and so on is probably the only big advantage that humans have over computers. Relying on pure numbers in the investment decision making process exposes you to the risk of being outsmarted by a modern computer processing more data faster and more accurately than any human can do.
I have come to similar conclusions on the importance of understanding business economics, the position of its products on the market, relationships with suppliers and internal culture. But the book goes further, and most importantly, it provides many practical tools and a few very interesting case studies.
The big question, just like with many other pieces of advice which look useful, is how to implement this advice in practice. Some methods described in the book require quite a bit of courage, and without having the strong will and discipline, there is a risk that the advice from the book will just remain the advice.
A small drawback of the book is that the same messages are repeated in different chapters, and there are also a few divergences that add to reading time but are not critical, in my view. Nevertheless, it is possible to read the book in just a few days as it is relatively short and easy to read.
At the very end of the book, there is an unexpected short diversion: on just one page, the author summarises two types of people echoing my own thoughts on the value of independence and freedom, which I partially shared in my recent posts (see here
Next, I provide key quotes from the book, which I would like to refer to in the future and which I think would be helpful for all looking to improve their investment skills and find new tools to have an edge. You will also find an overview of two types of people at the very end (Warning: it may not appeal to everyone