Tuesday, 13 April 2010

Investors and Accounting

Buffett encourages investors to develop a good knowledge of accounting.

In a Berkshire shareholders' annual meeting, a New York University MBA student asked Buffett for his advice on how to develop Buffett-like skills.  In his response, Buffett mentioned that the student should take as many accounting course as possible.  

Remember that you are a consumer and not a prepare of financial information.  Act like a detective trying to understand the company's business from reading financial statements.

Buffett reads a lot of financial reports; and for him, perhaps, that is like reading detective novels.  As a reader of financial statements, you could have fun discovering behind-the-curtain stories.

Accounting numbers are based on a large number of estimates, and hence, they are not really hard numbers.  Yet, academic  research shows that long-short investing strategies can often be developed by using accounting knowledge.  

When you study financial statements, be a skeptic.  Most accounting numbers are reliable, but you must remain vigilant.  


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Videos-Financial Accounting by Susan Crosson

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Visit this site to see how this blogger dissect the companies through using his accounting and other knowledge. 

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