I was recently asked, "I'm interested in taking a course or two at a local college to help me become a better investor. What would be the most valuable kind of course to take?" Here's my answer.
One of the most useful subjects to understand as an investor is financial accounting. It's not the most exciting topic, but it can make reading financial statements a lot more fruitful. With accounting concepts under your belt, you may be able to spot red flags in balance sheets and income statements before most investors do. You can learn a lot about accounting from books, too. Consider John Tracy's How To Read a Financial Report. You'll learn a lot about financial statements in general in Analysis of Financial Statements by Leopold A. Bernstein.
By the way, if you find yourself loving accounting, you can thank a monk. Friar Luca Pacioli isn't exactly a household name, but among Foolish investors perhaps he should be. This Franciscan monk is, by many accounts, the father of modern accounting. And without modern accounting, we wouldn't easily (well, sort of easily) be able to figure out how much money the companies we invest in are making. A friend of Leonardo da Vinci, Friar Pacioli penned at least 11 books, including the first known printed work on the double-entry method of bookkeeping. This method is still in use today. So next time you're flipping happily through an annual report's financial statements, pause a second or two to think of Friar Pacioli.
To learn more about how to make sense of financial statements in our "Crack the Code: Read Financial Statements Like a Pro" how-to guide (also known as an online seminar). We offer a satisfaction guarantee, or your money back.
