I was recently asked, "What kind of college course could I take that would make me a better investor?" 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 to study, 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.
If you don't have the time or fortitude for a college course in accounting, you can learn more about how to interpret financial statements in our "Crack the Code: Read Financial Statements Like a Pro" Of course, you can also learn a lot about accounting from books. 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 daVinci, 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.
