Some time ago I asked one of my developer friends which was the best way to rapidly learn to code in Python. I have been playing with some online courses on Coursera, Udemy, Khan Academy, Brilliant, you name it. Couldn’t get the grip on it.
“Start with a project. Find something you want to develop and follow from there” was my friend’s advice. Best advice ever.
Start with a goal and let all your actions follow from there.
You find something you want to do. You go and do it. Best advice ever.
Many times we loose our time learning related skills because the task in itself is really difficult. We procrastinate, we tell ourselves that If we learn this other thing that is easier then we will be able to learn the necessary skills to do the more complex task.
I would argue that to improve in understanding and value businesses you have start reading 10-Ks instead on reading “books on investing”. Of course those are required at some point, but the raw understanding on a business works will come from reading annual reports, investor presentation, company websites, Twitter threads about the business and every other piece of information you can find about the company.
Get the handle on it. Learn by doing.
So, what exactly is “trap of transference” you may ask
The transference phenomenon occurs when we, in our brains, successfully transfer the learnings in one area or discipline to another are or discipline.
If you are around your 30s, you would remember the Karate Kid movie where Daniel Laruso learns karate by cleaning Mr Miyagui’s cars. Wax on, wax off.
For those of you who don’t remember here you have a fragment of the movie:
He learned the karate movements cleaning cars. Movements that he later applied to win the All Valley’s Karate tournament. Daniel did well transferring the learnings from car cleanings to karate.
Well, unfortunately that’s not always the case. In fact it’s more common for the brain to have lots of difficulties transferring knowledge and skills.
If you want to really learn something, don’t start practicing its little parts or related skills, start by doing deliberate practice on the skill you want to learn.
If you want to be conversationally fluid in a foreign language don’t start learning grammar or doing Duolingo, start by putting yourself in situations where you have to talk to people. At the beginning it will be a hassle but you are going to go through your learning curve much more faster.
An experiment for willing private investors
Let me suggest you to do one experiment that really helped me understand the complexities of the valuation process.
Pick one company you are interested in. If it is possible one company that you are interested in and that only has one product or one line of business. Don’t choose a conglomerate with hundreds of moving parts. Begin with something simple.
After picking the company ask yourself how much would you pay for the whole business. Imagine you have hundreds of millions in the bank and you have been given the opportunity to buy that specific company. How much would you pay?
From thereafter start asking the correct questions. Which would be the first question you’d ask?
I believe that following this approach will help you put everything in place.
For which qualities would you pay more and for which qualities would you pay less?
How would adjust the price you pay if the company has:
risky future profits?
profits above the cost of capital?
a moat protecting the profits?
growth perspectives for its profits?
Do this and see where it takes you. You will learn much more than just following a worthless mechanical math formula.