We recently had a conversation on how accountants have an upside over us normal human beings in that by training they have to be acquainted with numbers much better than us
Able to interpret financial statements
For one, we have a problem interpreting balance sheets. I took a module in university so I am a little privileged, but for many friends it looks daunting for them.
The ability to interpret statements will go in a long way to recognize the fundamental nature of what officially the company declared.
You will be able to pick out profit and loss, cash flows and whether the company is overly leveraged
Sampling your life as a balance sheet
I also think that since they learn about this in tertiary or secondary education, it puts them on a good footing of not getting into debts, able to recognize that they are overleverage and to build up good assets
Not always the case
So my friend was telling us that this is not always the case. He has a friend who believes Jurong Technology, to him a blue chip, will always do well. Well Jurong Tech went on some really good runs, and to be honest when you see such a 2-3 years sustain runs supported by good profits you will think that way.
Well the story ends that he continued to stay invested right up to when its share price fell from dollar plus to near zero and got delisted.
Another accounts train fella got invested in Chartered Semi conductor which we all know was a Temasek holding (big brother won’t let them die right?) . Chartered went the same way as Jurong and the person probably loss a huge portion of their investments
What do you think? What about the accountants around you?
To me, fundamental reading is only part of the game, these guys fell into the trap of forming a picture that large and blue will always stay that way. Cutting losses are painful but if you have the skill to evaluate that the business proposition is failing or is not what you thought to be, you better do the same thing.
I have my own experience in thinking Interroller (Pteris) was a good blue chip paying dividend stock. When the management leaves, all hell broke lose. The business never recovered. My stock went from what I purchased at 80 cent to 13 cents currently (And I bought after a massive drawdown)
You guys should have encounter your fair share of accounts train people. Do they do well in their personal finance or manage their portfolio well? We would like to hear your stories.
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KC
Sunday 17th of June 2012
Gerald Loeb wrote that accountants produce terrible trading results. The dyed in the wool accountant tends to imagine that the values he finds in his better than average grasp of the P/L and Balance Sheet should find exact reflection in market prices. This hardly ever happens. The best psychologists are usually the best investors .Successful investing requires a certain kind of judgement and flair in analyzing market behavior which is associated more with psychology than with pure fact or formula.
Take a look at the famous fund managers. Very few are accountants eg Hugh Young from Aberdeen majored in philosophy.
Drizzt
Sunday 17th of June 2012
while having good accounting skills make u weed out the shannegians, behavorial finance is also an important aspect. it enables an investor to take note of irrational behavior to buy stocks at good prices and prevents u from being wrong with the crowd
TheOracle
Thursday 17th of May 2012
Yes, I agree that accountants are generally conservative (at least those I know). Despite having the ability to read reports, the accountant (run his own business) is still plagued with the usual emotions (fear & greed) in the market and did not perform well in his investments.
Sometimes, the more you know, the more you think you are right and cannot be wrong. Hence when price moved against them unexpectedly, one may stick to his guns longer and realised the mistake later, unfortunately at larger loss.
Drizzt
Thursday 17th of May 2012
just like i don't like to see source codes when i come home.
Temperament
Thursday 17th of May 2012
Not necessarily leh, i know two qualified Accountants from NUS related to me through marriage who "don't know anything about investments". i think it is the psyche and perhaps a person's emotions too that is more important than accounting knowledge, when comes to investing in stocks market. i know very little about accounting, but i invest like a person making rojak in the investment world. Of course by logic qualified accountant should have advantage over people who has to learn to understand some basic accounting before they can invest "properly".
B
Thursday 17th of May 2012
I myself am an accountant and I would say that as an accountant, it definitely help me a lot in interpreting and analysing financial statements of a company when investing.
In general however, an accountant tends to be overly cautious and conservative. They do not invest for their own financially planning, perhaps they did not realise that they actually do own this advantage over the others.