Wolf Money(Book recommendation)

 

The book “Big Money Think Small” by Joel Tillinghast talks about what investors should look out for when they invest. I find the book quite intense as it covers many topics including Psychology and Forensic aspect of investing. Psychology aspect talks about our own bias towards certain investment and the herd mentality of FOMO(fear of missing out). Asset bubbles like South Sea and The Dutch Tulip Mania were prime example of FOMO that ultimately lead to chasing of inflated assets which cause an unprecedented crash. 

(Contents)

Forensic aspect are mostly centred around reading financial statements especially the footnotes of accounting statement. Although I never believe one should have a degree in accounting or ACCA certification to be a good investor but having some accounting knowledge is definitely helpful. Drawing on my own experience, I always invest in company that produce strong operating cash flow. Operating cash flow represent the health of the business. Operating cash flow is like blood to human, without strong operating cash flow, the business will die of natural death. No human can survive without blood too. Locally Hyflux is one poor business without good operating cash flow that lead to eventual failure. The book also draw on some examples of companies deploying creative accounting which ultimately lead to their demise. The author mention 6 things that make him nervous when he look at company. 

1.) Companies that must lie to stay in business 

2.) Tiny audit firms(lower cost less detail)

3.) Inside boards (management and board are on the same page, effectively offer no check and balance)

4.) Glamorous rollups(flashy new venture with no profit to show)

5.) Financial firms (prone to financial fraud)

6.) Sunny havens(Cayman Islands and Bermuda incorporated)

It took me quite a while to finish the book as detail information of accounting engineering deployed at Enron, World Com and other examples are quite lengthy. The book goes onto the recommendation list of Lone Wolf Investor for understanding the world of creative accounting. Happy reading. 

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