Mathematics and Accountancy Is Not My Forte

I had previously written about the difference between qualitative and quantative analysis, here.

Put in another way, financial literacy is important – I just never appreciated how much so!

Everybody has a different experience in trying to apply mathematics in real life. Some people take to it naturally, while others (like me) prefer to think in words, stories, and qualitative patterns. But over time, I learned that even a basic grasp of numbers can make all the difference in investing.

Here are a few lessons that shaped my understanding:

1. Buffett on arithmetic. Warren Buffett has often said that basic arithmetic will suffice in investing. You don’t need advanced calculus or rocket science. The ability to add, subtract, and think in terms of percentages and probabilities can take you a long way.

2. Shane Parrish on simplicity. In one of Shane Parrish’s books on mathematics, he simplified things for me by effectively emphasizing the power of rounding up and rounding down. As a heavily qualitative investor, this was a revelation. You don’t need perfect precision. In investing, being approximately right is far better than being exactly wrong.

3. Financial statements as language. It’s been said that financial statement analysis is its own language—almost like reading a music score. Just as musicians who can read music unlock a new dimension of performance, investors who can read balance sheets, income statements, and cash flow statements gain a richer perspective on businesses.

To learn more from Shane Parrish’s book on mathematics, click here.

To learn more about financial statement analysis basics, do consider the following book on the matter.