In 2010, Google estimated that there existed ~130mn unique books in the world.
For the last decade, that number has kept on climbing. In the US alone, >1mn books are published every year. Let’s say ~1/3 are non-fiction. The ocean for book knowledge is huge. It’s so huge that you can only expect to explore a tiny droplet of it in your lifetime.
Your universe of exploration can only be so big which means that you have to be picky about what you spend your most valuable currency, time, on. You want to make the most of it and direct it to knowledge that lasts.
But often, you can’t tell which books will be great and which ones won’t. So you shouldn’t be too snobby when picking either. Lots of avid readers I know automatically discard modern books because they use a made-up time filter in their mind about how new books are full of empty promises. But that’s a mistake. Of course, any “new” book, like Sapiens or Thinking, Fast and Slow, can contain lasting knowledge to the same degree as a book that has stood the test of time.
With books, you don’t need to finish what you start. You can stop reading without guilt. This is the made-up constraint holding people back from reading. We tend to think we’re forced to finish what we start, or it’s a waste of time. Articles are shorter, easier to finish, and so we read more of those, leaving books on the shelf. It’s a sunk cost fallacy. If you pick up a bad book with empty words, whether that book is old or new, put the book down and go on to the next one.
Here’s the optimal strategy for reading books: skim lots of them, read a few, and re-read the best ones.
You want to follow this same strategy when picking stocks.
As for the stock market, the ocean isn’t nearly as huge. But it’s huge enough. According to Refinitiv, there are 108,790 listed stocks in the world. If you exclude the number of ADRs, GDRs, cross-listings, OTC listings, pink slips, and so forth, you have ~46k stocks left to explore. In the US alone, ~6,000 stocks trade between the NYSE and Nasdaq.
If you’re a serious bottom-up investor, it requires that you read through hundreds, maybe thousands, of pages about the company collectively in terms of legal filings, transcripts, interviews, and articles before coming to a valuation and decision. So to get to a satisfactory level of knowledge required to make an intelligent investment, it would likely require the reading material equivalent to a thick book. It’s simply not possible to be an omniscient investor because there isn’t enough time. So you must pick where you will expand your circle of competence.
And just like you can’t be too snobby when picking books, you can’t be so when picking stocks either. You want to follow what sparks your curiosity. In doing so, you want to question the filters you have in your head about high multiples and momentum—that a >50 P/E stock or a company in a hot industry can’t mean value. Buffett has said: “I would say that if it’s a really wonderful business, we probably come up with higher intrinsic values than most people do.” Sometimes, value can hide right in plain sight. You’ve got to approach the stock market with an open mind and flip as many stones as possible for you to optimize your opportunity set and breadth of knowledge.
So as you flip through those annual reports, remember to follow the optimal book reading strategy: skim a lot of them, read a few, and re-read the best ones.
Here’s a tip: as you read through an annual report, ask yourself whether you would be excited to read the company’s next annual report a year into the future. Then you know whether it’s worth diving into.