I am the rich guy you want to be - Part 2 - Classes to Take

[Account Closed]

I'm writing this post as a follow-up to a post I made over on the investor psychology forum about the downside, isolation and anxiety resulting from achieving wealth - and I was really grateful to see an outpouring of support and great advice (rather than insults, which I was anticipating).

I said I'd write another post with the story of how I and my family got to a substantial net worth (by mom and pop standards) over the years. As I started to type it out I realized that it might be better in a few posts, not just one. So I'll break it into three - classes I recommend, books I like, and the actual story of my family (which I'll save for last).

So - here I'd like to share what experiences have been useful to me in investing over the years. If you read the first post (linked above) this one will make more sense.

Here then - is the first one - classes to take. I will note that my grandmother, who started it all, only had an associates degree as an RN - never any formal training or education in business, finance or economics. My parent built on my grandmother's success and also never had any formal economics or finance training - dad was a theology major, mom was English lit. They both became physicians and mom also went to law school.

I studied philosophy in college and stumbled accidentally into an economics class. I discovered I liked it. So I took another, and another, then another until I had a minor in the subject. These classes turned out to be quite helpful for our long term strategy and keeping us grounded and "staying the course" through the years. So - take this for what you will. If you can find time to take one night or weekend college class at a time until you have these five under your belt I think you will agree that they will help your long term vision and understanding of investing. I view them all as having insights indispensable to knowledgeable investing.

Without further ado:

College Courses to Take

There are five college classes I would advise any investor to take - in no particular order, even if you do not have a degree or ever intend to get one. You can take classes almost for free down at your community college, online or in person or at your local state university. Many universities (like the UC system’s “concurent enrollment” in California) will let you take classes for credit without even applying for admission.

I personally do not think that just reading a book is the same value as taking a university course because when you take a class you will be forced to really study the material, grapple with it, work with it on exams and projects, etc.

Economics 101 - macro or micro. You don’t need to be an economist to be a successful investor, but a grounding in the fundamental theory of “the dismal science” will forever open your eyes to a different and useful way of thinking about the world. Supply and demand, limited resources, utility, opportunity cost, behavior at the margin and other concepts.

Money, banking and credit - Again this an economics course which goes by different titles but it is enormously useful.

Corporate finance - This type of class has different names but is offered at most universities. A semester course will give you an understanding of some very important concepts such as discounted cash flows, the time value of money, expected value, Miller Modigliani and their famous theory of capital structure, modern portfolio theory, the concept of alpha, etc. You do not have to become a believer in modern portfolio theory (I am not) but you are not educated if you don’t know it exists and how influential it has become - its tenets (not tenants) literally percolate through much of what you see written in the popular press about investing, retirement strategies, diversification, etc.

Statistics - A one semester or one quarter course in statistics will serve you very well all your life, and open your eyes to a deeper understanding of probability and risk.

Accounting - You really do need to have a conceptual understanding of what balance sheets, cash flow statements and profit and loss means. Now I am a hypocrite - this is the one course on the list I haven’t taken but I intend to finally get around to it this winter.

Philosophy 101 - Okay I’m biased - I was a philosophy major. A basic semester’s grounding in symbolic logic, epistemology (the study of how we know what we know), theories of causation and metaphysics will help you to get suitably skeptical the next time some financial planner claims to be able to help you predict the future (for a fee of course).

Next time - the books I like. Finally, my family's story.