The best books to read on investing



    There are many books written on investing and it is hard to tell which is the best. I am in search for the best since 2016. Here is a list which I think you should have in your library. First five are "must read". If after you read the first five you still do not get it, most probably investing is not for you, go and do something else.

1. Deep value - T. Carlisle

2. The little book that beats the market - J. Greenblath

3. Common stocks and uncommon profits - P. Fisher

4. One up on wall street - P. Lynch

5. Fooled by randomness - N. Taleb

6. Security analysis - B. Graham

7. Poor Charlie's almanack - C. Munger

8. The most important thing - H. Marks

9. Buffettology - M. Buffet

10. Irrational exuberance - R. Shiller

11. The intelligent investor - B. Graham

12. Rich dad poor dad - R. Kiyosaki

13. Warren Buffett and the Interpretation of Financial Statements - M. Buffett, D. Clark

Rules when investing in stocks



    I am in the world of trading and investing in stocks for nearly four years now. In that period I have created a portfolio of golden rules which I would like to share with you.

    1. Never add to a losing position.
    2. When buying a stock you should always have a stop-lost and a target price levels.
    3. Be humble, you will make many mistakes, accept and learn to live with them.
    4. Have a strategy. Even the worst strategy is better than not having any.
    5. Do not trade against the trend.
    6. Never short a stock with strong story behind, no matter where is the price.
    7. Sell before an earning announcement.
    8. Buy stocks with positive story behind.
    9. Do not sell a winning position which is still in an uptrend.
    10. Do not buy a stock which has already performed strongly after a good news.
    11. Never put all your money in one stock.
    12. Do not over diversify. If you have too much stocks, you are most probably gambling.
    13. Learn to stay in cash.
    14. Do not stay in a stock which is in a downtrend.
    15. When you see an opportunity - play big, do not try to diversify.
    16. Do not marry to a position.
    17. 90% of successful trading comes from good risk management.


How I Interpret Cash Flow Statements

Cash Flow Statement of Aselsan A.S.

    Cash flow statement is one of the financial statements published by the companies. It describes how much cash the firm has generated and consumed in a specific period. So what is important in an cash flow statement and what I look.


    The first record I look in a cash flow statement is the CapEx. It shows how much money the firm has spend for re-investment in the business. If the CapEx has grown significantly in the last financial period, mostly it is a good sign and shows that the business is expanding.
    Good companies are those with low CapEx. Firms operating in sectors like auto manufacturing, chip producer, etc. mostly have huge CapEx figures and in bad times mostly their earnings go to negative. I try to stay away from such companies.

    Cash from financing

    Good companies have negative or records near zero. Under this title I check how much debt the company has issued or paid. If the number is positive you should definitely check for what that cash has issued.

    Cash from operations

    Good companies has positive cash flows from their operations. There are investors like Joel Greenblatt who make investments based mainly on this record. It is good to look at this figure on an annual base. Many firms receive their payments at the end of the year or in a specific period in the year, so quarterly records may be misleading. Firms operating in retail sector like Amazon, Walmart, etc. have almost very steady and positive cash flows from their operations, but it does not make all of them good businesses.

How I interpret Income Statements

Income statement of

Prysmian Group

    Income statement is one of the financial statements published by the companies. It shows company's sales and expenses or in short their performance for a specific period of time. So what is important in an income statement and what I look.


    The first record I check is the revenue. I make a comparison with the one recorded for the same period a year ago and how it performed in the last 12 months. Mostly the market has some expectations about the revenues and if the published record misses that expectation it could be taken negatively by the market and stock price may drop sometimes significantly. I always check how the revenuee are performing compared to the forecast given prior by the company. Most companies in the beginning
of the year are publishing their expectation for the year, it is important whether company's management expectation and the realizations overlap.

    Gross Profit

    For some companies which depend on a commodity for example this figure is important. I try to understand how the input materials are affecting company's earnings. You have to be able to forecast the future earnings by watching  the moves in some materials or commodities prices up and down.
    For software producing companies this figure is mostly useless. If I have to generalize, it is good for the company to have high Gross Profit and that figure not to fluctuate much YoY.
     For non-software firms Gross Margin above 40% I consider as very good. A figure below 20% is a signal that the firm has problem with competing on the market, do not have unique product and consequently no pricing power. For a software producer company Gross Margin should be at least 60%.

    Research and Development Expenses (R&D)

    I try to stay away from companies having high R&D expenses. In the software industry high R&D is inevitable, mostly this is the biggest expense record of those companies.
    For non-software companies I look for companies with below 5% R&D expenses of Gross profit.

    Amortization and Depreciation Expenses (D&A)

    Good companies have low D&A records. I try to stay away from companies having high D&A figures, such companies, to remain on the market, require huge amounts of money and in bad economic cycle their stock prices are hit very badly. Examples are Micron, Renault, etc.   

    Interest Expenses

    Good managed companies almost always have very low or no interest expenses. I know many companies with good products, high Gross and Operating margins which were killed by their interest expenses.

    Operating Profits

    I mostly use two operating profit records for companies operating on the Turkish market.

        1) Net Operating profit (NOP)
            It is equal to
                + Gross profit
                -  Sales Marketing and Distr. Expenses
                -  General and Adm. Expenses

        2) Operating profit
            It is equal to
                + Gross profit
                -  Sales Marketing and Distr. Expenses
                -  General and Adm. Expenses
                -  R&D expenses
                -  Other operating Income/Expenses

    Mostly the first record which I call NOP is better for Turkish companies, especially for those exporting products abroad. These companies have huge "other operating" income or expenses depending on the Turkish Lira's performance, this creates a lot of noise. 
    I prefer companies with at least 35% NOP Margin and 30% Operating Margin.

    Net Profit

    I look for companies with above 20% Net Profit Margin. A figure below 10% is a sign that the company operates in a very competitive sector and do not have durable competitive advantage. Also it is important for the earnings to be stable YoY.



    As a conclusion I could add that a good company for me is a business having Gross margin above 40%, Operating profit of at least 30%, Net profit margin not below 20% with low D&A and R&D Expenses. Good example is Coca Cola.

How I interpret Balance Sheets

    Balance sheet is a document which shows the status of a business in financial terms. It is a kind of a snapshot taken mostly at the last day of a financial period.
    When reading the balance sheet an analyst must have in mind that the values given in the document may not represent the real value of the entity. Accountants, when preparing the document, could play with the numbers. For example they could value a building for 2 million dollars but in reality, when you go and try to sell it, you may not get the same amount. It could be lower or higher depending on the market conditions.

What I look in the balance sheet

Cash and equivalents

    Good companies has plenty of cash, the opposite is a signal of a danger. Having lots of cash not always is a good sign, you have to find from where it is coming. It is a good sign only when the cash is coming from the operations of the business. Good companies have competitive advantage and have steady positive cash flows, I always look for such businesses. Be careful if the cash number is big and it is coming from:
  • sale - like part of the business or a subsidiary;
  • capital increase (asking shareholders to put more money into the business);
  • bonds sale;
    If the number is small and the business barely keeps cash enough to manage its daily operations - it mostly mean that the business is in trouble.


    This records is not in my list of my favorites but it does not hurt to check it. You should be careful if the number is going up every period, it is a signal that the company can not collect the cash its clients owe it. It could be due to a bad period in the sector of its customers which could end with a bankruptcy for some of them or the company could be forced to make some discounts, in both cases it is bad for the business.


    The inventory of a good company does not move up and down too much. If the number is going up every period, check how are the sales. If the sales are also going up it is a good sign, otherwise it is signal of a danger.
    The type of the inventory is also very important. If the company produces food or fashion products, in any bad economic period the company may end up with a huge pile of unwanted inventory.

Property, plant and equipment

    Good companies does not need replacement or upgrade of their equipment very often. Those who do may be hit on any bad economic cycle, because to stay competitive they have to invest no matter of the sales or economic conditions otherwise they will be swiped out by the competitors.
    A good example of companies which need constant replacements are auto producers or manufacturers of memory chips like Micron. If you check their stock prices you will find big drops and bumps. Those type of companies could be bought only when the stock price is in the bottom and the net profits are mostly negative, not to mention that the stock purchase must be made very carefully because the company may not recover at all or stay low for a long period of time, let say for years. Good example for a such business is Opel which has not had positive profits for about 10 years in a row.
    For some companies an increase in this record has huge reflection on the sales and earnings of the business.You should be able to calculate the earnings in the next periods or years looking at changes in this record value.


    As Aswath Damodaran is saying, "the most useless record in the balance sheet". I compleatly agree.

Intangible Assets

    It is important to understand what is hidden in this record. Mostly it is software, patent or brand value. It is hard to make an investment decision based on this value.

Financial Investments

    If the company has financial investments it is mostly a good sign. It means that the company instead of returning the cash to its shareholders, as dividends, it had saved the money wisely. In bad economic periods this money could help the company to sail without asking for extra cash its shareholders as many others do.


    This record is a signal of a danger when it is going up each financial period and the sales and cash flows of the business are stable or negative. If the sales are going up, it is normal for the payables also to go up, it shows that the business is growing, I constantly look for such companies.

Short term debt

    Debt is one of the most important records in the balance sheet if not the most important. Good companies have low or no debt and that is the kind of a businesses I am looking for. If the short term debt number is high it is a signal of a danger, it shows that the company is not trusted by the creditors and can not find long term debt.

Long term debt

    It is good for a business to have no debt. the only case when it could be a positive sign is when the business is growing too fast and needs a lot of capital. In this case however you are betting that it will do well in the unknown future. It is very difficult to estimate the price of such a business. Investors like Warren Buffet try to stay away from such companies even if their sales are growing very fast.

Retained earnings

    This is maybe the most important record in the balance sheet after the net total debt. Good companies have huge amount listed under this title. Mostly a high positive retained earnings record is an indicator that the business has durable competitive advantage as Warren Buffet states it.

Some rations I use

Total Net Debt / EBIT

    I prefer companies which could repay their debt in a year. If the business is growing too fast it may have a bigger number, my limit is 4, which means that the company should repay all its debt in 4 years.

Shareholders equity / Total Liabilities

    I prefer companies with values above 1, higher the better.

Current Assets / Current Liabilities

    It is important for this number to be above 1, companies having value below 1 may have issues in bad economic periods.

Equity growth

    I prefer companies with growth above 20% a year.

Retained earnings growth

    This number has to be growing with at least 20% and in synchrony with the net earnings figure. If there is a divergence you have to find the reason, mostly it is a bad sign.


    Return on equity. I know investors who only check this number and make investment based on it. I rarely take investment decision based on ROE.


    Return on assets. This is a number which Warren Buffet loves and is using a lot. It mostly works for companies which depend on the equipment they have. For businesses operating in the software industry mostly this record means nothing. Maybe that is why Warren Buffet stay away from them.


    As a conclusion I could add that it is not possible to make an investment decision looking only at the balance sheet or the records for only one year or quarter period data. You have to further check other figures in the financial statement and look how they are changing for at least 5 years back.

My portfolio at COVID-19 Conditions


    It is April 28th 2020 and I am back again fully invested. I had sold my stocks on February 19th and after two months staying in cash I decided to go full in stocks again. The virus peak seem is over and the number of the new infected people is going down.
    For the last two weeks I checked what is cheap out there. The stocks I like are Microsoft, Amazon and Google however their prices are still too high and expensive so I decided to go for something cheaper having potential to make about 50% up in the next one year period.

    The first stock is Deutsche Bank (DBK)
    Deutsche Bank is down around 40% from its highest point this year and the bank is in transformation period. It is the biggest German bank and I believe that it will make the turn around.
Two days ago they announced a profit for the first quarter for 2020 when almost everybody expected a loss. Many things could be said about Deutsche Bank, most of them negative, however for the first time since 2009 crisis they are taking serious steps for transforming the business and if they succeed the share price in a year period I expect to be much higher than today's, at the time of writing it is 6.26 EUR. Of course there are many risks in the sector, the interest rates in the Euro area are still in record lows and having the current situation they will most probably continue to stay at these levels for at least two years.   

    The second buy is Lufthansa(LHA)
    The airline's stock price is at its lowest levels for the last 25 years. Airlines are not companies I like but if you buy them at good prices the payoffs could be very good. Lufthansa's stock has gone to these levels many times in the last 25 years and always recovered. I expect the flights to start again in June and most probably they won't go to the pre-crisis levels at ones but as always happens I expect the share price to start going up in the late summer. After the 9/11 it took 4 months for the price to come to its pre-crisis levels.

    The third stock is Unicredit (UCG)
    The banking sector in Italy is problematic, Unicredit is not an exception. Four days ago Italy's credit rating was affirmed by S&P which is a good news for Italy's banking sector and as a whole for the country which just to mention has huge debt. Unicredit is one of the few Italian banks with good balance sheet and the share price level at 7 EUR is very attractive for a profitable bank as Unicredit.
I expect the price to go at least above 10 EUR in the next one year period.

    The fourth and last stock is IBM (IBM)
    IBM is one of the oldest firms in its sector and has gone throw many bad times. The share price compared to other players in the sector is very attractive. They have acquired Red Hat and I believe that with their wide client portfolio they will make good progress in the next years. In the last two quarters they already showed signs for recovery. I bought it at 123 USD for a share and I expect the price to go at least to 200 in the next one year. The P/E ratio is 12 which is also very low for a software company.

      Most of you probably will say that this is a very risky portfolio, yes it is indeed. But I guess you will agree that you can not buy cheap when everything is OK, at such times the prices are mostly extremely expensive and mostly it is time to sell.

Mistake of falling in love with a stock/company

    One of the lessons I have had in 2019 is that you should not fall in love with a company. In the beginning of the year I have made a list of the companies I like and a buy plan. In the first line of my list I have placed "Aselsan A.Ş.". traded on "Borsa Istanbul" with ticker symbol ASELS.

    Aselsan is a company operating in the defense sector. It produces software and electronics. It's main customer is the Turkish Army. In the beginning of 2019 its share price was around 24₺ which was very low price compared to its sales, earnings, margins and revenue expectations. In 2019 the company management was expecting a 40% net earnings increase and at that time its P/E ratio was around 10. It had almost no debt and 3 billion of net cash. Its backlog was constantly increasing and the company management declared that they will continue with the investments, not to mention the 2500 engineers in firm's R&D department which is the biggest R&D department among Turkish companies. Also the company was ranked 54th in "2018 SIPRI TOP 100 Arms-producing and military services companies" list (in 2017 was ranked 62th). You could check last report at 2018 SIPRI Report.

    So I placed 30% of my capital in this stock(1/3 weight in my portfolio). It seemed great investment. However the stock ended the year with price at 20.91₺, which is a drop of around 15%, 2 days earlier on 27 December it was 19.64₺ (down -20% compared to its price on 1 January 2019).
I still hold the stock and more - I increased the amount, I bought more in the beginning of December and at that time it constituted 48% of my portfolio. My other stocks performed well and thanks to them my portfolio at the end of 2019 was up +38.31%. Am I happy about it? Not much.

    So why I let this stock to drain my portfolio performance? The answer is: I was in love with the company and I could not hit the sell button. Here you may wonder: why a such good stock performed that bad? The reasons are few, all were known by me by the way.
  1. Since the main customer of the company is the government, the firm is heavily depended on government payments. In 2018 Turkey had experienced a financial crisis and the income of the government had dropped significantly and the government started delaying its payments. So the company had positive and increasing sales but zero or negative cash flows.
  2. The firm continued with the investments, which requires significant amount of cash, that increased its debt and it hit 2 billion Turkish Liras. Also it's cash and equivalents dropped to 1.7 billion at the end of the third quarter.
  3. The issues of Turkey with USA. The firm is selling products to US companies and the rumors that Turkey will be kicked out of F-35 project kept the stock under pressure.

    After the first quarter results announcement the right choice was to make an exit from the stock. The results were telling me that something is not going well, however I loved the company and I stayed in. The second quarter's results worsened the status, however I have continued to hold the stock. As I said above in the end of the third quarter the company moved to negative territory of "Net Cash". Also I would like to add that technical analysis was giving "sell" signals all the time. There were many good and cheaper stocks and with the falling interest rates they were excellent buy opportunity but when you are in love with a company you just get blind and continue believing that things will change and get better. When you fall in such state the right thing to do is to think that you do not hold any stock and are full in cash. It will help you think clearer and make better decisions. 

    As a conclusion I could tell that I still love the stock and I think that it will perform better from the index(XU100) in the next 2-3 years. My mistake was keeping the stock for months when there was no sign that it will start an upside movement. The right thing was to invest in stocks having better stories and keep an eye on Aselsan waiting for the right entry price.

The best books to read on investing

           There are many books written on investing and it is hard to tell which is the best. I am in search for the best since 2016. Here ...