2 Investment essentials
This chapter covers
- Core understanding of the investment domain.
- Metrics that help us find profitable investments.
- What to look for in financial reports.
In chapter 1, we claimed that programmers’ traits can make wizards of bits and bytes outstanding investors. But traits (and brains) alone won’t do. Take the following statement that you might find in any financial analysis of a share price: “With a P/E ratio of over 25, this stock seems overvalued.” For someone new to investing, sentences like that or dialogs between investors in movies such as Wall Street or The Big Short might sound like a foreign language. In 2003, Eric Evans published his book “Domain-Driven Design,” which contains principles for creating software in unfamiliar domains for software engineers. One cornerstone of these principles is the use of ubiquitous language. This principle asserts that each domain has developed its specialized language, using terminology exclusive to domain experts. An essential part of software engineering is learning to understand and communicate effectively in this language. So, let’s start the next part of our journey by getting deeper into the domain language of investment.