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Why Are We So Clueless about the Stock Market? Learn how to invest your money, how to pick stocks, and how to make money in the stock market
The purpose of this book is to help readers understand the basics of stock market investing. Material covered includes the difference between stocks and businesses, what constitutes a good business, when to buy and sell stocks, and how to value individual stocks. The book also includes a chapter covering four case studies as well as a supplemental chapter on the pros and cons of real estate versus stock market investing.
164 pages, Kindle Edition
First published September 1, 2009
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Displaying 1 - 7 of 7 reviews
December 30, 2017
Summary
The book introduces someone who is quite new to investing to what business are, what stocks are and the basics of value investing. The concepts are very basic and is explained in such a way that anyone can understand it.
The initial chapters explains what businesses and stocks are. It goes into earnings, expenses, owner's equity and liabilities. The income statement and balance sheet are explained at their most basic levels.
The following part of the book focuses on what makes a business good. It explains how a moat can protect the earnings from competitors that wants a part of the market as well as how lending money (liabilities) can improve return on equity (the percentual earnings the owners get on their investment). The book lists the different ways management can use earnings, and briefly explains the advantages and disadvantages with each.
Next up are sections regarding the value of business and their stocks. It explains that the value is determined by the future income stream of money (earnings). Money received in the future are worth less than today, and to determine the future value the discounting method is used. How much less it is worth is calculated by using a discount rate; a riskier investment requires a higher discount rate.
Except for discount rate, future earnings and a margin of safety is two additional variables that are required when valuing a business. Margin of safety is the necessary percentage of discount to the valued price that the investor requires, protecting the investor from valuation errors. The author points out that it is easier to guess future earnings in companies with a predictable earnings trend in the past that operates in stable businesses. These are the type of companies that the author favors.
The final chapters include a framework for finding investment opportunities, as well as a couple of case studies. The framework starts with stock screening, followed by a quick estimate of the quality of the business. This includes looking at earnings trend, ROE trend and liabilities to equity ratio. If the business is deemed interesting, a more thorough investigation is followed; looking at moats, the industry, the management and price.
The author warns investors of buying overpriced business, and especially in investing in IPO’s, which are usually overpriced. He finally compares common stocks to real estate in terms of investments and comes to the conclusion that both can work. What is important is that they are undervalued, has durable moats and high and predictable earnings growth.
Verdict
Overall I think this book is excellent. For someone who wants to get into stock investing this is a must read as it will explains the basic concepts. It provides the reader with a base in investing knowledge, and although it is great, this book alone is not enough to be a great investor in my opinion.
The book introduces someone who is quite new to investing to what business are, what stocks are and the basics of value investing. The concepts are very basic and is explained in such a way that anyone can understand it.
The initial chapters explains what businesses and stocks are. It goes into earnings, expenses, owner's equity and liabilities. The income statement and balance sheet are explained at their most basic levels.
The following part of the book focuses on what makes a business good. It explains how a moat can protect the earnings from competitors that wants a part of the market as well as how lending money (liabilities) can improve return on equity (the percentual earnings the owners get on their investment). The book lists the different ways management can use earnings, and briefly explains the advantages and disadvantages with each.
Next up are sections regarding the value of business and their stocks. It explains that the value is determined by the future income stream of money (earnings). Money received in the future are worth less than today, and to determine the future value the discounting method is used. How much less it is worth is calculated by using a discount rate; a riskier investment requires a higher discount rate.
Except for discount rate, future earnings and a margin of safety is two additional variables that are required when valuing a business. Margin of safety is the necessary percentage of discount to the valued price that the investor requires, protecting the investor from valuation errors. The author points out that it is easier to guess future earnings in companies with a predictable earnings trend in the past that operates in stable businesses. These are the type of companies that the author favors.
The final chapters include a framework for finding investment opportunities, as well as a couple of case studies. The framework starts with stock screening, followed by a quick estimate of the quality of the business. This includes looking at earnings trend, ROE trend and liabilities to equity ratio. If the business is deemed interesting, a more thorough investigation is followed; looking at moats, the industry, the management and price.
The author warns investors of buying overpriced business, and especially in investing in IPO’s, which are usually overpriced. He finally compares common stocks to real estate in terms of investments and comes to the conclusion that both can work. What is important is that they are undervalued, has durable moats and high and predictable earnings growth.
Verdict
Overall I think this book is excellent. For someone who wants to get into stock investing this is a must read as it will explains the basic concepts. It provides the reader with a base in investing knowledge, and although it is great, this book alone is not enough to be a great investor in my opinion.
August 30, 2019
Terrific book for the beginning investor
This is an excellent primer on equities. Skonieczny begins as simply as in a Dummies or Idiot's guide by explaining what a business is and how investing in the stock market is buying a piece of a business. He delineates how businesses are evaluated in terms of bottom line success or failure, the details of which are what the investor should know about any business before buying its stock. This is the fundamentalist approach to investing, the sort of knowledge that cannot be skipped and is known by any savvy investor.
The prose and the illustrations are easy enough for a sixth grader to understand, and that is one of the strengths of the book. Skonieczny knows what he is talking about and has taken the trouble to make it clear to the beginner. A key idea, so basic that it is often overlooked or not really appreciated by the beginning investor is that of risk to reward. Skonieczny makes it clear that any stock market purchase must promise a reward greater than the prevailing interest rates and greater than Treasury Notes and other fixed income instruments because the risk in the stock market is greater. He shows how this thinking is merely an extension of the understanding that you wouldn't start and run or invest in a business unless its bottom line profit potential was greater than what the bank gives its depositors.
When to Buy? (the third chapter) concentrates on the objective value of a company based on its projected earnings relative to the price of the stock. Skonieczny eschews technical analysis. No voodoo technical charts with running averages and ghostly heads and shoulders. Instead there is a simple chart on page 37 showing the price/value fluctuations of a stock. Assuming that we can get a good grip on what a company is actually worth, it is obvious that you buy when the price is less than the value. Simple. And if investors followed this strategy with any kind of real fidelity bubbles and panics would go the way of the dodo.
When to Sell? (a later chapter) follows the same sort of reasoning. Skonieczy writes: "The best time to sell is when projections turn out positive, the company prospers well, and the market realizes its full value by pricing it correctly." He adds, "Another reason to sell is when an investor finds a better investment opportunity." (p. 117)
Skonieczy is not enamored with stocks that are unpredictable and/or have high price to earnings ratios or high volatility. He likes companies with "moats" and other advantages over its competitors. His is not a gambling approach to the market but rather a conservative, fundamentalist approach. Whether you are of similar mind or not, this book is still an excellent guide because to go beyond the fundamentalist approach it is essential to know the basics. It is one thing to gamble blindfolded, another to take calculated risks. And you can't know the risks unless you understand the fundamentals, and understanding fundamentals is what Skonieczy's book is all about as an investment guide.
One of the bits of advice that I especially like is Skonieczy's insistence that we not "blindly over-diversify, preventing our individual picks from having meaningful impacts on the overall performance." (p. 139) What's the value in painstakingly picking the best stocks with the best safe and sane prospects only to water down our portfolio with other stocks just to be diversified? Personally I don't think being diversified in the market is really the key to sound financial planning. I think it's being diversified overall, not just within the stock market. For the long run the wise investor should have some money in stocks, some in real estate, some in bonds, perhaps, some in cash (meaning CDs or such).
This book is particularly timely since we are just coming out of a recession it would appear, meaning that there are many publically traded companies that are undervalued. Reading and understanding the concepts presented in this book and applying them to the market now might very well help the investor separate the good prospects from the not so good ones, the risky ones from the less risky ones.
--Dennis Littrell, author of “The World Is Not as We Think It Is”
This is an excellent primer on equities. Skonieczny begins as simply as in a Dummies or Idiot's guide by explaining what a business is and how investing in the stock market is buying a piece of a business. He delineates how businesses are evaluated in terms of bottom line success or failure, the details of which are what the investor should know about any business before buying its stock. This is the fundamentalist approach to investing, the sort of knowledge that cannot be skipped and is known by any savvy investor.
The prose and the illustrations are easy enough for a sixth grader to understand, and that is one of the strengths of the book. Skonieczny knows what he is talking about and has taken the trouble to make it clear to the beginner. A key idea, so basic that it is often overlooked or not really appreciated by the beginning investor is that of risk to reward. Skonieczny makes it clear that any stock market purchase must promise a reward greater than the prevailing interest rates and greater than Treasury Notes and other fixed income instruments because the risk in the stock market is greater. He shows how this thinking is merely an extension of the understanding that you wouldn't start and run or invest in a business unless its bottom line profit potential was greater than what the bank gives its depositors.
When to Buy? (the third chapter) concentrates on the objective value of a company based on its projected earnings relative to the price of the stock. Skonieczny eschews technical analysis. No voodoo technical charts with running averages and ghostly heads and shoulders. Instead there is a simple chart on page 37 showing the price/value fluctuations of a stock. Assuming that we can get a good grip on what a company is actually worth, it is obvious that you buy when the price is less than the value. Simple. And if investors followed this strategy with any kind of real fidelity bubbles and panics would go the way of the dodo.
When to Sell? (a later chapter) follows the same sort of reasoning. Skonieczy writes: "The best time to sell is when projections turn out positive, the company prospers well, and the market realizes its full value by pricing it correctly." He adds, "Another reason to sell is when an investor finds a better investment opportunity." (p. 117)
Skonieczy is not enamored with stocks that are unpredictable and/or have high price to earnings ratios or high volatility. He likes companies with "moats" and other advantages over its competitors. His is not a gambling approach to the market but rather a conservative, fundamentalist approach. Whether you are of similar mind or not, this book is still an excellent guide because to go beyond the fundamentalist approach it is essential to know the basics. It is one thing to gamble blindfolded, another to take calculated risks. And you can't know the risks unless you understand the fundamentals, and understanding fundamentals is what Skonieczy's book is all about as an investment guide.
One of the bits of advice that I especially like is Skonieczy's insistence that we not "blindly over-diversify, preventing our individual picks from having meaningful impacts on the overall performance." (p. 139) What's the value in painstakingly picking the best stocks with the best safe and sane prospects only to water down our portfolio with other stocks just to be diversified? Personally I don't think being diversified in the market is really the key to sound financial planning. I think it's being diversified overall, not just within the stock market. For the long run the wise investor should have some money in stocks, some in real estate, some in bonds, perhaps, some in cash (meaning CDs or such).
This book is particularly timely since we are just coming out of a recession it would appear, meaning that there are many publically traded companies that are undervalued. Reading and understanding the concepts presented in this book and applying them to the market now might very well help the investor separate the good prospects from the not so good ones, the risky ones from the less risky ones.
--Dennis Littrell, author of “The World Is Not as We Think It Is”
April 17, 2020
Beginners Best
This is a good book for an individual with a desire to learn about the stock market. It provides a good foundation with inspires an individual to acquire additional knowledge.
This is a good book for an individual with a desire to learn about the stock market. It provides a good foundation with inspires an individual to acquire additional knowledge.
June 1, 2018
A great book for stock market investment beginners to start with. Recommend it to be the first book one reads (before making any stock investments!).
March 6, 2017
Just what I needed this book to be. A fifth grader explanation of how business work, how you can own a part of them and what constitutes a good investment.
December 2, 2015
A very basic book and my first book about value investing. A good book to start off with, get interested on investing and but not enough to do analysis of stocks. Pale in comparison woth other book. would recommed F wall street as the first book to read.
It doesn't tell you how to read financial statements, maybe is too advance for the this book's objective.
It doesn't tell you how to read financial statements, maybe is too advance for the this book's objective.
December 27, 2015
Wonderful read for people who are new in this area of investing n learner in case of market study
Displaying 1 - 7 of 7 reviews