Jan
27Mariusz Skonieczny asks a question that many pondered in late 2008: why are we so clueless about the stock market? Written during at the height of the great recession, Skonieczny dissects the fundamental problem with most unsuccessful investors: they fail to understand the difference between stocks and businesses. Stocks are evidence of ownership but such ownership is only worth something if the underlying business is healthy and growing.
Taking this difference as a starting point, Skonieczny walks the reader through the basics of financial statements and the characteristics of a what makes a good business, quoting Pat Dorsey’s 4 factors that economic moats consist of intangible assets, switching costs, networking effects and cost advantages.
Every good investing book has one $10.00 moment. This book’s is found in advice on when to buy. Observing that most money managers are inherently short-sighted, the author notes that many institutional investors will pass up good long term deals if the short-term price movement does not play to their advantage. Money managers measure success in financial quarters whereas the retail investor should measure success in years. Therefore, a good investor should pursue opportunities with short-term uncertainty but long term certainty. In other words, avoid the noise and concentrate on the longer term.
The book is divided into short, easy to read chapters addressing issues such as how to value a company, diversification, investing in IPO’s (the short answer is don’t) and determining when to sell. This is also my criticism of the book. Some complex concepts are addressed very quickly to move onto the next topic. Some chapters could have been fleshed out a little better; for example, the diversification chapter is only 2 pages long- that’s one heck of a short free lunch. The case study chapter, arguably the juiciest portion of the book, was thoroughly educational and it would have been ideal to flesh out this section even further.
There is a little bit of math and finance in the book but it is presented in a straight-forward manner without too much reliance on complex financial equations. Other than a brief boast in the beginning about the author’s return during 2008 and 2009, the book avoids the two big narrative cliches of investment books: the “look at me” syndrome and the “let me tell you a story” format (this format probably jumped the shark multiple books into the Rich Dad, Poor Dad series). It is to the point and concise in its writing style.
The ideal audience for this book would be someone who has mastered their budgeting and is interested in learning how the stock investing works with no fear of some simple math.
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