Investing Book Review: Why are we so clueless about the stock market


Investment Book: Why are we so clueless about the stock market

Many people are clueless about the stock market. I was as well in the beginning. I didn’t know where or how to start.

Considering the amount of noise in the media and people flogging that you are not smart enough or good enough to know how to pick your own stocks, it’s no wonder people have a misconception about getting started in stock investing. Value investing is also another language to them at this point.

Why Are We So Clueless about the Stock Market? is a great little book on how to start investing in the stock market and a fine book for the seasoned investor to organize their explanations and analogies when explaining supposedly simply concepts such as discount rates, growth rates, basic concepts of business, diversification and so on.

Easy to Read & Understand

The book is written in a very simple and clear manner. It makes reading very easy to follow and understand. So easy in fact that it would be a great first book for young budding investors.

Each chapter of the book is very concise and to the point with a short summary at the end of each chapter. A good way to maintain the flow of your reading and learning.

It’s probably on the same level as Greenblatt’s The Little Book That Beats the Market. The big difference being that there is more detail and it covers a wider range of topics and answers many questions that new investors are sure to encounter.

What types of questions does it answer? Let’s see below.

What’s the Book About

Why Are We So Clueless about the Stock Market? follows on the old school investing concepts of Warren Buffett. That is, stocks are small pieces of businesses and we should approach picking and buying stocks as if we were purchasing a real business.

The book will help beginner investors to answer and guide them through questions such as

  • What is a good business?
  • How do you identify a good business?
  • When do you buy?
  • How do you value a company? (note I didn’t say analyze)
  • When do you sell?

I especially like the chapter that discussed the concept of using debt in a company. It’s definitely something that will help learning investors.

The book discusses other ideas such as how the economy affects the market, why investing in IPO’s is a bad idea and offers 4 good case studies of Burlington Northern Santa Fe (BNI), Thor Industries (THOR), Wells Fargo (WFC) and Moody’s (MCO).

Personal Comments

The one big topic that I felt was missing was a discussion on margin of safety. Even though the author shows the reader how to value a company using the discounted cash flow method, there is no mention of the all important margin of safety.

Another point is that while there is a chapter dedicated to valuing companies, there isn’t one on how to analyze a company. I mention this because I know from first hand the dangers of just “knowing” how to value stocks without understanding or knowing how to analyze them.

Summary

Overall, the book, Why are we so clueless about the stock market, is a superb primer for the new investor and will help to open their eyes to the bigger picture of investing.

It’s also a great book if you’re a seasoned veteran but have trouble clearly explaining or teaching investing concepts.

The author, Mariusz Skonieczny, also has a website and blog at Classic Value Investors. You can listen to his radio interviews (interview 1 & interview 2) brought about by his due diligence on Mastech Holdings (MHH).

 

  • what valuation tools can i use and how do i use them

    all i know is

    DCF
    P/E etc.
    ROE/RRR * Share holder equity / shares outstading

  • Tyler,

    There are several tools and methods that you could use.
    DCF, Graham, Liquidation, EPV, multiples method are the ones I use regularly. I’ve written about it a lot. Just do a search and you’ll find it all.

  • andrew

    jae,
    you mention that this book doesn’t devle into “analyzing” a compnay…what book would you recommend that does?
    Thanks,
    Andrew
    p.s. thanks for your always thoughtful, valuable pieces.

  • Andrew,

    Quality of earnings is fantastic.
    Greenwald’s EPV book is also excellent.
    Analysis of Financial Statements (Bernstein & Wild) is another good one. It goes through a ton of ratios for each aspect of analysis and discusses each one in a comprehendable way.

  • Jim

    I’ll second the Quality of Earnings recommendation. It’s one of the most thorough and knowledgeable books I’ve encountered.
    .-= Jim´s last blog ..Interesting Video’s to Watch =-.

  • Quality of Earnings has actually become one of my top 3 favorites. Timeless book, advice and techniques.

  • Jim

    What’s your other 2?
    .-= Jim´s last blog ..Interesting Video’s to Watch =-.

  • Definitely F Wall Street and it’s a toss up between the two Green men. Greenwald’s EPV or Greenblatt’s Stock Market Genius. Pat Dorsey’s books comes just behind. Only because it isn’t based on analysis.

  • Jim

    I liked F Wall Street and Greenwald’s is on my top list; possibly my #1 pick. I haven’t read Greenblatt’s book but I’ve read a lot about it. I’m not a fan of the P/E measurement therefore I doubt I’ll ever purchase the book. I just got Greenwald’s new book “Globalization” in the mail today and look forward to reading it. I’ve had his “Competition Demystified” book for while but haven’t had a chance to start reading it yet. It delves into defining a moat which I’m sure is pretty obvious to most of us but I’m interested in what he has to say about it. The book is huge so I’m sure he gets very deep as most of his writings do.
    .-= Jim´s last blog ..Interesting Video’s to Watch =-.

  • Greenblatt’s You Can Be A stock Market Genius is actually all about special situations. Spin offs, merger arbitrate, bankruptcies, stubs and tenders. It really is an engaging good book but only if you are into special situations.

  • Jim

    I love special situations. I was unaware of that. I was under the impression it had to do with his magic formula which is derived from a P/E ratio that is often times inaccurate due to GAAP accounting rules.
    .-= Jim´s last blog ..Interesting Video’s to Watch =-.

  • Yeah P/E is a useless ratio most of the time unless a company is so obviously undervalued you can immediately tell.

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