I finished listening to two tapes of The Motley Fool Investment Guide : How The Fool Beats Wall Streets Wise Men And How You Can Too. The book has been around for a while, being published in 2001, and by now apparently a classic. Amazon has a used hardcover for 8 cents and a set of audio cassettes for 95 cents. The tapes are pretty good, clear voice, points well emphasized, read with irony where appropriate and proper intonation everywhere else.
The basic premise of the book – Internet changed the world of stock trading, so here’s how you could benefit of it. It’s not a book on what to invest in, or what stocks to pick, it’s a book about doing stock trading in the Internet age. What are mutual funds and how do you select the right ones? How to view the company financials? What to look for in Yahoo! Finance company pages? How is price-to-earnings calculated and what does it mean? What is price-to-earning-to-growth and what does it mean for you?
Several things the book teaches the reader:
- How to select the mutual funds
- How to choose an online broker
- How to look for the right stocks
- How to track your portfolio
- Why you must track your portfolio and quantify your financial acumen
- How to short stocks
Several key points that are left with me after reading the book:
- Avoid mutual funds. 80% of them underperform the market, which means you’re better off buying an index fund of Dow Jones Industrials or S&P 500.
- Choose low-commission, no inactivity fee broker. Here I would eagerly recommend my current one, Scottrade. I went with those guys after cancelling on FolioFN and so far they’ve been pretty good to me.
- Invest in industries you know. It’s important to be able to detect actual innovation from marketing hype, and if you know airline business, but have only seen nanotechnology commercials on TV, youll probably be better off with airlines.
- Track your portfolio. If you underperform S&P 500, maybe you’re better off buying S&P 500.
- Avoid the jargon. Pay attention to cash flow and the actual wealth generated by the company. Other numbers (like sales, pro forma earnings, etc.) could trick you into thinking that company was doing well, when the opposite is true. Stick to reviewing the company’s bank account and their margins of doing business, it’s really what matters and defines sustainability of the business.