Tuesday, 22 December 2009

Why Are We So Clueless about the Stock Market?

Books Of Knowledge

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….

Posted in Business and Investing

Jeff Lippincott says:
December 20, 2009 at 10:08 am
This book was OK. It was short, slick, and clearly a marketing piece for the author’s fledgling investment management firm. From the mug shot of the author on the back cover of the book it appears he’s a recent college graduate who is starting his own LLC since there are probably no jobs available to him. But that doesn’t mean he doesn’t know how to be successful playing the stock market. You don’t need any formal education to be successful at picking stocks.

The book basically has 14 chapters as follows:

1. Stocks vs. businesses

2. How do businesses make investors wealthy?

3. What is a good business?

4. When to buy

5. How to value a company

6. Basic capital structure

7. Diversification

8. Economy

9. Investing in IPOs

10. Analyzing investments

11. When to sell

12. Case studies

13. Conclusion

A. Real estate or stocks – which is a better investment?

The 14th chapter (appendix) probably should have been inserted up higher (maybe after Chapter 1?). And chapter 2 probably should have been renamed “How do investments make investors wealthy?”

In my humble opinion the title of the book was lousy. Many people are clueless about the stock market. But after reading this book I doubt the reader will be less clueless as to how to actually make money at the stock market. What we read about in this book is common sense. Investors make money by generating profits with their capital. And if the ROI (return on investment) is significant, then they get significant profits.

In a perfect world where everyone has access to all information, then you can implement what the author preaches in this little tome. Unfortunately we do not live in a perfect world, and rarely is it possible to accurately put a value on a plot of land, a business, or a stock certificate. The world is corrupt, it’s unethical, fraudulent, and getting the real story or facts about something usually costs more than it is worth. Remember that time is money.

The clueless after reading this book might be inclined to say to themselves: Hey, the author has done a nice job of explaining stocks to me – so why not let him pick the stocks and I’ll give him a professional fee for his services. If this is you, then the author has accomplished what seemed to be his goal in writing this book. However, if you wanted to truly be knowledgeable about the stock market and want to try and use it to your advantage, then you’ll need to read a lot of other books. And even then you will probably still be clueless.

Warren Buffet has been so successful in playing the stock market because he is not just an investor. He certainly invests, but then he gets involved with the management of his investment vehicles to make them grow and become more profitable. In effect he hedges his bets. Having said this, I think it is much smarter to stay out of the stock market and build your own companies, systematize them, put them on auto pilot or sell them, and then build another and another and another. That way you can invest in a way similar to Warren Buffet method. But buying stocks when other people are manipulating things is very risky. And it is difficult to beat the average returns earned on Wall Street because of all the smoke screens. 3 stars!
Rating: 3 / 5

D. Buxman says:
December 20, 2009 at 11:36 am
If you don’t know anything about the stock market and you want to make intelligent choices, this book is for you. The information provided is practical and straight-forward, without a lot of fluff or useless mathematical formulas. The presentation is easy to understand and apply to your individual investment plan. In the final analysis, successful investing for the long term is possible utilizing the principles outlined in this book. This is not a get rich quick sham, but rather a sensible, conservative approach that limits risk and maximizes reward.
Rating: 5 / 5

Livin' La Vida Low-Carb Man says:
December 20, 2009 at 1:30 pm
I’m the first to admit that the stock market intimidates me. I’ve watched certain stocks go up and down like a rollercoaster in just a matter of months and wondering what it would be like to take a chance and invest some of my hard-earned capital in a company I support. With big names like Wal-Mart, AT&T, and Apple showing a strong history of financial strength, are they good investments for my portfolio if and when I decide to take the plunge? This is just a sampling of the kinds of information you get in this book written by financial investment firm veteran Mariusz Skonieczny.

The skills that are taught in this book are not novel, but they do help professionals in other business sectors understand how to be smart about what stocks they put their money in, when to buy, when to sell, and making the most of their resources. Discovering the up-and-coming companies and ditching the down-and-outers is ESSENTIAL to becoming a savvy investor. Knowing the difference between the two can be tricky when you don’t know what to look for. This book will help you tell them apart.
Rating: 5 / 5

ShadowStock says:
December 20, 2009 at 3:33 pm
This book provides a clear and concise explanation of many critical principles and ideas to value a stock or a private company. Anyone beginning their journey in the stock market will benefits from the clear examples. Even the more experienced could benefit with a refresher on investment concepts simply forgot or just never fully understood their importance.

Mauriusz Skonieczny succinctly provides many short clear examples of the economic impact of capital allocation decisions such as expanding the business, reinvesting in the business, share buybacks, debt reduction, or dividends. The book also covers concepts such as identifying economic moats, margin of safety, stock valuation with clear examples of discounting future cash flows.

Many other ideas are crammed into the book such as when to sell, company analysis, capital structure, diversification, investing in IPOs, analyzing an investment, real estate versus stocks along with other nuggets of useful ideas for anyone.

I highly recommend this book for the less experienced and others looking for a clearer explanation of the most important stock valuation concepts.


Rating: 5 / 5

Ravi Nagarajan says:
December 20, 2009 at 3:41 pm
Those of us who allocate capital for a living are probably familiar with fielding the following types of questions at social events, particularly during the holiday season:

“So, what hot stock can you recommend?”

“What do you think about [random stock that recently had a huge run]?”

“How did your investments perform last quarter compared to the market?”

“My portfolio is up 25% this month … How does your portfolio compare?”

For those who do not want to be perceived as rude and obnoxious, some type of response is usually required. The individual asking such questions is not doing so in order to appear uninformed and most likely has no exposure to the basics of investing. Such investors really need a primer on basic investment concepts and techniques. Even if they never invest any money on their own, basic knowledge is required to intelligently interact with hired professional managers.

A Beginner’s Guide to the Stock Market

Why Are We Clueless about the Stock Market?Mariusz Skonieczny has written a worthwhile beginner’s guide to the stock market in his book Why Are We So Clueless about the Stock Market? The book’s audience appears to be those who are entirely new to business and investing concepts such as how businesses are capitalized and earn money from activities. Starting with a simple illustration of a Lemonade Stand’s balance sheet and income statement, Mr. Skonieczny walks the beginner through a number of basic scenarios regarding capital structures, return on equity, and the impact of competitors entering the market. Additionally, he provides a clear explanation of the power of compound interest which remains one of the least understood basic concepts of finance.

The Concept of Moats

The question of what qualities represent a “good business” is critical for those interested in handling their own investments. In illustrations that could be understood by any intelligent high school student, Mr. Skonieczny clearly shows the difference between businesses that create and destroy value. He also introduces the concept of opportunity cost and provides explanations of the key factors that sustain moats: Intangible assets, switching costs, network effects, and cost advantages.


The chapter on valuation is quite basic but conveys enough information for a beginning investor to get started. The concept of compound growth is cleverly illustrated by comparing progress in net worth to an “elevator”. By avoiding compound interest equations and using illustrations, the discussion could be less intimidating to beginners. Through these illustrations, the book also explains the concept of discount rates.

Mr. Skonieczny also presents a simple valuation spreadsheet model which calculates intrinsic value based on a dividend discount model. While this model is clearly susceptible to the inability of most investors to forecast earnings or cash flow for distant periods in the future, it illustrates an important finance concept in a way that beginners can understand. One might worry that new investors could gain unwarranted confidence by coming up with seemingly precise forecasts of future earnings and plugging assumptions into a spreadsheet. However, attempts are made to explain such risks.

Capital Structure

The concept of capital structure and use of leverage is poorly understood by most investors. Again using simple illustrations, a chapter is provided that shows the impact of different mixes of equity and debt on a business. The fact that financial leverage is a double edged sword is obvious to experienced investors but not to beginners so more scenarios are provided which demonstrate how equity can be easily wiped out if a business carries too much debt and falls on hard times.

Case Study on Burlington Northern

Case studies using actual examples from earlier this year are presented in one of the later chapters. Interestingly, one of the case studies examines Burlington Northern which is expected to be acquired by Berkshire Hathaway early next year. The book was published prior to the announcement. The book also includes case studies on Moody’s, Thor Industries, and Wells Fargo. While fairly rudimentary, these examples show how the concepts discussed in the book can be applied to actual investment scenarios.

A Worthwhile Quick Read

This book is a worthwhile quick read for beginning investors. While it is definitely not a substitute for classics such as Ben Graham’s The Intelligent Investor, Mr. Skonieczny’s book can serve an important role by introducing new investors to basic concepts and serving as a starting point for further study.

The book could have been improved by providing an index as well as a list of suggested reading for those who wish to take the next step. In addition, the book’s title may be an obstacle for those who are thinking about gifts for friends, family, or clients who could use a basic primer on investing. After all, few of the folks asking you about last quarter’s performance or the next hot stock think that they are “clueless” about the stock market! It could be awkward giving this book as a gift for people who might be “clueless” but don’t recognize that fact. However, on balance, the substance of the book is very valuable and recommended for new investors.
Rating: 5 / 5


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