Author: Sarah Young Fisher and Susan Shelly
Publisher: Alpha-Penguin Books. 381 pages
Book Review by Paiso Jamakar
When it comes to stock investing Warren Buffett does it very well. He holds the world’s recording for having the highest return on investment for the longest period of time.
There are many investors who have had very high returns in stock investing, even higher than Buffett, for periods of time. But no one has beaten his long-term record.
There are many factors that affect long-term returns (which I define as a decade or longer) on stocks, and way more factors that affect short-term returns (one to ten years).
My view is that several important factors affect long-term returns on stock investments. Most have to do with the fundamental finances of the company. With short-term investments, I believe returns are affected more by buying behavior, including what may be called “misbehavior.”
Warren Buffett takes advantage of buying misbehavior – when traders hammer down a stock’s price (into bargain-basement territory) based on over-reaction to some bad news, but it does not affect the company’s fundamentals. He buys stock in such otherwise good-fundaments companies at what he calls “attractive prices.” Then he holds most of his shares for a long time. He has been quoted as saying that he would hold some of stocks ‘forever.’
Sarah Young Fisher and Susan Shelly have done a superb job of explaining to the would-be and experienced investor the why, what, when, where, who and how of investing in stocks in this fat but great book.
They explain that what some call ‘investing’ is actually trading and there is a huge basic difference between the two: investors read, understand and analyze financial statements of the companies they put their money into, whereas traders basically watch as stock prices move up and down.
Traders for the most part are speculators and bettors on a stock who are primarily focused on the zigzag in charts, hoping they will go either up or down substantially enough so they can make money in the short run: monthly, weekly, daily, hourly and even in minutes.
The authors tell you about the risks in stock trading and investing. They show you where to find financial statements so you can look at the company’s balance sheet, find out what are its total assets (current and long term), its liabilities and its net worth or stockholder equity.
The authors show you how to read the income statement of a company – its revenues, its gross margins, its expenses and its net income, including the earnings per share, which is the E in the PE or price-to-earnings ratio, a very important consideration in buying shares, in my opinion. Another important fundamental factor in choosing which company’s shares to buy is its long-term (10+ years) and short-term (one to 10-year) rate of growth of its earnings
The book’s coverage is quite extensive in its 380-plus pages, so it’s a very useful reference work, including for already experienced and successful investors.
It explains what is the U.S. stock market, including how it started and its history, whether stocks are the right type of investment for you based on your tolerance for risk versus your desire for large returns on your invested capital. It helps you understand what type of investor you are to help you decide what to invest in and how best to invest.
Fisher and Shelly help you find the right kind of public company to invest in. They give you an overview of mutual funds and exchange traded funds or ETFs and show you how to diversify your stock portfolio.
They show you how to get started. They emphasize the importance of having the essential information including how economic factors (commodity prices, durable goods orders, gross domestic product, inflation, global trade imbalances, producer price index, retail sales, supply managers’ reports and unemployment) affect the fundamentals and price movements of stocks.
They tell you how to be a successful investor in good and bad times, how to maximize your gains and minimize your losses and taxes. They give you the tools for investing and how to record and evaluate your overall performance in stock, to learn what is your bottom line rate of return.
This is a comprehensive book with lots to learn from it. Sarah Young Fisher and Susan Shelly have put a lot of hard, good work in it. This book is well worth its price to buy, read and keep for the long term. It will certainly reap you a high return on your investment.
