Equities: An Introduction to the Core Concepts - Book Review

Equities: An Introduction to the Core Concepts (Mark Mobius Masterclass Series)





What Is It About?

This book is an introduction to equities as an asset class. The book starts with the most basic of topics, the purpose of equities and the risk and rewards that come from ownership, and ends with an overview on how to read financial statements, perform security analysis, and manage investments. In between the book touches on the different classes of equity shares, how to trade them, and other basic topics. Simply put, this book does cover the core concepts of equities.


What Did I Get Out Of It As A New Investor?

I would have liked this book to have been available last year when I first started investing. Deep enough to provide meaning to a new investor, but not so detailed that one feels lost, the book is a very good primer on equities. Touching on topics related to equity investment the book provides answers to new investor questions. Questions such as, what is the difference between preferred and common stock, what is an IPO and how is it conducted, and what is channel stuffing and how does it impact earnings, are but some of the basic questions this book addresses. While these fundamental questions may seem rudimentary to those in the know, they are not to a new investor.

The book does a good job of writing to the intended audience. Overall, the book is well designed for those with no previous exposure to equities. Further reinforcing its role as a teaching text, at the end of each chapter the book contains quick quizzes about the material covered.


The Good News

For those just beginning a search for knowledge about equities, this is a good book. If you are at the beginning of such a journey, or know one who is, reading this book will provide answers to many basic, yet necessary, questions.


The Bad News

Except for all but the most novice of investors this book may not have much appeal. On the other hand, an experienced investor may find value in this book as a reference when asked by friends and family for a good text to learn the basics of equities.


The Bottom Line

A new investor who is looking for a introductory text on equities would benefit from reading this book.


Other Related Books:

Investing Resource Review: Stock Screener - Turnaround Candidates

I collected a lot of stock screens this past year. Most use the free deluxe screener available at the MSN Money website. The screens are sometimes hard to find on the MSN website, so I thought I would share them.

This is a screen that attempts to find beaten-down stocks with solid appreciation prospects.

Last Price <= 0.5* 5-Year High Price Average Daily Volume, Last Qtr. >= 10,000

Last Price >= 5

Debt to Equity Ratio <= 1.5* Industry Average Return on Equity Increased Since "In the Last Year" Return on Equity >= 0

Price/Cash Flow Ratio >= 0

Last Price >= 1.10 * 200-Day Moving Average

Last Price >= 50-Day Moving Average


Here is a link to the MSN article by Harry Domash with a description of how and why the above parameters are used.

Blog Review: Update on Trader Mike

I may have been out of the loop and therefore could be coming late to the party on this, but I had not noticed before that Trader Mike was listed as a "Best of The Web" in the investing category by Forbes.

Of course if you read my blog you knew that already because you read it here first. LOL. So stop by Trader Mike's site to see why I (and the slightly more well known Forbes magazine) think Mike has a great investing blog.

Blog Review: Notable Calls

Another blog I like to read is Notable Calls. The blog provides a quick way to scan what stocks are in the news and why. It does so by providing a daily pre-market look at what brokerage and research firms are saying about particular stocks with a quick commentary by the blog author on how the news might affect the stock. Nothing fancy here, just good solid information.

Notable Calls

Investing Resource Review: Stock Screen - Warren Buffett Stock Screen

I collected a lot of stock screens this past year. Most use the free deluxe screener available at the MSN Money website. The screens are sometimes hard to find on the MSN website, so I thought I would share them.

This screen uses parameters which a young Warren Buffett might have looked at:

ROE: 5-year Avg. >= 17%

Return on Invested Capital: 5-year Avg. >= 17%

Pre-tax profit Margin: 5-year Avg. >= 1.2* Industry Avg. Pretax Margin: 5-year Avg.

Price/cash flow ratio <= 0.8* Industry Average price/cash flow ratio Price/cash flow ratio >=0.1

Debt to Equity Ratio <= 0.8*Industry Average Debt to Equity Ratio Screening Income per employee >= 1.1* Industry Average Income per employee


Here is a link to the MSN article by Harry Domash with a description of how and why the above parameters are used.

I like to add a Market Cap. field to the results so I can sort and see the mid- to small cap companies. I use this parameter to do so:

Market Cap - Display only

Damn Right: Behind the Scenes with Berkshire Hathaway Billionaire Charlie Munger - Book Review

Damn Right: Behind the Scenes with Berkshire Hathaway Billionaire Charlie Munger





What Is It About?

This book is obviously about Charlie Munger, Vice Chairman of Berkshire Hatahway. The material covered in this book is a mix of biography and review of Mr. Munger’s development and practice of value investing alongside Warren Buffett.


What Did I Get Out Of It As A New Investor?

The book provides insight into Mr. Munger’s personal background, helping to explain the motivations behind the man known as Warren Buffett’s business partner. From an investing point of view there is no attempt to offer a blueprint for success. Rather what an investor gleans from this book is an understanding that investment success, at least as practiced by Mr. Munger, requires common sense thought on business and the markets.


The Good News

The book is only one of two that examines Mr. Munger’s life and his business success.


The Bad News

The book is not a terribly engaging read. The author has created a niche where she has written several books on successful business persons and the book reads as if it follows some formula for efficiently producing manuscripts. While the subject matter is definitely interesting, the style of writing shows a bit of fatigue.


The Bottom Line

Mr. Munger has led an interesting life worth studying. I would recommend you check the book out from the library.


Other Related Books:

Poor Charlie's Almanack Expanded Second Edition. The Wit and Wisdom of Charles T. Munger

Investing/Trading Resource Review: Stock Screen - Hot Stocks For A Hot Market

I collected a lot of stock screens this past year. Most use the free deluxe screener available at the MSN Money website. The screens are sometimes hard to find on MSN so I thought I would share them.

This is a screen that attempts to find stocks that will do well in a strong market.

Fundamental Grade = A

Technical Grade = A

Return on Assets >= 15

Debt-to-Equity Ratio <= 0.5*Industry Average Debt-to-Equity Ratio Here is a link to the MSN article by Harry Domash with a description of how and why the above parameters are used.

Tomorrow's Gold: Asia's Age of Discovery - Book Review

Tomorrow's Gold: Asia's Age of Discovery





What Is It About?

This book is about finding those asset classes which will outperform in the future. To do so the author takes a close look at historical shifts in economic power. The book makes the point that the world’s economic success stories do not last forever. The author also focuses on the reasons why he believes the emergence of Asia heralds a change in the economic center of power.


What Did I Get Out Of It As A New Investor?

The author makes clear that no economic center of power stays dominant forever. In the author’s opinion Asia will be the site of the next leading financial market. Whether the author is right or wrong on this point is irrelevant to finding value in this book.

The central message to take away is not the prediction but the analysis. No assets can lead forever. If everyone is invested in industry A, country B, or commodity X then those asset classes must under-perform other markets over time simply because no one of sufficient size is left to bid that market higher. Therefore, just as a glass of water can only get so full before the water spills out and flows into another container, once an asset class becomes too popular the money must flow somewhere else to achieve above average return. The key is to determine where.

Understanding that money must continuously flow is the important point worth knowing. That message is why this book is worth reading.


The Good News

A well written book which makes a strong case, using cycle analysis, that Asia will be the leading market for years to come.


The Bad News

While well written the book reads as a text. Consequently, it may be best to read the book over time, and not straight through, to allow for proper reflection on each chapter.


The Bottom Line

For those who want to grasp the idea of cycles and why Asia may be the best market for the next several decades this book provides a worthwhile perspective.


Other Related Reading:

Blog Review: Pradeep Bonde's Stockbee

Another blog I like to read is Pradeep Bonde's Stockbee blog. Pradeep's blog is focused on communicating his interest to "trade and develop various systems based on various market anomalies and stock life cycle profiling." Pradeep offers daily commentary on the market and individual stocks.

One of the things I like about the blog is that Pradeep takes the time to explain sector rotations and the effect earnings have on stocks. Using specific stocks Pradeep walks one through on how to analyze the movement and momentum. He also provides the occasional stock screen and discussion about money management and proper risk taking. Overall a good blog for trend and momentum players with value aspects as a plus.

Stockbee

Off Topic: Dog Tagged

I was tagged by Muckdog whose life I was surprised to learn inspired this movie.

So here are four more things you may not know about me:

1. While not a big music guy I do have a favorite. Ten by



is the best album, ever. Great music and awesome lyrics on every song. Bonus info: Black is my favorite of the eleven songs. Bonus Bonus Info: My favorite version of Black is the one from MTV unplugged.

2. Growing up I loved reading sci-fi novels. If I had to pick just one book as my favorite book, I would have to say Robert Heinlein's Tunnel in the Sky




is the one. Pretty much anything by Heinlein (and Asimov) is great.


3. It might be hard to believe but I I read other stuff besides investment books. When I get a little tired of reading investment books I like to read mysteries and detective stories. I have read recently The Hunters, Brother Odd, and Echo Park.


4. Keeping with the favorite theme, my absolute best place to eat pizza is a place called Bronx Pizza in San Diego. I shit you not. Started by guys from New York, it is top notch.


5. Like Muckdog my first full-time job was in fast-food. For me it was at In-n-Out Burger. Started there at 18, stayed for three years, and for the same reasons Muckdog gave it was great.


There you go. Want to know anything else, just ask. And if you have a blog and are reading this consider yourself tagged. LOL.

Blog Review: Filtering Wall Street

A blog that I read on a regular basis is Filtering Wall Street. It is a trading blog which provides daily commentary about various markets, stocks, and individual trades made with associated charts.

One of the nice features the blog provides to a new trader is a discussion and analysis of stock screens using various filters. Good stuff for those who are interested in technical analysis and are looking to gain a better understanding on how to use technical stock screens.

Filtering Wall Street

Trade Review: BUD

Selection

BUD was a stock I bought as an idea on an undervalued or oversold company, depending on your style of investing. The main reason for purchase was just to get my feet wet and I felt BUD at that time was undervalued enough to present with a sufficient margin of safety that would preserve my capital. So I bought. And then I sold.


Results

On February 16, 2006, I bought Anheuser Busch (BUD) at $41.88. On October 4, 2006, I sold BUD at $48.37 (dividends included). I had a gain of $6.49 a share (dividends included) or just about 13.4% in 230 days.


Bottom Line

At the time of purchase BUD was, again depending on your style of investing, either as undervalued or oversold as it had been since 1992. BUD is getting close to its all time high, so it may be a chance to try out Howard's style.

Get Rich With Options: Four Winning Strategies Straight From The Exchange Floor - Book Review

Get Rich With Options: Four Winning Strategies Straight from the Exchange Floor





What Is It About?

As the title makes clear, this book is about using options to increase stock market success. The book is divided into three parts. The first part covers the basics of options. The second part presents the author's four favorite option strategies. The final section provides a list of option resources for the reader. The book is well written and a fast read. The book also excels in that it provides concrete examples with reference to numerous figures and charts.


What Did I Get Out Of It As A New Investor?

Options are a means to increase market returns. Options are also a means to decrease market returns. The question for every investor is determining which option strategies are best to achieve the former and not the latter result.

The author initially identifies and explains why most investors fail to gain a positive result from options, i.e., time and volatility, or lack thereof. The author then describes four strategies which take advantage of the above two factors most investors misunderstand.

The first strategy presented is purchasing deep in the money calls. The second is selling naked puts on stocks which one desires to purchase at a certain price. The third is selling covered calls on stock you already own to generate income. The final, which seemed a bit more complicated, was using option credit spreads.

As stated, the identified strategies are explained in a manner easy to understand and not at all confusing. The author goes out of his way to ensure that the novice market participant can follow the lesson being taught. Through the use of concrete examples of actual options traded with figures and charts, the reader is not left feeling lost. Overall, I found the information was presented in a straight-forward manner. It is clear that this author's goal is to educate the reader and not try to amaze them, which some authors like to do.


The Good News

Overall, this book provides a good introduction and overview on using options as both a strategic and tactical course of action in a portfolio.


The Bad News

Options, like any derivative investment, are not something that can easily be mastered. Like any tool, one can just as easily get hurt as they can benefit from its use.


The Bottom Line

For those who think options are beyond comprehension this book goes a long way to demystify their use. A good book for those interested in understanding and using options in their portfolio.


Other Related Reading:

Blog Review: Chris Perruna's Blog

Another blog I like to read is Chris Perruna's Successful Education Through Investing blog. Chris mixes it up offering articles on the market, individual stocks, finances, and even poker. It is his posts about individual stocks that I like most. The reason I like the individual stock posts is that Chris does not just look at the fundamental or technical factors. Using a mixture of the two styles, Chris demonstrates that taking the best from both fields can be helpful in making a purchasing decision.

Chris also has a subscription newsletter at Market Stock Watch. It appears reasonably priced and offers a two week free trial. While I have not tried it myself, it is on my ever growing list of resources which I hope to take a look at one day.

Chris Perruna's Successful Education Through Investing

Blog Review: Update On Nodoodahs

As I have said before, I think Bill Rempel is wicked smart and on of my favorite blogs to read. Yesterday he posted an article that pretty much sums up why.

If you are a new investor or trader you should go read this article, think about it, and then read it again. Doing so may help you save both time and money. I know it worked for me last year.

The 25% Cash Machine: Double Digit Income Investing - Book Review

The 25% Cash Machine: Double Digit Income Investing





What Is It About?

This book is about achieving above average market returns using income investing. The book looks at several income producing classes of stock to reach this goal. For example, the book reviews Closed-End Funds, Master Limited Partnerships, and Real Estate Investment Trusts to demonstrate that there exists relatively stable stocks which pay dividends in the 8-12% range with the potential to experience capital gains of 13-17%.


What Did I Get Out Of It As A New Investor?

For many, the need for equities which produce an income is paramount. Yet, one must be cognizant that in an inflationary society some growth is needed in order to maintain the purchasing power of the income derived from dividends. The difficulty of many who need to invest for income is to do so in a way which preserves capital without losing ground to inflation. This book helps those seeking such a result.

Income investing traditionally focuses on the purchase of stable stocks paying a solid, but not spectacular, dividend. This book goes further and provides tools to identify stocks which pay an above average dividend with the added potential of capital gains. The focus is on dividends because no matter how high or fast a company's earnings may grow, for those who need dividends, growth is useless if it remains undistributed.

Foregoing the typical identification of "blue chip"stocks paying a 2, 3, or even 4 percent dividend, the author provides a convincing point of view that those investing for income must search out companies paying a far greater dividend with a concurrent growth prospect. In this way those who desire or even need income from investments can assure themselves of maintaining both the value of their income and the underlying principal which generates the aforementioned income.


The Good News

A solid effort which demonstrates that income investing and growth investing is not antithetical to one another.


The Bad News

Like many books which provide a template to follow, the author may leave the impression that simple equates to easy. It is not. While the book provides a sound starting point from which a new investor may begin, one must still recognize that any endeavor which seeks to provide above market returns requires due diligence.


The Bottom Line

For those who want or need to invest for income, this book provides a worthwhile perspective on how to do so in a manner which may provide exceptional return.


Other Related Reading:

Trade Review: MSFT

Inspired by Bill, Trader X, and Ugly, I have decided to discuss trades I have made. These early trades were made as an educational endeavor to understand buying and selling of stocks using minimal amounts of capital. For the most part I bought and sold these shares as I developed my investing and trading process.


Selection

MSFT was a stock I bought as an idea on a undervalued company. The main reason for purchase was just to get my feet wet and I felt MSFT at that time was undervalued enough to present with a sufficient margin of safety that would preserve my capital. So I bought. And then I sold.


Results

On February 16, 2006, I bought Microsoft (MSFT) at $26.80. As usual I cannot say that there was any particular signal that stood out at that time due to my newness, so again I would describe it as a random entry as discussed in Trade Your Way to Financial Freedom.

On April 24, 2006, I sold MSFT at $27.20. I had a gain of $0.40 a share or just about 1.5% in 67 days. Measured as R, my gain of $0.40 was 0.33 R. Why did I sell? At that time I cannot say I had any real reason to sell. I was not nervous or anything. I simply though I had a better investment I could use the money to buy.

Looking back at the one year chart at Yahoo it is clear, in hindsight, that I was real lucky to sell because MSFT took a nose dive a few days later.


Bottom Line

While at the time of purchase it was fundamentally undervalued it was clearly overvalued from a technical standpoint. But sometimes it is nice to be lucky, I just don't count on it all the time.

Blog Review: Fly On Wall Street

The Fly On Wall Street blog is a very unique blog worth visiting. The blog provides daily commentary from an individual actually describing the moves made while managing other people's money. This commentary is offered in a refreshingly truthful and upfront manner.

The Fly (aka Broker A) discusses daily trades, provides market commentary, and offers a candid opinion in an attempt to cut through the noise offered by the market and the so called market pundits. Again Broker A does so in an upfront and honest manner.

At first blush it may seem that when reading Broker A what is shared are various stock picks which The Fly is buying or selling. But after close examination and detailed reading of the blog it is clear Broker A is providing much more. The Fly's comments are important because when they are taken as a whole and approached as a cinematic movie rather than a snap-shot picture, reading the short posts over several days or weeks provides an insight into how the market ebbs and flows. Something that every investor and trader should understand. Again Broker A does so in an upfront and honest manner.

You may have noticed that I have repeatedly stated that The Fly offers comments in an upfront and honest manner. This is a polite way to say Broker A pulls no punches and will resort to profanity if the situation calls for it. This is not done in a vulgar way; rather simply to emphasize the point being made. That is said as fair notice to those who have virgin eyes and ears.

With that said, many of the Wall Street terms The Fly uses are a bit obscure and did not make it into this recent book:




In an effort to provide some utility to its readers, Value Blog Review offers this glossary of some unfamiliar terms you may encounter at The Fly's site:

1. Mr. Asshole Dip Buyer – This is an individual who buys stocks on any dip in price. As in "Mr. Asshole Dip Buyer just screwed the perma-bears who got short."

2. Fucktard – the state of being a fuck while at the same time illustrating the qualities of a mentally challenged person; one's innate ability to illustrate extreme dumbassness/bitchiness, even beyond the scopes of a normal fuck.

In other words, someone who is so stupid by default that to call them a retard would be an insult to those retarded everywhere. As in, "why won't the fucktards just surrender to the bulls and cover their shorts?"

The Fly's phrase is catching on like wildfire, here is a bumper sticker that just came out:













and for the lady trader Broker A even has some Valentine Candy:




Of course, the origin of the phrase is a bit unknown, but Value Blog Review has learned that The Fly may have learned it from this man:













Another word similar to fucktard and used by The Fly is:

Dicktard - A combination dick/ retard. That is to say that not only is the guy a complete moron, but he's also a flat-out asshole.

and finally The Fly often uses:

Asshat - one who is so oblivious to the world around them, lacking in common sense, their head might as well be up their ass. As in "anybody who has been short the market the last 6 months is an asshat."

For those who need a visual please see this drawing taken from this actual patent application, seriously:




The last thing I want to point out about The Fly's website is his use of disclaimers. They are quite funny and well worth the read. Most disclaimers say something like "this is not a recommendation to buy a stock yada yada yada."

Instead of the usual boring disclaimer, Broker A comes up with such disclaimers as: "Disclaimer: If you buy SORL because of this post, your wife will demand major upgrades to the house. And, you may lose money." Very funny stuff. Broker A's blog is a good read.

Since imitation is the sincerest form of flattery, I will attempt to end with my own disclaimer about The Fly's blog:

Disclaimer: If you use this link, reading The Fly may cause you to get your panties in a bunch. And, you will lose money.

The Essays of Warren Buffett - Book Review

The Essays of Warren Buffett : Lessons for Corporate America





What Is It About?

This book collected and arranged selected letters Warren Buffett wrote as Chairman of Berkshire Hathaway. Covering a variety of topics like valuation, investing, accounting, and corporate governance, the letters set forth Warren Buffett's approach to business and the market.


What Did I Get Out Of It As A New Investor?

What can't I learn from Warren Buffett? Sure there may have been others who have better track records or built bigger companies, but few others have done so for as long and as consistently as Warren Buffett. One would be foolish to think an investor or trader cannot learn something by reading Mr. Buffett's writings. Until Mr. Buffett actually writes his own book, this collection of essays is the next best thing.


The Good News

It is Warren Buffett, in his own words, in a book.


The Bad News

To be fair, I guess, maybe, if one were to think that a man who has built one of the largest companies in the world, through acquisition and investment, has nothing of value to say about business or the market, this book may not appeal to such a person. Except for the aforementioned person above, not much downside here by reading this book.


The Bottom Line

Nothing teaches like success, and any way I measure it Warren Buffett is successful, so go read the book.


Other Related Reading: