My Book Reviews

Written by Michael Sivy, an editor for Money magazine, this is an introductory investing book which ambitiously attempts to covers all aspects of investing in stocks.

Sivy covers such topics as:

• Macro investing topics - different asset classes (small cap vs large cap), asset allocation, diversification, basic economics, personal risk tolerance
• Different investing styles - growth stocks, value stocks, and income investing
• Miscellaneous topics about stocks - earnings expectations, stock buybacks, spinoffs, takeovers, insider buying, closed-end funds, technical analysis

This book is an excellent primer for anyone who wants to learn how to invest in stocks. It will answer almost all of their basic questions that beginning investors have (e.g. "how much should I put in foreign markets?"). Considering the breadth of topics covered, the book is very well-organized. For each topic covered, Sivy gives a concise list the key relevant points while also backing them up with reliable academic studies and statistics.

Some readers have been turned off by the book's writing style, which is very dry compared to the witty quotes from Warren Buffett and the entertaining writings of the Motley Fool. Admittedly, the textbook-like feel to the book does make it read like an encyclopedia. But this is a good thing because beginning investors don't need to hear colorful stories - they need the fundamentals branded into their minds first.

The biggest criticism from readers is that the content is too "by the book". They say that the author doesn't give any experience-based, savvy advice (like Motley Fool does) because the book's statistics-driven research is coming from someone who is a writer and not a battle-tested professional investor. This is not a valid criticism though because the purpose of the book is not to teach you how to become a master stock picker. Its purpose as an introductory book is to try to lay a strong foundation of knowledge regarding the fundamentals of investing. One of the problems I have with beginner investing books is that they are often dangerously narrow in scope. This applies even to the classics like Lynch, Zweig, and Buffett. When beginners read those books, they often underestimate the scope of analysis that needs to be done. For example, when beginning investors hear Peter Lynch talk about how he goes to the mall to scope out companies with hot-selling products, these novices often think that is all the analysis that needs to be done. Sivy's book, on the other hand, offers a comprehensive overview of different investing strategies, so beginning investors will have a well-rounded understanding of stocks before they begin doing bottom-up research on individual stocks.

Sivy does, in fact, give some advice that is not strictly by-the-book, such as "Don't reach for yield", "Don't confuse a company with its stock", and "Don't do anything that makes you fundamentally uncomfortable". This last recommendation flies against the often-espoused advise that recommends that you always keep x% of your money in stocks and y% in bonds.

Another valuable comment he made was a macro prediction he made, presumably around 1996: "I'd say we're only about halfway through the good times. I guess that mean that we should start worrying around 2005." It might have just been a lucky call, but I think it was more skill than luck.

There are only a couple of problems that I had with the book. The first is that he occasionally gives advice that is weak. For example, he recommends you use a full-service broker to buy ADRs because your broker will know more about them. This advice is ridiculous. But, given the scope of the book, these occasional hiccups are barely noticeable. Not to mention, it's not a bad idea to err on the side of being too conservative when giving advice to beginners.

The second problem I had was his omission of any kind of risk management or money management principles. Although he offers specific exit strategies for each investing strategy (e.g. when to sell a growth stock), these tactics manage risk only on the trade level but not on a portfolio level. Sivy simply relies on the gospel of the buy-and-hold philosophy that says everything will be fine in the long run.

But even though the book is light on certain subjects (like market psychology and money management), a beginning book can't cover all aspects of investing. A beginner will need to read at least 2-3 books to get a well-rounded understanding before moving on to intermediate stuff.