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 [ペーパーバック]

This is an excellent primer on equities. Skonieczny begins as simply as in a Dummies or Idiot's guide by explaining what a business is and how investing in the stock market is buying a piece of a business. He delineates how businesses are evaluated in terms of bottom line success or failure, the details of which are what the investor should know about any business before buying its stock. This is the fundamentalist approach to investing, the sort of knowledge that cannot be skipped and is known by any savvy investor.

The prose and the illustrations are easy enough for a sixth grader to understand, and that is one of the strengths of the book. Skonieczny knows what he is talking about and has taken the trouble to make it clear to the beginner. A key idea, so basic that it is often overlooked or not really appreciated by the beginning investor is that of risk to reward. Skonieczny makes it clear that any stock market purchase must promise a reward greater than the prevailing interest rates and greater than Treasury Notes and other fixed income instruments because the risk in the stock market is greater. He shows how this thinking is merely an extension of the understanding that you wouldn't start and run or invest in a business unless its bottom line profit potential was greater than what the bank gives its depositors.

When to Buy? (the third chapter) concentrates on the objective value of a company based on its projected earnings relative to the price of the stock. Skonieczny eschews technical analysis. No voodoo technical charts with running averages and ghostly heads and shoulders. Instead there is a simple chart on page 37 showing the price/value fluctuations of a stock. Assuming that we can get a good grip on what a company is actually worth, it is obvious that you buy when the price is less than the value. Simple. And if investors followed this strategy with any kind of real fidelity bubbles and panics would go the way of the dodo.

When to Sell? (a later chapter) follows the same sort of reasoning. Skonieczy writes: "The best time to sell is when projections turn out positive, the company prospers well, and the market realizes its full value by pricing it correctly." He adds, "Another reason to sell is when an investor finds a better investment opportunity." (p. 117)

Skonieczy is not enamored with stocks that are unpredictable and/or have high price to earnings ratios or high volatility. He likes companies with "moats" and other advantages over its competitors. His is not a gambling approach to the market but rather a conservative, fundamentalist approach. Whether you are of similar mind or not, this book is still an excellent guide because to go beyond the fundamentalist approach it is essential to know the basics. It is one thing to gamble blindfolded, another to take calculated risks. And you can't know the risks unless you understand the fundamentals, and understanding fundamentals is what Skonieczy's book is all about as an investment guide.

One of the bits of advice that I especially like is Skonieczy's insistence that we not "blindly over-diversify, preventing our individual picks from having meaningful impacts on the overall performance." (p. 139) What's the value in painstakingly picking the best stocks with the best safe and sane prospects only to water down our portfolio with other stocks just to be diversified? Personally I don't think being diversified in the market is really the key to sound financial planning. I think it's being diversified overall, not just within the stock market. For the long run the wise investor should have some money in stocks, some in real estate, some in bonds, perhaps, some in cash (meaning CDs or such).

This book is particularly timely since we are just coming out of a recession it would appear, meaning that there are many publically traded companies that are undervalued. Reading and understanding the concepts presented in this book and applying them to the market now might very well help the investor separate the good prospects from the not so good ones, the risky ones from the less risky ones.

I found this book to be most excellent in explaining what can be complex financial terms and ideas. Even though I have a business degree, and MBA, and work in finance, I sometimes find it difficult to explain to others these basic concepts. Skonieczny discusses these topics with a simplistic brilliance that makes topics such as p/e ratios, discount rates, when to buy, and when to sell seem so easy. I wished that I had this book when I was in school, this would have made some of the study much, much easier. Now that I have this in my hand I hope to make better decisions regarding my personal investing.

I liked that in the final chapters of the book he explains clearly why AIG, Fannie Mae, and Freddie Mac failed. While keeping up with the news I don't think that I had ever had these failures explained so consisely. I liked that he then picked out some companies that were doing a really good job and explained how and why they were doing well. He also went on to emphasize that we are responsible for our own study and understanding of our investing. I feel that if we applied spending the one hour a week per stock that fewer of us would end up with bad investments, and perhaps avoid retirement portfolios that have dropped in value considerably.

I really admire Skonieczny for taking a topic that is typically dry and dull and breathing life into numbers. While I may work in finance isn't often that you find someone that is passionate about explaining these theories in terms and words that everyone will easily understand. Whether you are a student trying to make sense of finance, or even an investor that is trying to regain control over your investments I believe you will be able to get a lot of valuable material out of this book.

Skonieczny explains the important difference between
buying a stock versus the complexities inherent in
purchasing an entire business. Clearly, stocks are
much easier to analyze than entire businesses.

Clueless investors make errors for a plethora of
reasons including panic, buying too high, not knowing
how to value a business or selling too early.
This volume helps potential investors avoid costly
errors through a systematic analysis of the investment
fundamentals.

More importantly, the author covers the difficult
question involving how to create wealth over the
long term. The book explains various mechanisms
like reinvesting dividends, DRIPS and wise diversification.
Personally, I favor reinvesting dividends due to the
savings on broker fees.

The author covers the important concept of an investment
moat which protects revenues and profits from competitors.
Ferrari has created a moat via the tremendous prestige
of ownership coupled with known superior quality of the
product.

The book depicts stock worksheets which cover the fundamentals
of investment analysis like trading price, PE ratios,
dividend payout, stock peaks and troughs. Profitable stocks;
such as, Burlington Northern RR are cited due to the superior
revenue streams and the constancy of business operations both
now and well into the future.

The book would make an excellent acquisition for your
personal library.

Dr. Joseph S. Maresca