SENSIBLE STOCK INVESTING: How to Pick, Value, and Manage Stocks
- ISBN13: 9781605280103
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For the millions of individual stock investors who want to improve their results-and for beginners who want to get started on the right foot-Sensible Stock Investing: How to Pick, Value, and Manage Stocks is a comprehensive yet easy-to-follow guide.Written for the busy individual, Sensible Stock Investing presents the investment process in three phases: rating companies for their intrinsic soundness; valuing stocks to find advantageous purchase prices; and managing a portfolio once it is establi
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Millionaire Teacher: The Nine Rules of Wealth You Should Have Learned in School
The incredible story of how a schoolteacher built a million-dollar portfolio, and how you can too Most people wouldn’t expect a schoolteacher to amass a million-dollar investment account. But Andrew Hallam did so, long before the typical retirement age. And now, with Millionaire Teacher, he wants to show you how to follow in his footsteps. With lively humor and the simple clarity you’d expect from a gifted educator, Hallam demonstrates how average people can build wealth in the stock market by s
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A virtual bible for the individual investor,
This book stands head and shoulders above the great bulk of what I’ve read on the subject of stock investing. Much of what’s out there these days seems to have been written either for the gullible, get rich quick types or for those who have completely given up on trying to come out ahead of the pack and have resigned themselves to the boredom of simply buying and holding index funds. But this book’s premise is that the small individual investor actually can beat the market, not through some secret, author-discovered formula, but by applying logic, discipline, and a bit of effort. If you believe, as I do, that knowledge and diligence tend to be rewarded in the Market as in life generally, you’re going to like this book.
The author does a great job of smoothly guiding the reader through a potentially dry and difficult subject, without presuming any particular prior knowledge or experience. In fact, the book could almost serve as a textbook on how the stock market operates if it weren’t such a quick and enjoyable read. The contents are well organized, and the writing is clear and to the point. The author effectively uses two real world portfolios to demonstrate the application of his techniques and at the same time buttress his credibility. There are also several helpful appendices, including forms for valuing companies and reviewing a portfolio, as well as a handy investment calendar.
One other thing that makes this book special is the feeling it conveys throughout that stock investing can and should be approached as an engaging, enjoyable hobby, like, say, belonging to a fantasy football league. I think an investor who maintains such an attitude is the most likely to stick with the sound techniques this book espouses while at the same time he or she reaps an extra dividend of happiness.
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|A useful guide to buying good companies at reasonable prices,
The author uses a “points system” to identify potential investment opportunities. Returns on equity and dividend history are given the greatest weight, followed closely by historical and forecast earnings per share. Since the rating system takes multiple factors into account, a low score in one area does not automatically exclude a company from consideration.
Points are also awarded to companies that have compelling stories. Is the company a dominant player in its industry? Does the company have pricing power? Answers to questions like these will begin to narrow the range of possible investment candidates. To assist in that effort, the book includes a “company story” questionnaire that investors will find useful.
For stock valuation, the system looks at historical and projected price/earnings, price/earnings growth (“PEG”) ratios, and dividend yields. Discounted cash flow analysis is not part of the author’s suggested approach, for reasons that the book discusses in some detail.
The book also includes a sample stock watch list and sample worksheets for monitoring portfolio performance and for tracking market indicators, all nicely tailored to meet the requirements of the time-pressed investor.
The section on portfolio management takes an in-depth look at company- and market-related issues that enter into the decision to hold or sell, and examples are used to illustrate key points effectively. There is also discussion of circumstances unique to the individual that may warrant a sell decision, for example, the need to rebalance for diversification purposes.
The author’s suggested guidelines for cutting losses (10% – 15% decline on new purchases) may strike some readers as overly cautious. However, the system allows for (and even encourages) departures from the baseline recommendation in certain circumstances. The system lets you keep things flexible. That’s a good thing in my opinion.
The Introduction to the book refers readers to the author’s web site, which among other things includes a brief overview of the investment approach and book excerpts.
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|Good concepts, but lacking in important areas,
After reading several books on investing, I clearly fall into the “value” style of it. This book does a good job of explaining important financial evaluations, without relying on a discounted cash flow analysis to pick stocks. Considering the assumptions and projections needed to do such an analysis, sticking with financial valuation ratios is probably much easier for the average investor.
PROs:
– Rejects efficient market hypothesis, which states that stocks are always “properly priced.”
– Doesn’t rely on DCFA. (Even though I use it myself on companies I know well enough)
– His “black box” method of understanding financial inputs and outputs is easily understandable.
– Has a definite “value” tilt, which over the long run has proven to be the more successful style.
– Stressing continually that a stock’s price is tied to its earnings.
– Gives historical averages for important financial ratios.
– Explains why a stock may have such a high P/E
– Goes against several value investors who say you should always be fully invested, by saying you should have some cash set aside (John Neff was big on this) if nothing looks attractive. Not a huge percentage of your portfolio, but 15% is fine.
– “Market timing,” which is usually shunned by almost everyone, is given good treatment here.
– Uses technical analysis to explain WHEN to buy a stock. Despite most fundamentalist saying avoid technical analysis at all costs, a stock that has wild volatility in a given period is a much better buy in the long run when its purchased cheaper (see page 232). He also doesn’t use it simply to buy a stock, but uses it WITH fundamental analysis. “Fundamental analysis tells you WHY to buy a stock, technical analysis tells you WHEN to buy it.”
Despite the fantastic advice given here, there are several glaring point that I have to address.
CONs:
– No discussion of dollar cost averaging, which many of the most successful investors (Graham, Buffett, Lynch) consider to be the single best way to build wealth over the long term. This leads into my second negative point.
– Tells you to sell if a stock drops more than 10%, to automatically sell it. This makes no sense to me at all, and I also agree that capital preservation should be a focus, from a value and fundamental standpoint. The author clearly rejects the EMH, so unless the decline in price is matched by a decline in the fundamentals, this dip is a buying opportunity. If you’ve already have confidence in its financials, know its story, and bought it at a good value, shouldn’t a decline in 10% or more trigger you to BUY more shares? Again, this sentiment is shared by the investors listed above.
Furthermore, what’s the point of keeping a small cash reserve in your portfolio if you’re not going to use it on companies you already feel strongly about? As Lynch said (paraphrased) in his books, “You shouldn’t buy a stock at all if you were to find out it declined 50% in price, and aren’t willing to buy more shares.” Selling on a 10% decline is about as shortsighted as it comes.
– Isn’t a contrarian, hence believes that “the trend is your friend.” If you’ve done your own thorough analysis, and despite what others are saying about the stock, you should act on your own conclusions, and not anyone elses. Like I said above, if everyone is selling, and you’re analysis was thorough, don’t be afraid to go against the grain.
This is illustrated perfectly when he explains his (mistake) of selling most of his portfolio right after 9/11. He admits he was wrong, but for a “Sensible Stock Investor,” this was perhaps the most nonsensical move to make, unless your portfolio was made up primarily of airlines and financials.
EXAMPLE: Intel dropped almost 30% due to the 9/11 attacks. Does a terrorist attack in New York somehow effect the fundamentals of a semiconductor company in California? Obviously, it doesn’t directly affect it in any way. Sure, the economy may slow down for a little, and PC sales might stall, but that doesn’t justify a 30% drop. It was (as the author said) a completely emotional response.
But instead of buying more during these types of episodes that have no actual bearing on the companies true prospects, the author instructs us to “sit tight” and let the market eventually revert to the mean, which it will. But in the time being, you could’ve added substantially to your portfolio to recognize huge gains at greatly discounted prices.
This takes a contrarian approach, to buy when everyone’s selling. But if everyone is selling due to a pure emotional response (9/11), and not due to an inherent weakness in the overall economy or financial system (See 9/2008), then these type of events are a BUYING opportunity, if you have enough confidence in your stock selection…
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|Recommended but Ignore Rule 9,
As with most reviewers have said, the author’s writing style is non jargon and causal which makes it a fun read. I love books from non professionals as they are so rare and bring to the investing table a personal experience not shared from the volumes of professionally written finance books. The best part of the book is its focus on the investing process, living within ones means, shunning advisers and seek a low cost diversified index portfolio. And we can learn this stuff! Wonderful. I anticipated he would show us exactly how he made his million on an educator’s salary.
His reference to the brilliant book on the subject of frugal living, Millionaire Next Door, which every living human being should read, was a great source of information. He rightfully quotes those authors often. From this reference, this author explains the crucial difference between the image rich and the real rich. It’s the assets stupid, not the arrogant Jag owner with car payments, $2500 sport coats and bounced checks. True millionaires wear their finest and dine at home in their work clothes and drive a f150 Ford truck. His frugal experiences were so extreme I felt that his authenticity was at risk IMO. It’s hard to believe that he had the heat off in a Canadian winter and he didn’t want to turn it on with his father’s visit! I know about winters, growing up in Wisconsin. But he was making an important point about frugal living and living within our means so we have the capital to invest and he showed us. I think it might be important to expand on what people can do such as always purchasing good used cars and keeping them for years–the number one expenditure that is never an asset.
I commend the author for his excellent metaphors to explain complex concepts such as using Willy Wonka’s Chocolate Factory on what exactly does an investor own when he or she owns a share of stock. Brilliant. It one of those things that may be shocking, but so many people in our profession as educators don’t know what a share is and are rightfully embarrassed to ask at a seminar.
The book has nine rules or chapters. Most are devoted to the investing process, specifically to index or passive strategy by John Bogle. He references all of the great authors on this subject, Bernstein, Swedroe, Samuelson, Buffett, Malkiel, Sharpe, Burns and the Bogleheads. I agree that investing is not that difficult as most people think. Learning what your “knowledgeable” and super “nice” financial adviser is doing with your money is crucial. Index investing is so simple to use, but it’s hard to teach a subject when the learner does not have to do much with a passive portfolio. But he does an excellent job of explaining this popular strategy by rebalancing with a bond allocation. By reading the first 8 chapters the reader should learn that the best way to invest is by using the established “couch potato” or “lazy portfolios”.
My harshest criticisms resides with his last rule, rule #9 and its implications for the rest of the book. Here I part philosophical company with the author BIG TIME after agreeing with every word in the first 8 Rules. IMO he is pandering to those folks that think they can pick stocks by following the authors detailed methods, after explaining all the way through the book that the active managers of funds cannot! What?
I was dumbfounded. Mutual fund companies and brokerages firms have entire departments devoted 24/7 to researching stocks. They have analysts who do this for a living using powerful computer technology hiring quants from Ivy league schools to try and pick the winning stocks and beat the market? The author explained in great detail with graphs of past returns comparing active management to passive management with passive strategy generating better returns over the long term.
Also, the author spent a good deal of time rightly explaining that we should not use newsletters! The author then says that he uses and recommends one newsletter, Value Line, to pick his individual stocks, after debunking all of the other newsletters. Heck, I read Value Line newsletter that he touts years ago and bought one or two of their recommendations–I’ll won’t make that mistake again. The author appears to want it both ways and thinks nobody will notice: Stock picking and index investing are as far apart philosophically as the moral fabric of Pope and Attila the Hun.
As a literature teacher he should have known as a writer that the author SHOWS the reader what the author has done. With the sole exception on his frugal living experiences, he unfortunately LECTURED us on everything else. He might as well have been a professional investor writing a book. Yes, it’s good, but it’s impersonal. As everybody else has said, it was funny, different, entertaining and encouraging, but nevertheless, he broke a cardinal rule in writing: “thou shall not tell, but show.”
At the beginning of my…
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|Great investment book for all levels!,
I highly recommend this book to anyone that invests, plans on investing or wants to know anything about investing. Whether you are a seasoned financial advisor with a book of your own or you are just starting to invest your own money, this book is a must read. With a finance degree, MBA and experience working on Wall Street this book brought me back to school for the best education I could get and should have gotten prior. The author uses strong empirical data to back up his analysis and plainly spells out how to operate a portfolio of your own with more ease and success than any of the commonplace alternatives. This book has changed my view on investing for the better and if you are serious about making money investing, you should read this book.
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|not remotely interested in finances…..but,
I am a mother, a teacher, a wife and not remotely interested in finances. Of course I want to be prepared for the future and am lucky enough to be married to a man who takes care of our investments. This is the first, the only, investment book I have read that makes sense. Andrew Hallam’s wit had me laughing out loud, his analogies created a clear picture and when I finished I declared I not only understood investing, I could do it! My husband and I now work together and I have a much better sense of a balanced investment portfolio. Millionaire teacher influenced my husband as well. After reading he reorganized our stocks and increased bonds. This book should be required reading in every high school, university and beyond.
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