|
| David & Tom Gardner have built a small empire around the idea that anyone can
invest smarter than the pros if they do a little research and use some common sense. The
degree to which their investment paradigm has been successful is questionable in my mind;
their Foolish Portfolio (at www.fool.com) seems heavily
loaded with AOL stock bought early and held through AOL's meteoric climb to dominance of
the Internet service provider industry. The real value of this book is in the way it rips away the covers and shines the light of truth on the practices and results of professional fund managers and stock brokers and calls into question conventional wisdom regarding investing. For example, most people (especially conservative church going people and their conservative Bible college educated pastors) think of the stock market in the same terms as the lottery: You better not throw money into that you can't afford to just throw away. The reality, however, is that the stock market has increased in value 10.5% annually over the last several decades, where treasury bills (a very safe investment) has grown at only 3% over the last 60 years. So $10,000 invested 60 years ago in t-bills would be worth about $59,000 today whereas the same $10,000 invested in the stock market would be worth just shy of $4,000,000! One of the authors' favorite targets is mutual funds. Mutual funds have brought investing to the masses by spreading risk over a large number of investors and large number of stocks. But 75% of mutual funds underperform the stock market in general. Even though their managed by professional investors with years of schooling and experience, these funds do worse than if you were to take your money and just invest in randomly selected issues from among the S&P 500. The Gardners go on to share a strategy for selecting just four of the S&P 500 stocks which have historically shown over 23% growth! The point being, if you're going to invest in mutual funds, you're better off in an indexed fund that just puts your money in all 500 of the S&P 500; and if you're happy with that, consider putting your money in the "Foolish Four" for even greater returns. One very obvious revelation that escapes novice investors is that your broker gets paid even if you lose. When your broker calls with that hot tip on a stock, keep in mind that he gets his commission when you buy, then gets another commission when you sell -- even if between these two events you've lost most of your investment. The point is that his advice is always going to be to either buy something or sell something -- that's where he makes his money. Most of the book is dedicated to educating the reader on how to read financial statements, how to find and research the best stocks, and how to make trades economically. If you don't know anything about investing, this book will give you a friendly introduction. It earns a four star rating mostly on the basis of its readability -- I can't make a definitive recommendation of its methods at this point in time. |
The Motley Fool Investment Guide