Sunday, April 26, 2009

Stock Market Investing For Dummies

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Stock market investing for dummies is an appropriate phrase these days since most of us seem to be dummies after having lost 40% (or more) of our fund values. It has me and many of my friends questioning the logic of buy and hold strategies of the past because it seems pretty stupid to watch our investments fall so far in value in such a short period of time. It's going to take a lot of time to gain that money back.

So, on a whim I went by the bookstore and perused the investing section of the bookstore to see what types of books are available on the subject. I figured they had done a book on investing in the stock market for dummies and they had but it was actually called Stock Investing for Dummies by Paul Mladjenovic. He is a certified financial planner. This was the 3rd edition. I didn't realize it but I had already bought another book he had written called Precious Metals Investing for Dummies.

In the first part of the book he talks about the essentials of stock investing. He introduces the concept by having the reader take stock of their current financial situation and goals. After that he talks about common approaches to stock investing, the risks involved and how to get a snapshot of the market using the various indexes like the Dow Jones Industrial Average and the Standard & Poors 500 index (more commonly known as the S&P 500 index). Some other indexes he mentions are the Wilshire Total Market Index, Nasdaq indexes, the Russsell 3000 index along with some international indexes. He then talks a little about investing in indexes through index mutual funds and exchange-traded-funds or ETFs).

The next section talks about what you have to do before you can buy stocks. He talks about how to gather investment information about stocks and using stock tables. What's covered are the basic things like 52 week high and 52 week low. Also included are: Name and symbol, dividend, volume, yield, P/E or price/earnings ratio and so on.

Then he talks about brokers and the usual discussion about full-service brokers vs discount brokers as well as the types of investment accounts like: cash accounts, margin accounts and option accounts.

Once he is done talking about that he then delves into two types of investment strategies, investing for growth and investing for income and how to pick leaders in each category. The next section talks about how to choose a companies management and looking at a companies fundamentals like return on equity, equity and earnings growth.

As far as income stocks he talks about how to analyze the dividend yield and the typical types of stocks that are income stocks. Those are how to analyze a utility stock, real estate investment trusts (REIT's) and something called royalty trusts which are companies that hold assets related to oil and gas.

He wraps up the section by talking about how economics affects stock prices, mainly supply and demand. It also discusses different economic schools of thought like Marx, Keynes and the Austrian school which as a finance major myself, I hadn't been taught but he strongly endorses primarily because the currency is tied to a gold standard.

Following those chapters he then goes into a discussion about how to pick winners using basic accounting principles and how to understand the value of company from its market value, book value and its sales and earnings value. He begins by looking at a companies balance sheet. Its assets, financial assets, inventory, debt, derivatives and equity. Then he moves on to the income statement with a review on sales, expenses and earnings. He details what to look for in each statement and each type of category. He then spends some time talking about the P/E ratio and its analytical value and the PSR or price to sales ratio.

After that he reviews how to analyze a companies annual report and use investment services like Value Line, Standard & Poor's, Moody's and how to set up your own research department which I thought was an excellent concept. He recommends reading Barron's, The Wall Street Journal, Investor's Business Daily or IBD as it's known more commonly. Magazines he recommends are Forbes and SmartMoney. In addition, he suggests keeping the last three years annual reports for any stocks you own. He then spends some time going over how to analyze industries and how politics plays a huge roll in the stock market investing.

What follows after that is a discussion of choosing between investing and trading. He also goes into call options and put options which are in reality beyond the scope of the book in my opinion but worth knowing about if you are a new investor.

I like the next part for beginning investors because he talks about specific strategies for specific situations depending on how much money you have to whether you are married with kids, single and so on.

The next part of the book talks about types of brokerage orders and trading techniques. These are basics a beginner really should know for sure. He details, day orders, good-till-cancelled (GTC) orders as well as market orders and stop-loss orders (stop orders) and how to use them. He also talks about how to buy on margin, DPP's (direct purchase programs), DRP's (dividend reinvestment plans) and DCA (dollar cost averaging), insider trading, stock splits, buy backs and taxes. Here he goes into some detail about IRA's (individual retirement accounts) including the Roth IRA and 401k plans.

An investing in stock market for dummies book wouldn't be complete without their customary part of tens section and a resources section. Overall, Stock Investing for Dummies does a good job of reviewing stock market investing today and how to invest in the stock market, particularly if you have no experience with it.

Related Article

Stock Market Investing Today

Stock Market Investing Today - Smart Investing.


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