business and investing

This is part of a series of handy and colorful introductions to important financial topics - particularly helpful in learning to read the paper that publishes them - the Wall Street Journal. This book is used as part of some introductory courses at the University of Michigan Business School, but I am not sure which ones. It does have a lot of good information that is explained well and has a great many explanatory graphics - some of which are especially useful.

I think the main benefits of this book (and this series) is to become familiar with the vocabulary involved with the topics around money, investing, stocks, bonds, markets, funds, indexes, options, and more. And learning how to read the various presentations of these instruments in the Wall Street Journal is a big help. But this book can only be an introductory step. After you read this book you will know enough to begin studying the various topics, but don't think you will know enough about them to do much more than get yourself in big trouble if you start playing around with much more than mutual funds.

But this book will help demystify the terms and processes around equities, bonds, and other instruments. For this I highly recommend it. I use it in explaining these topics to folks who want to begin learning about the issues surrounding investing.

To me a guide from a brand name source like The Wall Street Journal should always elucidate and never mislead. If this book were called a dictionary of money and investing, I would give it a five star rating. For it works well as a dictionary. In fact, it is better than a dictionary because the explanations are clearer, more detailed, and better illustrated.

In the sections on what money, stocks, bonds, mutual funds, and economic indicators are, the book functions as that five star dictionary.

Within each section beginning with stocks, the "guide" also begins to guide you in subtle ways that can cause you harm. Let me cite a few examples. The guide seems to suggest that when the market is going up, a company's earnings are doing well, and interest rates are not rising that is a good time to buy a stock. The illustrated graph seems to show other times when it is good not to buy stocks. As such, it suggests the mentality of buying and selling stocks to catch cycles. Yet research has shown that few people can master that process, so those who try will tend to do less well than those who buy and hold.

Another example is in failing to discuss the role of management fees, expenses, portfolio turnover, and diversification on which mutual fund to pick. As John Bogle shows in Common Sense on Mutual Funds, these are very important factors to consider. Yet they are not defined or cited.

The book also teaches people a little about short selling, commodities, futures, and other exotic investments. The book fails to point out that these are well beyond the skill of the average investor, and that many people get hurt in these areas. Basically, this is like a book of definitions about poisonous snakes that fails to mention that the snakes are poisonous if they bite you.

Other obvious omissions included no mention of tracking stocks, ADRs in the stock section (you find the definition in International markets, where to me it fits less well), the differences in discount brokers, electronic trading choices, and how to find information about stocks on the Internet (the only source cited in the SEC).

The focus is overly on the U.S. with only a small section on international securities. The area of interest rate futures, where Europe dominates, is barely referred to in this book.

Some of the information is just plain out of date. NAIC is cited as being the National Association of Investment Clubs. I believe it dropped that name over 10 years ago although it still goes by NAIC. The guide refers to there being 37,000 investment clubs in the U.S. I think that number was exceeded many years ago.

Further, much of the information is basically about how to read economic statistics. Many people would argue technical analysis is at least as important as economic statistics, but nothing about technical analysis is included in the book.

If you want to learn about investing, you need to know investing principles more than you need to know these terms (such as the various aspects of a stock certificate's printing and engraving). You will find most of the relevant terms covered in basic investing books like Louis Engel's book, How to Buy Stocks. You would be far better off reading ChangeWave Investing, Common Sense on Mutual Funds, and Rich Dad, Poor Dad's Investment Guide than this book for getting a sense of what the basic investing issues are.

Overcome your misconception that anything with The Wall Street Journal's name on it is bound to be the best resource. Certainly, that isn't true in this case.

My suggestion is that The Wall Street Journal revise this book and either cut it back into being an expanded dictionary, or expand it into an investing guide worthy of its name.

As many have said in their reviews, this is a great starting point for those new to investing and financial markets. In fact, it's the best I've ever found and I've looked a lot. The simple, plain English explanations are what makes this book stand out. For the nuances and more detailed information regarding the topics in the book, look to a textbook from a college finance class. But for the person who knows very little, start with this.