Better Investing

Book review – The Little Book, Big Profits Series


John Wiley and Sons is the publisher of a series of books on investing that are excellent. Each book covers an approach to investing such as value investing, growth investing and indexing investing. Each book is written by a successful investor and recognized experts in his field. These are easy to read and if it’s raining you might get it done in one sitting. I’ll comment on three of the books here.


The Little Book of Value Investing by Christopher Browne is a straight forward explanation of what the value investor looks for and investigates to find undervalued stocks. If you’re a seasoned value investor you’ll be familiar with everything Browne has to say. But he says it so well you may find new insight into the stock selection process. If you’re a value investor who isn’t getting the results you think you should, put this book on your reading list. The novice value investor will find this book is a great introduction to value investing.
The value investor buys a stock when it is selling at a discount to its real (intrinsic) value. He then buys only when the discount is so deep (margin of safety) that it would be hard to lose money on the stock. The idea is that there is nowhere for the stock price to go but up. In a worst case, it may languish at its current level but should not decline further. This isn’t always true but it is true in enough instances that the investor can come out a big winner. Think Warren Buffet.


Joel Greenblatt is the author of The Little Book That Beats the Market. Greenblatt starts with a value approach but emphasizes two indicators in his selection process. He looks for companies that have a high return on capital and a high earnings yield (the inverse of price to earnings). He constructed his selection process so even his children could use it and come out big winners. He started a company that uses this method and has a website that will allow a visitor to search for companies that possess his two key characteristics. He also posts the track record of the funds his new firm manages usint his method. This is worth looking into. Google Joel Greenblatt.


Finally, there is The Little Book That Will Make You Rich by famed growth investor Louis Navellier with a forward by Forbes Magazine publisher Steve Forbes. Navallier’s success is unquestionable. He has made millions. Having said that, I was not as enthused about this book as the two mentioned above. It isn’t that this book isn’t thorough and the process well stated. Growth investing is, in the opinion of many, very risky. The author makes the case that bigger rewards await the growth investor than the rewards available to those who embrace other methods. But value investors can make a similar claim depending upon the time frame in question. Don’t get me wrong, this is a good book when it comes to teaching the reader about growth investing. It is just that growth investing means that an investor is often buying a stock that is already selling at a premium (above its intrinsic value) and the price is rising. If you did you’re analysis correctly the price should continue to accelerate to even higher levels. If your wrong, or the market goes south, a high flying growth stock can drop like a rock. It can decline well below the amount of your original investment. Being a good stock picker isn’t enough. You have to be very good. None the less, Navellier has the track record to back up the wisdom of his method. The book is a very good introduction and review of growth stock investing.


If none of these books appeal to your investment appetite, check out The Little Book on Index Investing by John C. Bogle.


Tom Gilbride