Customer Reviews

Why Are We So Clueless about the Stock Market? Learn how to invest your money, how to pick stocks, and how to make money in the stock market

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This is an excellent primer on equities. Skonieczny begins as simply as in a Dummies or Idiot's guide by explaining what a business is and how investing in the stock market is buying a piece of a business. He delineates how businesses are evaluated in terms of bottom line success or failure, the details of which are what the investor should know about any business before buying its stock. This is the fundamentalist approach to investing, the sort of knowledge that cannot be skipped and is known by any savvy investor.

The prose and the illustrations are easy enough for a sixth grader to understand, and that is one of the strengths of the book. Skonieczny knows what he is talking about and has taken the trouble to make it clear to the beginner. A key idea, so basic that it is often overlooked or not really appreciated by the beginning investor is that of risk to reward. Skonieczny makes it clear that any stock market purchase must promise a reward greater than the prevailing interest rates and greater than Treasury Notes and other fixed income instruments because the risk in the stock market is greater. He shows how this thinking is merely an extension of the understanding that you wouldn't start and run or invest in a business unless its bottom line profit potential was greater than what the bank gives its depositors.

When to Buy? (the third chapter) concentrates on the objective value of a company based on its projected earnings relative to the price of the stock. Skonieczny eschews technical analysis. No voodoo technical charts with running averages and ghostly heads and shoulders. Instead there is a simple chart on page 37 showing the price/value fluctuations of a stock. Assuming that we can get a good grip on what a company is actually worth, it is obvious that you buy when the price is less than the value. Simple. And if investors followed this strategy with any kind of real fidelity bubbles and panics would go the way of the dodo.

When to Sell? (a later chapter) follows the same sort of reasoning. Skonieczy writes: "The best time to sell is when projections turn out positive, the company prospers well, and the market realizes its full value by pricing it correctly." He adds, "Another reason to sell is when an investor finds a better investment opportunity." (p. 117)

Skonieczy is not enamored with stocks that are unpredictable and/or have high price to earnings ratios or high volatility. He likes companies with "moats" and other advantages over its competitors. His is not a gambling approach to the market but rather a conservative, fundamentalist approach. Whether you are of similar mind or not, this book is still an excellent guide because to go beyond the fundamentalist approach it is essential to know the basics. It is one thing to gamble blindfolded, another to take calculated risks. And you can't know the risks unless you understand the fundamentals, and understanding fundamentals is what Skonieczy's book is all about as an investment guide.

One of the bits of advice that I especially like is Skonieczy's insistence that we not "blindly over-diversify, preventing our individual picks from having meaningful impacts on the overall performance." (p. 139) What's the value in painstakingly picking the best stocks with the best safe and sane prospects only to water down our portfolio with other stocks just to be diversified? Personally I don't think being diversified in the market is really the key to sound financial planning. I think it's being diversified overall, not just within the stock market. For the long run the wise investor should have some money in stocks, some in real estate, some in bonds, perhaps, some in cash (meaning CDs or such).

This book is particularly timely since we are just coming out of a recession it would appear, meaning that there are many publically traded companies that are undervalued. Reading and understanding the concepts presented in this book and applying them to the market now might very well help the investor separate the good prospects from the not so good ones, the risky ones from the less risky ones.

I found this book to be most excellent in explaining what can be complex financial terms and ideas. Even though I have a business degree, and MBA, and work in finance, I sometimes find it difficult to explain to others these basic concepts. Skonieczny discusses these topics with a simplistic brilliance that makes topics such as p/e ratios, discount rates, when to buy, and when to sell seem so easy. I wished that I had this book when I was in school, this would have made some of the study much, much easier. Now that I have this in my hand I hope to make better decisions regarding my personal investing.

I liked that in the final chapters of the book he explains clearly why AIG, Fannie Mae, and Freddie Mac failed. While keeping up with the news I don't think that I had ever had these failures explained so consisely. I liked that he then picked out some companies that were doing a really good job and explained how and why they were doing well. He also went on to emphasize that we are responsible for our own study and understanding of our investing. I feel that if we applied spending the one hour a week per stock that fewer of us would end up with bad investments, and perhaps avoid retirement portfolios that have dropped in value considerably.

I really admire Skonieczny for taking a topic that is typically dry and dull and breathing life into numbers. While I may work in finance isn't often that you find someone that is passionate about explaining these theories in terms and words that everyone will easily understand. Whether you are a student trying to make sense of finance, or even an investor that is trying to regain control over your investments I believe you will be able to get a lot of valuable material out of this book.

Skonieczny explains the important difference between
buying a stock versus the complexities inherent in
purchasing an entire business. Clearly, stocks are
much easier to analyze than entire businesses.

Clueless investors make errors for a plethora of
reasons including panic, buying too high, not knowing
how to value a business or selling too early.
This volume helps potential investors avoid costly
errors through a systematic analysis of the investment
fundamentals.

More importantly, the author covers the difficult
question involving how to create wealth over the
long term. The book explains various mechanisms
like reinvesting dividends, DRIPS and wise diversification.
Personally, I favor reinvesting dividends due to the
savings on broker fees.

The author covers the important concept of an investment
moat which protects revenues and profits from competitors.
Ferrari has created a moat via the tremendous prestige
of ownership coupled with known superior quality of the
product.

The book depicts stock worksheets which cover the fundamentals
of investment analysis like trading price, PE ratios,
dividend payout, stock peaks and troughs. Profitable stocks;
such as, Burlington Northern RR are cited due to the superior
revenue streams and the constancy of business operations both
now and well into the future.

The book would make an excellent acquisition for your
personal library.

Dr. Joseph S. Maresca

In late 1998 my father received a large inheritance. I asked what he did with it and he replied, "I invested it in a technology stock fund. Those have been doing pretty well of late." I just about passed out. My father is a highly educated person and yet he thought, as did many others, that stocks with a price to earnings ratio in the hundreds (or in some cases, stocks with no earnings at all) were a good investment. After all, it was a new economy and no less a figure than Alan Greenspan had assured us that the fundamental rules on investing had changed. But these rules have not changed and are unlikely to do so in the near future. The bottom line remains the same: if you cannot reasonably expect to earn more on your money than you can get at a bank or in a good money market fund, you should not be investing in stocks. And paying say $500 to buy $1 of earnings simply is not reasonable, especially when a relatively safe money market fund, during the same time period, was paying $4 to $5 for a $100 investment, or 20-25 times as much. As a society, we are indeed clueless about the stock market and as a result it is simply a giant ponzi scheme for many investors.

But this need not be the case. Skonieczny, manager of a investment firm that focuses on value investing attempts to demystify the stock market in this little book. It is at once easy to read and anyone with even moderate math skills will be able to use the advice in this book. Skonieczny starts by explaining, in very basic terms, how businesses work. Claims of a new economy (or a new great depression) aside, a business is simply a way of earning income. If you start a business and, after all expenses, can earn $100 on every $1,000 you invest, you are making a return of 10%, which is substantially better than what a bank can offer you. The same analysis that one uses when starting a business (what are the costs? what return can I expect? etc) should also be used to analyse stocks. A stock is simply a portion or share of ownership of a business or company. How much profit is each share generating? How much is returned to me, the investor, in the form of dividends? How much is used for future growth? Does the company have a good track record on wisely investing the profits it retains for growth? This sort of analysis is relatively simple and Skonieczny shows prospective investors how to do it for themselves.

Conveniently, this book not only includes hypothetical examples of how to pick a good stock, but it also provides actual case studies of which stocks represent good buys now and how to avoid stocks like AIG, GM, and Fannie Mae before you lose your shirt. It also explains why you should avoid IPOs. Yes, you might make a fortune finding the next Microsoft. But companies just coming on the market have no real track record. Most new companies in fact fail. It is far more likely that individual investors will simply be taken by the investment bankers and their brokers than consistently make money on IPOs.

On the whole, I think this is a valuable book, but I would add a few caveats. First, Skonieczny suggests you avoid mutual funds as they can be over diversified, and focus instead on a portfolio of 5 - 10 stocks that you spend an hour a week or so researching. This is great advice, if you have the resources to do that sort of thing. On the other hand, a lot of the people I advise about money are relatively impoverished: they certainly do not have the $50,000 to $100,000 to invest that Skonieczny uses in his examples. I know several people whose investment plans consist of $50 a month. For these people, I think mutual funds are not such a bad idea after they have put aside some emergency savings. And despite the disadvantages of mutual funds, many do in fact focus on value investing and while you will not get the returns you do following the advice of this book, you could do far worse. On the other hand, even people with limited budgets hoping to save a little more for retirement than their limited social security benefits will offer, could still follow the advice of this book if they used DRIP investment plans and carefully monitored their investments. I am surprised the author did not mention these plans in his text. Finally, I have a personal preference for dividend investing. Skonieczny correctly includes dividends in his calculations on expected rates of return, but I think the dividend yield and rate of dividend growth are in and of themselves important indicators of the value of a company. Many complain (rightly) about the taxes on dividends and prefer management reinvest profits for them. But dividends give investors the choice of where to reinvest their returns or even whether they should do so at all, and this autonomy is valuable in and of itself.

Finally, one of the most valuable features of the book is an appendix to the text. Although it is not his forte, Skonieczny considers one of the great questions in investing: should you invest in real estate or stocks? As of 2009, you can find some great deals in either of these areas, but Skonieczny's answer is refreshing: your analysis should be the same regardless of where you put your money. What is your expected rate of return on your investment. And this expectation should be based on hard numbers, not wishful thinking. If more people followed this sort of advice, they would be a lot less concerned about their portfolios right now. So caveats aside, this is a good book and I highly recommend it.

Those of us who allocate capital for a living are probably familiar with fielding the following types of questions at social events, particularly during the holiday season:

"So, what hot stock can you recommend?"
"What do you think about [random stock that recently had a huge run]?"
"How did your investments perform last quarter compared to the market?"
"My portfolio is up 25% this month ... How does your portfolio compare?"

For those who do not want to be perceived as rude and obnoxious, some type of response is usually required. The individual asking such questions is not doing so in order to appear uninformed and most likely has no exposure to the basics of investing. Such investors really need a primer on basic investment concepts and techniques. Even if they never invest any money on their own, basic knowledge is required to intelligently interact with hired professional managers.

A Beginner's Guide to the Stock Market

Why Are We Clueless about the Stock Market?Mariusz Skonieczny has written a worthwhile beginner's guide to the stock market in his book Why Are We So Clueless about the Stock Market? The book's audience appears to be those who are entirely new to business and investing concepts such as how businesses are capitalized and earn money from activities. Starting with a simple illustration of a Lemonade Stand's balance sheet and income statement, Mr. Skonieczny walks the beginner through a number of basic scenarios regarding capital structures, return on equity, and the impact of competitors entering the market. Additionally, he provides a clear explanation of the power of compound interest which remains one of the least understood basic concepts of finance.

The Concept of Moats

The question of what qualities represent a "good business" is critical for those interested in handling their own investments. In illustrations that could be understood by any intelligent high school student, Mr. Skonieczny clearly shows the difference between businesses that create and destroy value. He also introduces the concept of opportunity cost and provides explanations of the key factors that sustain moats: Intangible assets, switching costs, network effects, and cost advantages.

Valuation

The chapter on valuation is quite basic but conveys enough information for a beginning investor to get started. The concept of compound growth is cleverly illustrated by comparing progress in net worth to an "elevator". By avoiding compound interest equations and using illustrations, the discussion could be less intimidating to beginners. Through these illustrations, the book also explains the concept of discount rates.

Mr. Skonieczny also presents a simple valuation spreadsheet model which calculates intrinsic value based on a dividend discount model. While this model is clearly susceptible to the inability of most investors to forecast earnings or cash flow for distant periods in the future, it illustrates an important finance concept in a way that beginners can understand. One might worry that new investors could gain unwarranted confidence by coming up with seemingly precise forecasts of future earnings and plugging assumptions into a spreadsheet. However, attempts are made to explain such risks.

Capital Structure

The concept of capital structure and use of leverage is poorly understood by most investors. Again using simple illustrations, a chapter is provided that shows the impact of different mixes of equity and debt on a business. The fact that financial leverage is a double edged sword is obvious to experienced investors but not to beginners so more scenarios are provided which demonstrate how equity can be easily wiped out if a business carries too much debt and falls on hard times.

Case Study on Burlington Northern

Case studies using actual examples from earlier this year are presented in one of the later chapters. Interestingly, one of the case studies examines Burlington Northern which is expected to be acquired by Berkshire Hathaway early next year. The book was published prior to the announcement. The book also includes case studies on Moody's, Thor Industries, and Wells Fargo. While fairly rudimentary, these examples show how the concepts discussed in the book can be applied to actual investment scenarios.

A Worthwhile Quick Read

This book is a worthwhile quick read for beginning investors. While it is definitely not a substitute for classics such as Ben Graham's The Intelligent Investor, Mr. Skonieczny's book can serve an important role by introducing new investors to basic concepts and serving as a starting point for further study.

The book could have been improved by providing an index as well as a list of suggested reading for those who wish to take the next step. In addition, the book's title may be an obstacle for those who are thinking about gifts for friends, family, or clients who could use a basic primer on investing. After all, few of the folks asking you about last quarter's performance or the next hot stock think that they are "clueless" about the stock market! It could be awkward giving this book as a gift for people who might be "clueless" but don't recognize that fact. However, on balance, the substance of the book is very valuable and recommended for new investors.

Investing requires knowledge but surprisingly few investors have the education they need to make informed decisions. As a result, many decisions are not based on sound financial analysis, like they should be. Rather, they are based on gut feelings, consumer preferences, and other irrational measurements. One person might purchase stock because he/she likes the products of a specific company. Another might like the company's standing as a leader in its field. Others may base their decision on company reputation and other factors. They buy their shares, sit back, and hope for the best.

Investment decisions based on reasons like those stated above are commonplace and one important distinction guides them all: None are based on sound financial research. One person who wants to set investors straight and guide them to better investment decisions is author Mariusz Skonieczny. He wrote this book as an educational guide intended to help everyone brush up on their accounting and financial knowledge. He wants everyone to know how to spot an investment winner: How to know the proper way to evaluate a company, when to buy, and when to sell.

Mariusz Skonieczny is the founder of his own investment management firm and he knows all too well the shortcomings when it comes to investments and financial education. I have also worked in the financial field and I can relate very well to what the author is trying to convey in this book. The majority of people who invest know only enough about the world of investment to be dangerous. They do not really understand such concepts as P/E Ratio, Beta Coefficient, Debt/Equity balance, or other concepts. They often base their investment decisions on emotion, and this can lead to financial ruin in a short period of time.

To improve the reader's financial IQ, Skonieczny takes the curious investor by the hand and walks them through several steps. Baby steps come first, as they should, when the author introduces the concept of balance sheet and income statement using a lemonade stand. It is simple, yet effective because it illustrates exactly what happens to net income, net worth, debt, etc., when various business decisions are made. The book then moves quickly to the next level and talks about business evaluation, capital structure, stock IPO and other concepts.

This book offers some good, basic education on finance and accounting and I like the way the book includes illustrations to help convey the key points. These illustrations could be nothing more than a simple table or line graph, but this is often all it takes to make a concept easier to comprehend. I also like the way the book was written. It talks about the basics, but in a respectful way. Even when examples like a lemonade stand are used to illustrate a point, this book is still careful to talk in a polite and informative way without insulting the intelligence of the reader.

Investors have not had much to cheer about in the past year. In part, this has been due to market risk and other factors beyond our control but the downturns in individual portfolios has also been due, in part, to investor ignorance and misguided decisions. This book isn't as thoroughly written as some would like, but it does make a good choice of reading for those who want a clearer understanding of investments in a short amount of space. It makes a good starting point and I commend the author for his concern about the abysmal level of financial education so common among today's investing public.

I loved the question posed by the book, WHY ARE WE SO
CLUELESS ABOUT THE STOCK MARKET? . . . it's a
good one and the author, Mairusz Skonieczny, does a solid
job of answering it in this short but informative look at investing.

As the author notes on the book jacket:

* A successful investor only needs two things: 1) capital
to invest; and 2) the ability to recognize two companies when they
are selling for less than what they are worth.

He then proceeds to tell the reader how to recognize good companies,
evaluate their current worth, decrease the chances of making
investment mistakes, take advantage of Wall Street's short-sightedness
and build wealth through stock market investing.

I particularly liked the conclusions at the end of each chapter; e.g.,
this one after Chapter 9:

* With the odds stacked against investors, it is better to wait for
a company to trade on the open market for some time before buying
shares. Private sellers and underwriters have a pretty good idea what
the business is worth and when to sell it. They will not cut anyone a deal,
but the stock market consisting of millions of buyers and sellers will.
Investors should stay away from most IPOs. Instead, they should
buy good companies in bad markets when everyone else is selling,
and selling, and sell in good markets when everyone else is buying.
Unfortunately, most investors do the opposite.

My only criticism of the book is that I wish Skonieczny had used
more real company examples with their actual financial figures
(as opposed to Company A vs. Company B with earnings
under $2.32 for each year over a decade) . . . however, he
comes through in the second to last chapter with some
informative case studies featuring actual companies . . . and
his Appendix, looking at real estate or stocks and which is
the better investment, is particularly enlightening.

After reading Mariusz Skonieczny's "Why are we so clueless about the stock market?"I'm really starting to understand more .The first chapter,"Stocks versus Business," shows us an example of a lemonade stand getting started,with $1,000 to launch the business,with assets ,cash, inventory,and how we go public with the company with shares trading on the New York Stock exchange.
The pictures are great,showing Balance sheets,income statements,and earnings distributed among the stockholders.
The 13 Chapters are easy to read and helpfull.Instead of fearing the recession,this book shows us how to take advantage of it.
Mr.Shonieczny gained over 75% on his 10 stocks from 7/2007-3/2009 while the majority of the people lost 50% of there investments.This book shows us how to identify the missing pieces of the puzzle in investment strategies and the way to arrange them in order to realize investment SUCCESS.

I personally believe in value investing and this book gives any investor the basics in easy-to-read terms. As the author says, you can be great in your job or profession and yet be a clueless investor. He says all you need to be a good investor and to make money is capital and the knowledge to know how to find good companies at a good price. How true that is!

The book will teach you:

1. How to recognize good companies
2. How to evaluate their true worth
3. How to lower the chances you'll screw up your investment
4. How to take advantage of Wall Street
5. How to build wealth through stock market investing

The author shows you the way to easily figure return on equity and many other formulas the value investor needs. Could you get this information elsewhere? Sure. If you want to wade through the cumbersome Graham books and some of the other books of that ilk. But if you want to get to the heart of the matter and simply learn what you need and get on to the serious and fun stuff --- making money --- you need this book.

Highly recommended.

- Susanna K. Hutcheson

This book was OK. It was short, slick, and clearly a marketing piece for the author's fledgling investment management firm. From the mug shot of the author on the back cover of the book it appears he's a recent college graduate who is starting his own LLC since there are probably no jobs available to him. But that doesn't mean he doesn't know how to be successful playing the stock market. You don't need any formal education to be successful at picking stocks.

The book basically has 14 chapters as follows:

1. Stocks vs. businesses
2. How do businesses make investors wealthy?
3. What is a good business?
4. When to buy
5. How to value a company
6. Basic capital structure
7. Diversification
8. Economy
9. Investing in IPOs
10. Analyzing investments
11. When to sell
12. Case studies
13. Conclusion
A. Real estate or stocks - which is a better investment?

The 14th chapter (appendix) probably should have been inserted up higher (maybe after Chapter 1?). And chapter 2 probably should have been renamed "How do investments make investors wealthy?"

In my humble opinion the title of the book was lousy. Many people are clueless about the stock market. But after reading this book I doubt the reader will be less clueless as to how to actually make money at the stock market. What we read about in this book is common sense. Investors make money by generating profits with their capital. And if the ROI (return on investment) is significant, then they get significant profits.

In a perfect world where everyone has access to all information, then you can implement what the author preaches in this little tome. Unfortunately we do not live in a perfect world, and rarely is it possible to accurately put a value on a plot of land, a business, or a stock certificate. The world is corrupt, it's unethical, fraudulent, and getting the real story or facts about something usually costs more than it is worth. Remember that time is money.

The clueless after reading this book might be inclined to say to themselves: Hey, the author has done a nice job of explaining stocks to me - so why not let him pick the stocks and I'll give him a professional fee for his services. If this is you, then the author has accomplished what seemed to be his goal in writing this book. However, if you wanted to truly be knowledgeable about the stock market and want to try and use it to your advantage, then you'll need to read a lot of other books. And even then you will probably still be clueless.

Warren Buffet has been so successful in playing the stock market because he is not just an investor. He certainly invests, but then he gets involved with the management of his investment vehicles to make them grow and become more profitable. In effect he hedges his bets. Having said this, I think it is much smarter to stay out of the stock market and build your own companies, systematize them, put them on auto pilot or sell them, and then build another and another and another. That way you can invest in a way similar to Warren Buffet method. But buying stocks when other people are manipulating things is very risky. And it is difficult to beat the average returns earned on Wall Street because of all the smoke screens. 3 stars!