Most helpful critical review
47 of 57 people found the following review helpful
Some comments & a couple of tips to get started
on July 12, 2003
Although this isn't a bad book, I think Orman's earlier books were much better, so I recommend you try those rather than this one. This book repeats a lot of that material and doesn't offer much that's new. And some of it is a little too touchy-feely. An occasional rah-rah pep talk is okay, but there's too much of it in this book.
Also, another problem, having taught people investing principles myself, and which isn't so much the fault of this book as the whole genre, is these books are geared more toward someone who already has money and needs to know how to manage it better. So most of the advice is about basic investing principles and wealth preservation such as avoiding unecessary risks and keeping diversified, developing a sensible, long-term investing strategy and wealth-building program, minimizing taxes and mutual fund and brokerage account expenses, and so on. There's very little help for the person of modest income or limited time who doesn't want to read a 400-page book to learn how to buy their first stock or mutual fund.
That being the case, I thought I'd pass on a couple of things I've learned the hard way. I've read dozens of books on the stock market and finance by just about every important stock trader and investor out there and have done everything from very conservative to very risky investing strategies with both stocks and options, including such things as aggressive day-trading, shorting both stocks and options, trading in foreign stocks and markets (including such risky countries as India, Pakistan, Indonesia, Mexico, Argentia, and Brazil), arbitraging short and long butterfly option spreads (which even most pros would not be comfortable with--I was lucky I didn't lose my ...), so I've done some pretty wild things, and I'll tell you the best secret I ever learned. It's actually very simple.
While we're on the subject, I should emphasize that although, as I said, I've done some pretty complex and sophisticated (not to mention risky) things, investing needn't be, and perhaps shouldn't be, rocket science. It's possible to do quite well in the market by following simple, tried and true investing strategies and without getting fancy.
If you can afford it, put $100 a month into a good mutual fund that will accept this as a monthly contribution. Not all of them do. Often they require an automatic deduction from your bank account, since usually this doesn't meet their minimum deposit. Another way to do it would be to buy the S & P Holder's Trust or mini-index, or a mutual fund that mirrors the overall market. The Vanguard group of funds has one that mirrors the Russell 5000 index. The rationale behind this is that the yearly return over the last 75 years in the stock market is 8%. That's enough for $100 a month to become 1 million dollars in 40 years.
However, over the last 25 years the average return (notwithstanding the last 3 years) has been 12 percent, which means the money will double even faster if that keeps up. I'm not confident that will happen, but I wouldn't be surprised if we return to the traditional 8% per year increase.
This is the beauty of compound investing. Also, it takes advantage of a strategy known as dollar cost averaging. During the down times when stocks are lower, you money buys more stock. During the up times when stocks are more expensive and therefore more risky, your $100 buys less. This helps to average out the ups and downs in the market.
The other coolest strategy I've found is to go long the Dow index whenever it crosses the 200-day moving average on the upside, or to short it whenever it crosses it going downward. This strategy has returned 18% over the last 50 years. But one must be comfortable on both the long and short side which most people aren't. This is a strategy for knowledgeble traders, and isn't so much an investing program.
Anyway, those are the two best ideas I've ever come across in terms of simplicity and results. If you can afford more than $100 a month, great. Also, I would recommend you just do that even if you are putting money into other stocks. That way you know you have a strategy that will work over the long term.
Just think if everybody did this starting in their 20s or 30s. Most working people can afford $100, and some mutual funds will take as little as $50 this way. I know people who spend that on beer and cigarets in a month. Just think if they put it into this instead.
Anyway, just a couple of hard-earned tips from an old, battle-scarred trader and investor. Hope this helps. Good luck and happy investing!