Customer Reviews

TheStreet.com Guide to Smart Investing: Everything You Need to Know to Outsmart Wall Street and Select Winning Stocks

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This book was written in 2000 and it reflects all the "irrational exuberance" of the late 90s. The authors proclaim a "new economy" in which traditional rules of valuation are no longer applicable! "Expansions have grown longer and deeper, while recessions have become narrower and shorter. The resulting long-run growth has created a New Economy, an economy that's forcing stock market analysts to redefine how they view investments and long-term earnings" (3). "Technology has played a starring role in the New Economy's emergence. . . . Given the backdrop of benign inflation, a technology-driven productivity revolution, and sound fiscal policy, it becomes easier to see why a number of high growth companies receive mind-boggling valuations" (4) As a result of these miraculous new conditions, "the economy can grow faster and longer without the kind of inflationary and financial dislocations that have felled previous expansions" (8). How naive this book sounds after the terrible market crash of 2000-2003! My favorite example is the author's discussion of Cisco, which enjoyed a P/E of 186 in August 2000. The author states, "Does that kind of sky-high P/E ratio mean that you shouldn't own the stock? Not necessarily. The fact of the matter is that some companies deserve to have lofty P/E ratios because their earnings potential really is that tremendous" (179). Cisco fell from $80 in 2000 to $8 in 2002. It's currently (July 2006) trading at around $18 with a P/E of 20. Many tech stocks fared far worse.

OK, it's not all bad. When the author gets off his soap box, he does provide some good insight into how the stock market works, and how to evaluate a stock. His discussion of the value and limitations of PEG ratio is quite helpful. And the section on options is absolutely the best introduction to this complicated subject that I have found anywhere. His discussion of larger market forces such as inflation and interest rates is also very good. Worth reading, but don't believe the hype about the "New Economy" and tech stocks.