Reviews for Fundamentals of Investing, The Financial System, & Financial Markets (Custom Edition for Flo...

The average rating for Fundamentals of Investing, The Financial System, & Financial Markets (Custom Edition for Flo... based on 2 reviews is 3 stars.

Review # 1 was written on 2021-03-08 00:00:00 Ryan Van der nest A useful primer on the mechanics of the stock market, but lacking in several ‘fundamental’ areas. This text represents an informative reference volume for the interested investor. Dr John White, an academic and professional investor, provides substantial information on the history and mechanisms of the stock market, with particular focus on the United Kingdom. The rationale for owning stock is presented in a convincing manner and the basics of this are explained effectively to the novice investor. The mechanics of the stock market, that is to say the physical process of identifying and buying shares, finding a broker and so forth are all explained in detail, however at times this may be confusing to absolute beginners. Perhaps the most important aspect of this book is the emphasis placed on dividends and dividend growth, a highly powerful strategy for wealth accumulation and the principle driver of portfolio performance. The dividend discount model is outlined, and this may be used to conservatively value stocks with predictable cash flows and distributions. In terms of fundamental analysis, the interpretation of financial statements, balance sheets and so forth, there is a notable lack of content. The practice of ‘value investing’ espoused by Wall Street legend Benjamin Graham is disregarded in a surprisingly short appendix. This strategy involves purchasing undervalued securities, trading at a discount to their net asset value, thus providing a margin of safety against errors in valuation. Proteges and advocates of this philosophy include Warren Buffett (the most successful investor of all time), Charlie Munger, Walter Schloss, Seth Klarman, Bill Ackman, Sir John Templeton and Joel Greenblatt to name a few. The dismissal of a strategy that has produced consistent market-beating returns over decades and enriched the wealthiest investors on the planet is supremely ignorant. The reader need only refer to Warren Buffett’s immortal speech ‘The Superinvestors of Graham and Doddsville’ to truly appreciate how important these concepts are. What’s more, why would any investor not want to emulate the strategies and mindsets of the most successful individuals? This principle is sacrosanct, not just in finance but in almost any other discipline that one can think of! White criticises the Efficient Market Hypothesis, an academic concept that a stock is fairly valued at its current price, as all available information is ‘priced in’ and so therefore it is impossible to beat the market, except by chance or through insider trading. This theory is not supported by the evidence. For instance, the success of the aforementioned investors and the sudden crashes we have seen throughout recent history (1987, 2001-02, 2007-09) underlie the irrationality of the market from time to time. Indeed, academia has been known to operate within its own echo chamber, disregarding the practical results that have been achieved in the field. White suggests that there are opportunities to find value in smaller companies, but then proceeds to dismiss value investing entirely as the province of ‘experts’. He also stresses that the investor should monitor stock prices regularly, however the individual that ‘buys to hold’ should care very little about fluctuations in price. You wouldn’t get your house valued every week would you? There is considerable content in the latter half of the book on the use of traded options and derivatives; instruments that pose huge risk of loss and should be viewed with caution. Moreover, the use of these particular instruments might be more accurately construed as speculation, not investing as the title implies. In my view, this material should be omitted in place of detailed advice on how to value a company, using annual reports, balance sheets and income statements (i.e., fundamental analysis). I think that the guidance on options serves to confuse the reader when they should be focusing solely on buying good quality businesses, at attractive prices and offering substantial yields. The further reading list was extremely lacking in my opinion. A few books are included on real estate, alongside obligatory references to the Financial Times and Investors Chronicle. I feel that the omission of Benjamin Graham’s legendary masterwork The Intelligent Investor is inexcusable, as is the fact that there is no mention of Graham or his students anywhere in the book. One would think that a book describing the key steps about making money in the stock market would actually reference the individuals that have made the most money in the stock market! To summarise, although this text offers some useful background on the mechanics of the market, this may be confusing for absolute beginners and investors from outside the UK. I’ll be keeping this for reference purposes on my shelf, but to others I would propose the Motley Fool’s Million Dollar Portfolio as a great starting point alongside the timeless classic The Intelligent Investor.

Review # 2 was written on 2018-11-11 00:00:00 Rita Goodell An average book with some ok ideas but nothing worth really taking away.