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Posted November 27, 2004
Posted October 28, 2001
Helpful Ways to Avoid Worthless Investment Risks
I found this book to be very impressive in articulating sources of investment risk, and pointing out how investors using many different kinds of investing approaches can eliminate many of these risks. Whether you are a day trader, or a buy-and-hold type, you will find a least some valuable ideas in this book that will be new to you. For many new investors, the most useful part of the book will probably be the description of when various industry sectors tend to do well, relative to the economic and stock market cycles. For experienced investors, insights will probably come from getting some new ideas about managing event risk, being flexible about what financial instruments are bought, and doing pre and post analyses of trades to learn from your decisions. If you get to a section where you are familiar with the issues, feel free to skim forward until you find something that is a new idea for you. Much of the trading information will be old hat to you. Many investors are unsure what to do with all of that new data that comes out about the economy and specific companies. This book is the best I have seen for helping you connect each item to its potential investment implications. Usually, these implications are at least somewhat indirect. For example, if a company makes a bid for another company, you should consider buying stocks in companies that may be acquired in the future as a response to the first bid. The book¿s content covers first ¿macrowave¿ risks from inflation, a weak economy, changing interest rates, shifts in productivity, changing budget deficits, the trade balance, government regulation, technology changes, and acts of God (from storms to war to earthquakes). You will also learn how different government theories of economics can affect your investments. The book¿s key principles are that you avoid gambling when you are looking for a speculation (take a chance when the odds are in your favor); diversify away from market, sector, and company risk; follow trends regardless of direction, expand beyond stock investing, never fight the trend, match news to economic and sector sensitivities, and look into indirect effects that others may ignore. To do this, you are given directions for how to think about sector rotation, and how to protect your capital. Each concept is developed with at least one example drawn from actual news stories. Some of these will seem like ¿no brainers¿ like buying Starbucks if rain in Brazil breaks the drought that¿s harming the coffee crop there and has been forcing up coffee prices. Many of the other examples are a little more imaginative and interesting. Each investor should also remember that almost no one beats the market averages over ten years or more. For the average individual investor, inexpensive indexed mutual funds are the right answer. To make that point more relevant, the professional investors who already know almost everything in this book seldom beat these indexed funds either over long time periods. Make any attempts to beat the market that you pursue as inexpensive as possible! Donald Mitchell, co-author of The 2,000 Percent Solution and The Irresistible Growth EnterpriseWas this review helpful? Yes NoThank you for your feedback. Report this reviewThank you, this review has been flagged.