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A Basic Primer with Conservative Advice
on 18 May 2009
This is a quick and easy-to-read book that details some of the arcana of what appears on a company's financial statements. Those with experience in the field of investing probably know everything here, but they might still pick up something useful from the emphasis that is placed on certain numbers/ratios, things that supposedly Mr. Buffett uses to help find his next company to buy.
The advice provided by this emphasis should be very good to someone who is not interested in gambling, but rather is looking for good companies that will provide a better than average return over a long term (10+ years) investment. Following this advice will clearly lead you to some rather staid, unexciting companies (Coca-Cola, Wrigley's), and will definitely steer you away from young, technically oriented companies. This is not necessarily a bad thing, but the usefulness of this approach depends on both what your investing goals are and how much capital you can invest for what period of time. However, being able to interpret just what those numbers mean on a financial statement is a good skill to have, regardless of your investing goals.
Unfortunately, the book is marred by multiple repetitions of certain very basic points, and some statements that are false to fact ("No one gets rich investing in companies that are losing money" - quite a few do quite well selling such a company short or buying put options). And although some advice is given on market timing - just when should you buy a company after you've identified it as a good long-term prospect - I found the advice inadequate, with not enough emphasis or detail on looking at economic conditions as a whole, market sentiment, current interest rates as a competitive investment vehicle vs your 'pick', etc. Also left hanging was how to identify an otherwise good company that has made a 'solvable' error and is not currently doing well - figuring out what a solvable error is is a matter of judgment and often requires expertise not just in the world of finance but in the specific product line that company is involved with.
Recommended for people who are relatively new to investing, especially young people who can seriously benefit from having a long-term view of investing, but it will provide little for more experienced investors.
---Reviewed by Patrick Shepherd (hyperpat)